Book Chapter: Building a Market
From Personal to Impersonal Exchange
Adam Smith identified two key components in the wealth creation process of human societies: exchange and specialization.
Adam Smith identified two key components in the wealth creation process of human societies: exchange and specialization. Voluntary exchange among individuals is a positive sum activity in and of itself, simply because no individual would voluntarily engage in a transaction if he did not believe that there was something to be gained from doing so. However, when exchange occurs between individuals who have specialized in those activities in which they have a particular comparative advantage, it becomes possible to create immense wealth. Despite the long years of acceptance enjoyed by this truism, relatively little is understood about the underlying process by which people build exchange systems and discover comparative advantage. In The Wealth of Nations, Adam Smith observes that the extent of the market determines the degree to which people can specialize and thus create wealth (Smith, III, 26). But what are the social mainsprings that give rise to the market?
Find the chapter at Bart Wilson's website, and buy the book at Princeton University Press or Amazon.com.