Because the “traditional market” (textbook perfect competition) is an analytical artifact, not a real institutional arrangement. It’s a limit model that relies on conditions that don’t exist and can’t be reproduced: perfect information, no externalities, atomized agents, full factor mobility, zero market power, and infinite horizons. Under those assumptions, ecological costs vanish, commons don’t degrade, and no one shifts risk to the future. From a sustainability lens, it’s a dwarf—a framework that shrinks reality until its socio-environmental dimensions disappear.

In practice we face systemic externalities (climate, biodiversity), power and information asymmetries, short-termism (high discounting of the future), transaction costs, and coordination failures the model ignores. Prices under-signal non-market values (ecosystem services, community health), and innovation is path-dependent and rent-seeking.

Also, let’s not caricature Smith: Wealth of Nations and Moral Sentiments attend to institutions, justice, and norms; the later “perfect market” ideal was reified as if it were implementable.

Bottom line: the perfect-market model is useful for thinking about how allocation might work, not how to govern real systems. Scaling sustainability needs institutional design—carbon and pollution pricing, extended producer responsibility, standards and disclosure, commons governance, green public procurement, mission-oriented innovation, and local participation. Without that scaffolding, the classic market remains elegant—but ecologically stunted.

Federico, thank you for taking the time to comment. In short, it is a dwarf sustainability market because it does not reflect full costing due to its externality neutrality assumption embedded in its model structure, but in theory and in practice had Adam Smith been a systemtic thinker he could have added in theory minimal social and enviromental margins in the pricing mechaism to proactively address expected social and environmental issues from economic expansion so that sustainability conditions are created as externality cost externalization will signal the proper growth path through market pricing, an optimal path for future growh, but he did not, creating in the process what I call a golden trojan paradigm sold as an optimal paradigm, a thinking that allows social and environmental systems break down in from of your eyes while expecting optimal outcomes.

Federico you will find the following papers with some good food for thoughts consitent with your thinking:

Did Adam Smith Miss the Chance to State the Goal and Structure of Sustainability Markets in His Time? If Yes, Which Could Be Some of the Possible Reasons Behind That?

Article Did Adam Smith Miss the Chance to State the Goal and Structu...

Sustainability thoughts 187: If markets were optimal in 1776, then where did the 1987 overpopulation problem come from? Can the dependency theory and the golden trojan paradigm theory explain this?

Article Sustainability thoughts 187: If markets were optimal in 1776...

Sustainability thoughts 141: Using the golden trojan paradigm theory to point out the structure and current implications of partial solutions and full solutions to the development problems detailed by the WCED in 1987

Article Sustainability thoughts 141: Using the golden trojan paradig...

Why the traditional market of Adam Smith is a dwarf sustainability market?

The traditional market model described by Adam Smith focuses primarily on profit maximization and self-interest, assuming that resources are infinite and environmental externalities are negligible. In this context, sustainability is often undervalued or ignored. That’s why some scholars call it a “dwarf sustainability market” — it is “dwarf” because it underrepresents ecological, social, and long-term economic considerations, which are essential for sustainable development.

Adam Smith’s traditional market, based on the idea of the “invisible hand,” is often described as a dwarf sustainability market because it focuses mainly on profit and efficiency while neglecting environmental and social dimensions. His model assumes that resources are abundant and that self-interest alone will balance society’s needs. However, sustainability requires more than short-term economic gain. It calls for the protection of natural resources, consideration for future generations, and fair distribution of benefits.

In Adam Smith’s market, externalities such as pollution, environmental degradation, or social inequality are ignored, as they are considered outside the economic system. This makes the scope of his market very narrow compared to the broader idea of sustainability, which values people, planet, and profit together. Therefore, the traditional market appears “dwarf” because it cannot address the long-term challenges of sustainability in today’s world.

Selvine and Rony, it is a dwarf sustainability markets because it is a no full costing model, it has nothing to do with profits being bad or not, sustainability markets can be set up at a profit or at zero profit meaning we can still make money when being socially, environmentally, and economy friendly at the same time. Adam Smith's model accounts for only economic cost at profit under socio-environmental externality neutrality assmptions making it A GOLDEN TROJA N PARADIGM a la Lucio Munoz

Because Adam Smith’s traditional market focused mainly on efficiency, self-interest, profit, it overlooked ecological limits and social equity, which equates to a “dwarf” version of a sustainability market, which needs to balance people, planet, profit together in contemporary world.

Tenupriya, your comment can be expressed in terms of both cost externalization and cost internalization by saying it does not account for socio-environmental cost of production as in only reflects economic cost plus profits. meaning traditional markets run on distorted marketn ricing with go one to one with self interest on the way to maximum process as it will tend to produce at the lowest cost possible. Sustainability markets are a out full system cost accounting, dwarf sustainability reflects/inter nalizes from no externality cost to partial externality cost. The best way to look at sustainability in simple terms is through the sustainability cost line or the sustainability pareto optimality line

Lucao, you’re absolutely right. Adam Smith’s traditional market externalized socio-environmental costs, focusing only on production cost plus profit, which distorted market pricing in favour of efficiency & self-interest. That’s why it is a “dwarf” compared to sustainability markets, which internalize full system costs like economic, social & ecological. In other words, sustainability markets move closer to a sustainability cost line or Pareto optimality line, where people, planet & profit are balanced, rather than minimized to just profit efficiency.

Tanuprija, that is the right lense to understand the nature of sustainability markets to differenciate from different forms of dwarf sustainability markets.

You will find good food for thoughts in the following article, you can check when you have time:

Beyond Green Market Thinking: What would be the Structure of the Perfect Sustainability Market?

https://www.researchgate.net/publication/303014272_Beyond_Green_Market_Thinking_What_would_be_the_Structure_of_the_Perfect_Sustainability_Market

From Traditional Markets to Sustainability Markets: A Look at Markets Under Perfect Sustainability Market Competition

https://www.researchgate.net/publication/331344497_From_Traditional_Markets_to_Sustainability_Markets_A_Look_at_Markets_Under_Perfect_Sustainability_Market_Competition

Sustainability thoughts 127: Pareto optimality under the sustainability eye: Is the traditional pareto efficient bundle the second most undesirable bundle on the pareto optimality sustainability line? If yes, why?

https://www.researchgate.net/publication/344279130_Sustainability_thoughts_127_Pareto_optimality_under_the_sustainability_eye_Is_the_traditional_pareto_efficient_bundle_the_second_most_undesirable_bundle_on_the_pareto_optimality_sustainability_line_If