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Market Stability in Adam Smith: Competitive Process and Institutions

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  • Menudo, Jose M.

Abstract

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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    More about this item

    Keywords

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

    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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