"Why Adam Smith Still Matters"
Note: I found this link via 3 Quarks Daily, but most of this post is tangential to it: these are my own reflections on the libertarian defense of Adam Smith and the beginnings of a legal critique of capitalism
The libertarian defenders of Adam Smith call the government out for intervening in what would otherwise be a free and unfettered system of markets. These critics argue that in a laissez-faire system of political economy, markets (including labor markets) operate at approximate efficiency. As the article states, we are appealing to our own self-interest and, through the process of trading by this rule, we are led through competition and by an invisible hand to create maximal benefits for society. If the government oversteps its boundaries (its sole responsibilities are seen as protection of property and a few public goods provisions), then its own visible hand gets in the way of the invisible hand, disrupting what was a natural order.
However, if we drop government from the picture our problems are not solved, even assuming the strict assumptions of perfect information and rational foresight. The legal system remains an important aspect of political economy. Laws are the rules of the economic game. When I play card games with my little brother, we play according to a very strict set of rules, if you know what I mean. Other configurations of the rules may lead to different results (such as me actually having the opportunity to win every now and then). The evolution of contract law in American history is one example of how the legal system itself (absent of any strict government intervention) can lead to different labor market outcomes: the rise of freedom of contract over indentured servitude led to less breaches over clauses such as those concerning the term of a contract. Another example comes from England: early statutes from the 14th century onward regulated regional wages, and these were eventually overturned as the economy evolved.
Furthermore, we do not need to talk about a "ruling class" to say that legal institutions serve certain interests over others, so they are clearly not distributionally neutral. Certainly my little brother will alter the rules in his favor but we can think of other games or other situations where the advantage is either arbitrary or based on some traditional principle (history), or maybe it even is particular to a certain culture or social system. Anyone familiar with the traditional Chinese game Go may recall the handicap system as one example of altering the rules of the game to reflect a certain position of the relevant players. All of these rules are examples of how one party may be favored from the beginning, due to some social climate or understanding of relative positions. What I aim for is anunderstanding of how the social context of capitalism creates conditions in the legal system conducive to economic development and class conflict.
The "rules of the game", theories of property and contract (for just two examples), are especially important in any discussion of capitalism because they define the extent to which my right to private property may conflict with another's basic rights (also to property, or liberty, life, etc.). Marx identified private property as the key to the success of capitalism precisely because of the monopoly rights a system of private property confers onto owners. Not only does private property foster a set of incentives conducive to efficiency (the degree to which this holds can be argued), but private property in contract law creates the social relations of production that produce surplus value which allows the circuit of capital to run.
However, I would not say that the legal system is an instrument of capitalism. It is for the same reason that I do not think we necessarily need the existence of a "ruling class" to show how inequality can be promoted in a legal system. The rule of law exists in theory as a means of weighing the interests of the different parties in question approximately equally. I argue that the culture of capitalism creates a commodification of labor power that promotes "efficiency" (high amounts of capital accumulation).
I mentioned at the beginning of this post that it had little to do with the link. This post was the beginning of my thoughts concerning the "imagining of history," specifically, the history of American capitalism. (I firmly believe that the best way of understanding historical phenomena is by imagining how it happened, in other words being able to visualize all that was going on.) However, I found the last paragraph of the article very intriguing and it may be relevant to the post:
Regrettably, Smith was unable to conclude the third large project that he had been working on throughout his life: a theory of government. In his "obvious and simple system of natural liberty", this is the only gap. It is not a small one. The answer to this question is fundamental for the current debate - in a situation where our Western civilisation seems to have come to a crossroads as more interventionist power is reclaimed for government, in which nationalisation and re-regulation are going unquestioned, and in which politics is generally gaining a new self-confidence. The question has to do with the natural harmonisation of interests. Is there any way in which the interests of government are spontaneously aligned with the interests of the governed? Is political action possible without destroying the checks and balances of the spontaneous order? Smith doesn't give us an answer. Maybe he had found that there was no such way.
So, I end this "beginning" with the following thought: knowing what we do now concerning the nature of the legal system and its relation to economy, what political institutions are most effective at achieving whatever goals a group of people has, in the face of capitalism? For example, can democratic ideals of majority rule exist side by side with capitalism, a system which (as we've seen above) can be reflected -- through various channels, including the legal system -- in power and authority? Much more will be said about this in the future!