Market Stability in Adam Smith: Competitive Process and Institutions

Jose Menudo ()

Journal of Economic Issues, 2013, vol. 47, issue 3, 719-744

Abstract: This paper examines Adam Smith's explanation of the stability of a competitive market. An initial hypothesis in the paper holds that the mechanism described in The Wealth of Nations has nothing to do with production costs, longterm, or sympathetic relationships. My proposal draws on the literature that evokes the decisive influence, acknowledged by Adam Smith, of institutions over the behavior of individuals. The argument is that Adam Smith's natural rates are a collective pattern that provides the basis for consistent expectations. Smith proposes this pillar to support the construction of a spontaneous order: Coordination through the market is a stable mechanism because it allows for an adjustment of plans grounded in consistent expectations.

Date: 2013
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DOI: 10.2753/JEI0021-3624470307

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