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.
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