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Market Stability in Adam Smith: Competitive Process and Institutions


  • Menudo, Jose M.


Based on the new way of studying the work of Adam Smith in greater depth, with greater attention being paid to the use and context of his language, this investigation examines the theory of competitive exchange described in The Wealth of Nations, with the aim of bringing new contributions to the field of decision-making beyond the utilitarian theoretical framework. We have found an exchange process with principles of behaviour that are very different to those described in the traditional literature, principally through the leading role of both the cognitive process of decision-making, and of institutions. This work concludes that natural price is a rule of equivalence that guarantees market consistency and that the cognitive process of its participants is described as a mechanism for forming expectations based on institutions outside the market. These conclusions allow us to redefine the hypotheses of Adam Smith’s system of price determination.

Suggested Citation

  • Menudo, Jose M., 2011. "Market Stability in Adam Smith: Competitive Process and Institutions," MPRA Paper 15361, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:15361

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    References listed on IDEAS

    1. Jimena Hurtado Prieto, 2003. "La Teoría del Valor de Adam Smith: La Cuestión de los precios naturales y sus interpretaciones," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID, June.
    2. R. Donald, 1997. "Adam Smith and the Natural Wage: Sympathy, Subsistence and Social Distance," Review of Social Economy, Taylor & Francis Journals, vol. 55(3), pages 292-311.
    3. Victor E. Smith, 1951. "The Classicists' Use of "Demand"," Journal of Political Economy, University of Chicago Press, vol. 59, pages 242-242.
    4. Brian Loasby, 2002. "Content and method: an epistemic perspective on some historical episodes," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 9(1), pages 72-95.
    5. Ekelund, Robert B, Jr & Hebert, Robert F, 1999. "The Dupuit-Marshall Theory of Competitive Equilibrium," Economica, London School of Economics and Political Science, vol. 66(262), pages 225-240, May.
    6. E. Paul Durrenberger, 2005. "Labour," Chapters,in: A Handbook of Economic Anthropology, chapter 8 Edward Elgar Publishing.
    7. Keith Tribe, 1999. "Adam Smith: Critical Theorist?," Journal of Economic Literature, American Economic Association, vol. 37(2), pages 609-632, June.
    8. Charles G. Leathers & J. Patrick Raines, 2008. "Adam Smith on Religion and Market Structure: The Search for Consistency," History of Political Economy, Duke University Press, vol. 40(2), pages 345-363, Summer.
    9. Carlo Benetti & Jean Cartelier, 1996. "Money and price theory," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 44, pages 37-54, Enero Jun.
    10. Tony Aspromourgos, 2007. "Adam Smith's Treatment of Market Prices and Their Relation to «Supply» and «Demand»," History of Economic Ideas, Fabrizio Serra Editore, Pisa - Roma, vol. 15(3), pages 27-57.
    11. Amos Witztum, 2008. "Smith's theory of actions and the moral significance of unintended consequences," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 15(3), pages 401-432.
    12. Birnbaum, Michael H., 2004. "Tests of rank-dependent utility and cumulative prospect theory in gambles represented by natural frequencies: Effects of format, event framing, and branch splitting," Organizational Behavior and Human Decision Processes, Elsevier, vol. 95(1), pages 40-65, September.
    13. Nathan Rosenberg, 1960. "Some Institutional Aspects of the Wealth of Nations," Journal of Political Economy, University of Chicago Press, vol. 68, pages 557-557.
    14. George J. Stigler, 1957. "Perfect Competition, Historically Contemplated," Journal of Political Economy, University of Chicago Press, vol. 65, pages 1-1.
    15. Richard Arena, 1979. "Note sur la conception classique de la concurrence," Cahiers d'Économie Politique, Programme National Persée, vol. 5(1), pages 119-148.
    16. Richard Arena & Claude Froeschle & Dominique Torre, 1988. "Formation des prix et équilibre classique : un examen préliminaire," Revue Économique, Programme National Persée, vol. 39(6), pages 1097-1118.
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    More about this item


    Classical; Adam Smith; Institutions; Market Structure and Pricing; Information and Knowledge.;

    JEL classification:

    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith)
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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