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Vernon Smith on Adam Smith

My emeritus Nobel-laureate colleague (now teaching at Chapman University), Vernon Smith, sent the following e-mail to me in response to my letter of earlier today to Russ Roberts. (I here share Vernon’s e-mail with his kind permission.)



In the claim that classical liberalism “pays too little heed to human beings’ natural sociability” we find a reversal of Adam Smith’s concept of natural liberty.

It’s the other way around!

Smith more articulately than any, saw property and economy, based on gains from exchange, as consequential developments of human sociability. We were social because we had this capacity for imagining changing places with others and learning to see ourselves as others see us. As Smith put it, although we are all strictly self-interested we cannot look mankind in the face and avow that all our actions are taken in our strict self-interest. He thus carefully distinguishes being self-interested from acting self-interestedly, which is the logical flaw in modern utilitarianism.

In “Beneficence” we reach a consensus that intentional acts of a beneficent tendency obligate reward out of feelings of gratitude which leads endogenously to positive reciprocity (gains from social exchange in community and society); in “Justice” we reach a consensus that acts of a hurtful tendency out of feelings of resentment rightly invoke the desire to punish appropriately (the punishment is proportionate to the infraction, and is neither too much, or too little) thus providing “security from injury” and avoiding the escalation of negative reciprocity. (The notion of “distributive justice” is a misnomer, for distribution comes under the category of Beneficence, not Justice and the thinking gets muddled.)

Justice constitutes property in pre-civil society, leading to “the rule of law” in nation states, and allowing markets to be free beyond the regulations imposed by property.