Abstract
Adam Smith's theory of the gains from trade has caused a great deal of controversy among economic theorists. Throughout much of his work Smith argues that markets efficiently allocate resources. Smith's treatment of the gains from trade, however, is considered inconsistent with his system of natural liberty. This paper offers a new interpretation of the vent‐for‐surplus model. It is argued that Smith's theory of trade should be considered as an extension of his domestic theory of markets and his theory of productive and unproductive labor. Once interpreted in this light, no inconsistency is found between Smith's theory of trade and his system of natural liberty.
Published Version
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