  The relevance of Adam Smith for understanding human morality and sociality is
recognized in the growing interest in his work on moral sentiments among
scholars of various academic backgrounds. But, paradoxically, Adam Smith's
theory of economic value enjoys a less prominent stature today among
economists, who, while they view him as the 'father of modern economics',
considered him more as having had the right intuitions about a market economy
than as having developed the right concepts and the technical tools for
studying it. Yet the neoclassical tradition, which replaced the classical
school around 1870, failed to provide a satisfactory theory of market price
formation. Adam Smith's sketch of market price formation (Ch. VII, Book I,
Wealth of Nations), and more generally the classical view of competition as a
collective higgling and bargaining process, as this paper argues, offers a
helpful foundation on which to build a modern theory of market price formation,
despite any shortcomings of the original classical formulation (notably its
insistence on long-run, natural value). Also, with hindsight, the experimental
market findings established the remarkable stability, efficiency, and
robustness of the old view of competition, suggesting a rehabilitation of
classical price discovery. This paper reappraises classical price theory as
Adam Smith articulated it; we explicate key propositions from his price theory
and derive them from a simple model, which is an elementary sketch of the
authors' more general theory of competitive market price formation.
