Document Type

Article

Journal/Book Title/Conference

Economics Research Institute Study Paper

Volume

13

Publisher

Utah State University Department of Economics

Publication Date

1999

Rights

Copyright for this work is held by the author. Transmission or reproduction of materials protected by copyright beyond that allowed by fair use requires the written permission of the copyright owners. Works not in the public domain cannot be commercially exploited without permission of the copyright owner. Responsibility for any use rests exclusively with the user. For more information contact the Institutional Repository Librarian at digitalcommons@usu.edu.

First Page

1

Last Page

25

Abstract

The concept of the importance of healthy relationships in the economic system can be traced back to Adam Smith's writings of the last quarter of the 18th century. Smith believed that self-interest, the profit motive, competition, and frequent human interaction in the marketplace, within the framework of the rule of law, would induce market participants to develop moral virtues of honesty, generosity, and trust. Sellers who failed to develop these attributes would lose customers to competitors. The loss of customers would lead to business failure. Because sellers also had alternatives, buyers who failed to maintain good relationships with sellers would find no one willing to deal with them. Survival in the marketplace dictated the development of moral virtue and healthy market relationships. Smith also recognized the superior ability of the market system, with the efficiencies created by specialization, division of labor, and capital accumulation, to increase the material well-being of individuals and nations: He believed that increased wealth would encourage individuals who had already developed the moral virtues of honesty, sympathy, and trust, to cultivate the higher moral virtues of benevolence and sympathy. A market system, then, would lead to a better society.

Our argument is that the information age, or age of relationships, will help fulfill Smith's vision of the full potential of the market system-a better society-in two ways. First, the new technology both allows and requires the return to the more frequent interactions among market participants that Smith saw in the early days of capitalism. Second, the new technology, by widening markets and increasing economic efficiency, leads to ever-increasing material wealth. The frequent interactions among market participants requires a new system of relationships management that can allow individuals and nations to realize the full potential of the market system by reducing transaction costs and concomitant production costs. As in Smith's day, economic success is once again heavily dependent on the development of healthy market relationships. These better economic relationships, made operational in the lives of individual market participants (Smith's moral virtues), combined with the increased material wealth they help produce, show every promise of promoting the good society Smith spoke of more than two centuries ago.

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