Exchange in Social and Economic Order

Historically, a recurrent theme in economics is that the values to which people respond are not confined to those one would expect based on the narrowly defined canons of rationality. These roots go back to Adam Smith, who examined the moral sympathies that characterize natural human sociality in The Theory of Moral Sentiments and the causal foundations of human economic welfare in The Wealth of Nations. Economists are largely untouched by Smith's first great work, which was eclipsed by The Wealth of Nations. It is telling that one of the economic profession's most highly respected historians of economic thought “found these two works in some measure basically inconsistent” (Viner, 1991, p. 250). But Viner's interpretation has been corrected by many reexaminations of Smith's work (see, for example, Montes, 2003; Meardon and Ortmann, 1996; Smith 1998).

These two works are not inconsistent if we recognize that a universal propensity for social exchange is a fundamental distinguishing feature of Homo sapiens, and that it finds expression in two distinct forms: personal exchange in small-group social transactions, and impersonal trade through markets. Thus, Smith was to some extent relying on one behavioral axiom, “the propensity to truck, barter, and exchange one thing for another,” where the objects of trade are interpreted to include not only commercial goods and services but also gifts, assistance, and reciprocal favors out of sympathy, as “Kindness is the parent of kindness” (Smith, 1759/1982, p. 225).