Over at Angry Bear there has begun an ongoing discussion of Adam Smith led by the newest Bear, Gavin Kennedy of the blog Research Agenda. Today's post is Adam Smith in a Broader Context
In the course of the comments to the post I confronted a regular Glibertarian commenter who as always is arguing the standard Glibertarian line that Unfettered Capitalism Produces Optimal Outcomes because Adam Smith explained the Invisible Hand. My response got so lengthy, and ate into my time that I figured I would put it up here rather than going a weekend without a post. I think it stands pretty well on its own, but it is a response to a particular person and a particular argument whose details would require some to visit the linked post and thread. Anyway:
In practice individual workers have always had explicit external bounds placed on their ability to maximize their own self-interest. For most of history and still today property owners, first mostly defined in terms of lands and moveables, later in such things as factories and intellectual property, have been able to count on State Power protecting those rights against the majority. often pejoratively described as the 'Mob'.
For example In Medieval and Early Modern centuries education was firmly in the hands of the Church, including higher education in the form of the great Universities. In turn the Church was firmly and legally in the hands of the property owners, who had the legal power to appoint parish priests, just as Kings had the right to appoint Bishops. Which meant in practice the vast majority of the Tithes extracted from the rural and urban working classes went not to the local parish, but instead to whatever member of the land owning class had been appointed to the benefice. In turn that person did not actually have to serve his parish, he could instead take the money derived from the tithe, use a small piece to hire someone to leave in his place 'vicus', hence the familiar English Vicar seen in literature, and go off to Court or University for advancement. In turn those Universities, funded as they were largely by past donations of various religious benefices naturally restricted entry to University to members of their own class which included medium to major landowners, certain merchants and much later manufacturers.
This self-closed system where only a minority had access to the means of advancement was firmly in place in England at the publication of Wealth of Nations, and while a little less closed in Scotland, was certainly understood by Smith. In reading Smith, or at least those parts of Smith that are commonly read today by economists in the classical tradition, there seems to be no understanding that all of these equilibrium mechanisms only applied to that subset of the population interior to the property owning system that had access to education and capital.
British society and economy was quite explicitly and open anti-Democratic right up to and beyond the revolutionary moment marked by the year 1848 with Chartists demanding universal suffrage in Britain and various European countries and capitals marked by open revolution. Remember that this was the year of the Communist Manifesto and the Second French Revolution http://en.wikipedia.org/wiki/Revolutions_of_1848 And these Revolutions failed in their aims, the forces of Reaction were largely triumphant and Democracy would remain a dirty word for several decades to come. In Britain it wasn't until the Representation of the People Act of 1884 that you had anything resembling democracy.In light of that it is hard to see why people looking at these matters from a fundamentally Majoritarian position would take these late nineteenth century analyses as applying to the twenty-first century. This simple extension of ideas from Smith's very different economic and social society, where the general mindset that the majority was a potentially revolutionary mass to be suppressed where necessary by the use of State force, and where wage suppression and systematic denial of education to the masses were integral tools in those continual efforts, injects an 'up by your bootstraps' mentality that was utterly foreign to the time these ideas were formulated.
Smith's equilibria, to the extent they ever worked at all, were confined to those classes that were on the inside of the bubble of people represented in government and for whom the government in practice worked in return. Which is to say property owners and controllers of other forms of capital. The notion that this process delivered fair returns to the masses is absurd. Which in turn makes the whole Glibertarian effort to cherry pick Smith and Walras equally absurd, they are working from a discipline that grew out of explicitly anti-majoritarian principles and trying to apply that to a political and economic system ostensibly based on universal representation and equality of opportunity that would have been totally alien to the society in which the discipline of economics originally developed.
The futility of this is illustrated in Caplan's 'Myth of the Rational Voter' which seems aimed at the equivalent of repealing the Representation of the People Act and the Fourteenth Amendment on the grounds that the majority simply doesn't understand the primacy of property over democracy. Well maybe because most of us aren't starting from the position of privilege still given to those with ready access to capital and the means of economic advancement.