1999/03/01 by David M. Levy · 1 citation
Economics, Econometrics and Finance · #Economic Theory and Institutions #Economic Theory and Policy #Economic theories and models
paper · doi:10.1017/s1053837200002868
openalex publication_date 1999/03/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/05/21
Adam Smith starts his account of economic life supposing two trading individuals, and not with Robinson Crusoe alone on an island. It is a consequence of this modeling strategy that, when considering an actor's choice, the model builder automatically has access to the judgment of the spectator. Thus it is that when Smith describes the actor gambling for money, he takes into consideration the fact that the spectator will make note of unusual events. In particular, the winner of a large-number lottery will become famous. To the extent that fame is desired, the actor's decision will be influenced by the spectator's judgment. The gambling model Smith describes is an exchange between the actor–who takes risk–in return for the chance of applause from the spectator. Everything in Smith's account is an exchange; hence, we denote Smith's model as a katallactic model, thus remembering Richard Whately's suggestion to rename political economy as the science of exchange, from the Greek καταλλατειγ–to exchange.