Vernon Smith wrote the second essay in the Adam Smith 300 series for Capital Matters, published today. Smith won the 2002 Nobel Prize in economics for his work in behavioral economics and experimental economics, and he wrote about how Adam Smith’s theory of community is just as relevant today as it was when Smith wrote it in the 1700s:
Adam Smith brings to our contemporary intellectual and socio-economic world a rich theory of community and economy fresh and relevant 300 years after his birth. Community is founded in the rules we learn to follow among family, friends, and neighbors. Efficiency is an outcome of community, an unplanned consequence. The rules that arise in communities, summarized as propositions, fall into two categories: beneficence and justice.
Beneficence is about the good things we do for each other, things that underlie reciprocity in community, and ultimately, I believe, trade in economy. Justice is about bounding the harmful things we do to each other, so that we may achieve a stable state of security from injury. “Among equals each individual is naturally, and antecedent to the institution of civil government, regarded as having a right both to defend himself from injuries, and to exact a certain degree of punishment for those which have been done to him,” Smith writes in TMS.
Linguists have discovered that the 18th-century English word “fair,” whose opposite is “foul,” had no translation into any other language. Today it has evolved “among equals,” into the concept of fair outcome.
Underlying how the West became rich is the diffusion of Smith’s classical liberal ideas, and the rule-governed people living with these ideas, to the U.S., Canada, Australia, New Zealand, Hong Kong, Taiwan, South Korea, and the world.
Read the whole thing here.
The Adam Smith 300 series is a project of Capital Matters to celebrate Smith’s 300th birthday this year. He was born ca. June 16, 1723, so on the 16th day of each month, we’ll publish an essay from a contributor who will examine a different side of Smith’s thought and life. You can read January’s essay, from Daniel Klein and Erik Matson, here.