Adam Smith: From Propriety and Sentiments to Property and Wealth

Abstract

“Why return to Adam Smith?” Because we learn that he had fresh-for-today insights, derived from a modeling perspective that was never part of economic analysis. Smith wrote two classics: The Theory of Moral Sentiments (1759; hereafter Sentiments); and An Inquiry into the Nature and Causes of the Wealth of Nations (1776; hereafter Wealth). In Sentiments it is argued that human sociability in close-knit groups is governed by the “propriety and fitness” of conduct based on sympathy. This non-utilitarian model provides new insights into the results of 2-person experimental “trust” and other games that defied the predictions of traditional game theory in the 1980s and 90s, and offers testable new predictions. Moreover, Smith shows how the civil order of “property” grew naturally out of the rules of propriety. Property together with what I call Smith's Discovery Axiom then enabled his break-through in Wealth that defined the liberal intellectual and practical foundation of two centuries of Western economic growth.