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12/19/2013

Spotlight Article from Forum for Social Economics: Vernon Smith on Adam Smith

Vernon smithTogether with the editors of the Forum for Social Economics, this blog is pleased to offer the first of a series of Spotlight Articles, which our journal publisher Taylor & Francis has graciously made available free of charge to allow wide discussion among readers (including readers of this blog). This feature was inspired by the blog PEA Soup and their similar arrangement with the journal Ethics and, more recently, Politics Philosophy and Economics. We hope to feature one article from each issue of the Forum to encourage open discussion in the comments section this blog.

From Forum for Social Economics, volume 42, issue 4 (2013), we feature a paper by Nobel Prize laureate Vernon L. Smith titled "Adam Smith: From Propriety and Sentiments to Property and Wealth":

“Why return to Adam Smith?” Because we learn that he had fresh-for-today insights, derived from a modeling perspective that was never part of economic analysis. Smith wrote two classics: The Theory of Moral Sentiments (1759; hereafter Sentiments); and An Inquiry into the Nature and Causes of the Wealth of Nations (1776; hereafter Wealth). In Sentiments it is argued that human sociability in close-knit groups is governed by the “propriety and fitness” of conduct based on sympathy. This non-utilitarian model provides new insights into the results of 2-person experimental “trust” and other games that defied the predictions of traditional game theory in the 1980s and 90s, and offers testable new predictions. Moreover, Smith shows how the civil order of “property” grew naturally out of the rules of propriety. Property together with what I call Smith's Discovery Axiom then enabled his break-through in Wealth that defined the liberal intellectual and practical foundation of two centuries of Western economic growth.

Also available free of charge are three comments on Smith's article from prominent members of the social economics community:

Sentiments and Motivations in Adam Smith and Vernon Smith, Jonathan B. Wight

Vernon Smith (VS) discovered Adam Smith (AS) late in his professional career, and has adopted ideas from The Theory of Moral Sentiments to explain findings in experimental economics. Most important is the theorized link between moral sentiments and the evolution of property rights and law as foundations for commerce. VS's encounter with AS, while not new, provides a compelling look at the modern laboratory of social science through the lens of the Enlightenment, and cannot easily be encapsulated within a utilitarian framework. This paper provides an overview and commentary on VS's approach.

From Propriety to Property, or is it the Other Way Round?, Paolo Ramazzotti

If we acknowledge that Adam Smith's two major works are related, we will be better equipped to appreciate the features of the economy we live in. The shift from a close-knit community to a more extensive range of economic relations, however, involves qualitative changes that question Vernon Smith's linear causation from propriety to property and human betterment.

Vernon Smith's Explanation of Moral Sentiments, B. Jane Clary

This paper argues that while Vernon Smith is correct in his analysis that Adam Smith's theory of human nature, as expressed in The Theory of Moral Sentiments, provides a much more accurate model of behavior than does that of utility maximization, Vernon Smith's analysis can be much enriched by including a more complete explanation of Adam Smith's model of human behavior to include an analysis of prudence, justice, beneficence, and self-command.

Please enjoy the free access to these Forum articles; we look forward to a vigorous and insightful discussion in the comment section below!

Comments

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Reading Adam Smith's two great books together warrants Vernon Smith's from propriety to property view, which is to acknowledge the morality of the market as crucial to the functioning of the market.

Kenneth Boulding argues that integrative relationships arising from a common group identification create benevolence that makes exchange more likely. However, following Boulding, reciprocity is more than implicit exchange; it has a an integrative component lacking in exchange, because it involves two mutual one-way transfers rather than a two-way transfer agreed upon according some contract.
Integrative structures are, according to Boulding, crucial to exchange that requires a small amount of benevolence.

Similarly, Friedrich von Hayek stresses that the diffusion of gradually developed moral beliefs made feasible the coordination of extensive division of labor by different market processes; the coordination of larger groups than hunter-gatherer bands actually requiring an evolution of learnt rules. Moral rules, which sustain rule-coordinated market exchange, emerge in the small-group order of civil society. A small-group order may promote self-interest rather than selfishness.

Concerning utility, Leland Yeager uses indirect utlilitarianism, focusing upon attitudes, inclinations, and dispositions to social cooperation, going beyond the narrow selfishness of acts utilitarianism, thus implying a broad notion of self-interest. Indirect utilitarianism can be a utilitarian framework that actually incorporates fellow-feeling.

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