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The Two Faces of Adam Smith

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  • Vernon L. Smith

Abstract

Adam Smith's two major works are based on apparently contradictory themes in human nature: noncooperative self‐interest and other‐regarding sympathy. These views are not contradictory if we distinguish impersonal market exchange and personal exchange. Noncooperative behavior in the former maximizes the gains from exchange, the basis of specialization and wealth creation. Cooperative behavior in personal exchange is based on reciprocity—trading gifts, favors, and assistance across time—which maximizes the gains from social exchange. That people can be both cooperative and noncooperative is corroborated in laboratory experiments and is postulated to stem from a self‐interested propensity for exchange in markets and friendships.

Suggested Citation

  • Vernon L. Smith, 1998. "The Two Faces of Adam Smith," Southern Economic Journal, John Wiley & Sons, vol. 65(1), pages 1-19, July.
    • Handle: RePEc:wly:soecon:v:65:y:1998:i:1:p:1-19
    DOI: 10.1002/j.2325-8012.1998.tb00125.x
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    References listed on IDEAS

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    1. Hoffman Elizabeth & McCabe Kevin & Shachat Keith & Smith Vernon, 1994. "Preferences, Property Rights, and Anonymity in Bargaining Games," Games and Economic Behavior, Elsevier, vol. 7(3), pages 346-380, November.
    2. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1986. "Fairness and the Assumptions of Economics," The Journal of Business, University of Chicago Press, vol. 59(4), pages 285-300, October.
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    6. McCabe, Kevin A. & Rassenti, Stephen J. & Smith, Vernon L., 1998. "Reciprocity, Trust, and Payoff Privacy in Extensive Form Bargaining," Games and Economic Behavior, Elsevier, vol. 24(1-2), pages 10-24, July.
    7. Hartmut Thieme, 1997. "Lower Palaeolithic hunting spears from Germany," Nature, Nature, vol. 385(6619), pages 807-810, February.
    8. Forsythe Robert & Horowitz Joel L. & Savin N. E. & Sefton Martin, 1994. "Fairness in Simple Bargaining Experiments," Games and Economic Behavior, Elsevier, vol. 6(3), pages 347-369, May.
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    4. Marcus Shera & Kacey Reeves West, 2024. "Two worlds collide: A review essay of Humanomics: moral sentiments and the wealth of nations for the twenty-first century," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 37(3), pages 333-349, September.
    5. Francesca Gambarotto & Marco Rangone & Stefano Solari, 2023. "Moral and Institutional Foundations of Sustainable Technological Entrepreneurship," Sustainability, MDPI, vol. 15(18), pages 1-12, September.
    6. Cary A. Deck, 2001. "A Test of Game-Theoretic and Behavioral Models of Play in Exchange and Insurance Environments," American Economic Review, American Economic Association, vol. 91(5), pages 1546-1555, December.
    7. Howe, E. Lance & Murphy, James J. & Gerkey, Drew & Stoddard, Olga B. & West, Colin Thor, 2023. "Sharing, social norms, and social distance: Experimental evidence from Russia and Western Alaska," Journal of Economic Behavior & Organization, Elsevier, vol. 213(C), pages 345-358.

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