One of the greatest ironies of Book IV, Chapter 2 of Adam Smith’s Wealth of Nations is this: on the one hand, it contains some of the strongest arguments ever made in favor of free trade, and yet, at the same time, Smith ends on a pessimistic note. He not only concedes that “freedom of trade” is an unattainable ideal in the real world — or in the immortal words of the Scottish philosopher-economist. “To expect … that the freedom of trade should ever be entirely restored … is as absurd as to expect that an Oceana or Utopia should ever be established in it” (IV.ii.43) — he also concludes that democracy and free trade are mutually incompatible for two reasons: “Not only the prejudices of the public, but what is much more unconquerable, the private interests of many individuals, irresistibly oppose it” (ibid.).
Given this state of affairs, what is to be done? Smith’s answer to this question appears in the penultimate paragraph of Book IV, Chapter 2 of The Wealth of Nations (Para. 44) and can be summed up in two words, DAMAGE CONTROL:
“The legislature, were it possible that its deliberations could be always directed, not by the clamorous importunity of partial interests, but by an extensive view of the general good, ought upon this very account, perhaps, to be particularly careful neither to establish any new monopolies of this kind, nor to extend further those which are already established. Every such regulation introduces some degree of real disorder into the constitution of the state, which it will be difficult afterwards to cure without occasioning another disorder.” (Wealth of Nations, IV.ii.44, emphasis added)
In my humble opinion, this timeless passage contains the most succinct and eloquent statement of the theory of the second best ever written — a theory that was not fully developed or formalized by economists until in the 1950s. Simply put, as we saw in my previous post, Smith is a realist: he totally understands why in the real world existing monopolies and trade barriers are not going away anytime soon, for there are just way too many powerful interests who benefit directly from those very restrictions and who stand to lose if those legally-created monopolies and barriers are removed. Smith’s solution to this political reality is thus a pragmatic one: at very least, people in power should not make matters any worse than they already are. Is that too much to ask?
prior probability 
There is bit of irony here. I tend to view lawmakers as the enemy of free markets. But Smith has a point. Given the long standing institutions of governance, the odds of legislators not having a roll in regulating market exchange is zero.
Since the theories of thinkers like Rothbard, David Friedman, and Michael Huemer are most likely quixotic fantasies, it’s more pragmatic to hope for better laws, that don’t needlessly hinder markets.
I have been critical of supply-side economics, but it’s a lot better than the more adversarial alternatives .
To apply Coasian logic here, I suppose that given the facts of reality the ideal amount of state intervention is not zero. But the closer to zero, the better.
**role
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