Another look at the invisible hand

A slight digression from my rantings against the evils of consumerism --

Any time I indicate that a market-based solution to any given problem might be less than optimal, I get beaten over the head with Adam Smith's "invisible hand".  A lot of folks (including a lot of folks on Greenback's campus) seem to think that Smith's classic Wealth of Nations defined, once and for all, the innate superiority of "free markets" in all goods, all services, all circumstances.

In truth, of course, Smith was a far more subtle and sophisticated sophisticated thinker than are his fundamentalist adherents.  In the words of Herbert Stein a generation ago, "Adam Smith wouldn't wear the Adam Smith necktie."

So, since the division of proceeds between the 1% and the 99% seems to be gaining prominence in our political discourse (and since Wealth long ago passed into the public domain), I offer one extended quote:

What are the common wages of labour, depends everywhere
upon the contract usually made between [workmen and masters], whose
interests are by no means the same. The workmen desire to get as
much, the masters to give as little, as possible. The former are
disposed to combine in order to raise, the latter in order to lower,
the wages of labour.

It is not, however, difficult to foresee which of the two parties
must, upon all ordinary occasions, have the advantage in the dispute,
and force the other into a compliance with their terms. The
masters, being fewer in number, can combine much more easily:
and the law, besides, authorises, or at least does not prohibit, their
combinations, while it prohibits those of the workmen. We have
no acts of parliament against combining to lower the price of work,
but many against combining to raise it. In all such disputes, the
masters can hold out much longer. A landlord, a farmer, a master
manufacturer, or merchant, though they did not employ a single
workman, could generally live a year or two upon the stocks, which
they have already acquired. Many workmen could not subsist a
week, few could subsist a month, and scarce any a year, without
employment. In the long run, the workman may be as necessary
to his master as his master is to him; but the necessity is not so
immediate.

We rarely hear, it has been said, of the combinations of masters,
though frequently of those of workmen. But whoever imagines,
upon this account, that masters rarely combine, is as ignorant of
the world as of the subject. Masters are always and everywhere in
a sort of tacit, but constant and uniform, combination, not to
raise the wages of labour above their actual rate. To violate this
combination is everywhere a most unpopular action, and a sort of
reproach to a master among his neighbours and equals. We seldom,
indeed, hear of this combination, because it is the usual,
and, one may say, the natural state of things, which nobody ever
hears of. Masters, too, sometimes enter into particular combinations
to sink the wages of labour even below this rate. These are
always conducted with the utmost silence and secrecy till the moment
of execution; and when the workmen yield, as they sometimes
do without resistance, though severely felt by them, they are
never heard of by other people. Such combinations, however, are
frequently resisted by a contrary defensive combination of the
workmen, who sometimes, too, without any provocation of this
kind, combine, of their own accord, to raise tile price of their
labour. Their usual pretences are, sometimes the high price of provisions,
sometimes the great profit which their masters make by
their work. But whether their combinations be offensive or defensive,
they are always abundantly heard of. In order to bring the
point to a speedy decision, they have always recourse to the loudest
clamour, and sometimes to the most shocking violence and
outrage. They are desperate, and act with the folly and extravagance
of desperate men, who must either starve, or frighten their
masters into an immediate compliance with their demands. The
masters, upon these occasions, are just as clamorous upon the other
side, and never cease to call aloud for the assistance of the civil
magistrate, and the rigorous execution of those laws which have
been enacted with so much severity against the combination of
servants, labourers, and journeymen. The workmen, accordingly,
very seldom derive any advantage from the violence of those tumultuous
combinations, which, partly from the interposition of
the civil magistrate, partly from the superior steadiness of the
masters, partly from the necessity which the greater part of the
workmen are under of submitting for the sake of present subsistence,
generally end in nothing but the punishment or ruin of the
ringleaders.

Suggest to someone that "wears the Adam Smith necktie" that the 1% quietly combine/conspire against the interests of the rest of us, though, and you'll get dismissed as a conspiracy theorist or worse.