“Back to Where It All Began? Adam Smith’s Theory of Moral Sentiments and the Market Coordination Problem”

10 12 2014
AS: There has recently been a wave of interest among English-speaking academics in Adam Smith’s The Theory of Moral Sentiments, a book that until recently received less attention in the English-speaking world than Smith’s  better-known The Wealth of Nations. Russ Roberts has published a new book on the TTMS (for a short podcast about this book, see here, for a review by Diane Coyle (Manchester) see here).
Today, Matthew Watson (Professor of Political Economy, University of Warwick) will be presenting a paper here at Liverpool Management School that deals with the TTMS.
Paper Title: “Back to Where It All Began? Adam Smith’s Theory of Moral Sentiments and the Market Coordination Problem”
You can listen to Watson talk about his research here.
The Sonnenschein-Mantel-Debreu theorem marks the high point of achievement in the Walrasian general equilibrium tradition.  It represents the last word of some of the most brilliant mathematical economists in history.  The results of the theorem are not well known because of the mathematical skills required to replicate them, but if they were easily translatable into words of one syllable then they would raise serious doubts about the orthodox equilibrium exchange model of the economy.  Sonnenschein, Mantel and Debreu demonstrated that there was no logical basis from which the demand of one person for one product in one market could be scaled up to the whole market system whilst holding the equilibrium condition intact.  And it was in this way that a definitive conclusion was reached in attempts within the Walrasian tradition to explain how markets coordinate individual economic action and produce out of it a coherent economic system.  The Sonnenschein-Mantel-Debreu theorem shows that there is no way of solving the market coordination problem in a genuinely economic fashion.  It also raises the possibility of recovering an altogether older tradition of writing on the subject, one that goes all the way back to Adam Smith.  Interestingly, though, Smith did not believe that the market coordination problem was an economic problem at all, so much as an issue of moral philosophy.  Market institutions could only exhibit a coherent integrative function, he argued, when individuals tutored themselves to the benefits of a moral restraint he called ‘self-command’.  But how different would the economy look today if it was governed not so much by faith in economic self-regulation by markets but by the moral regulation of all aspects of market life?