In Part 2 of Chapter 10 of Book I of The Wealth of Nations (I.x.c; available here), Adam Smith identifies three types of “absurd” laws and regulations — absurd because they restrict our natural liberty and distort markets:

• Laws and regulations that “restrain[] the competition in some employments to a smaller number than would otherwise be disposed to enter into them”; i.e. laws and regulations that artificially reduce the supply of workers in certain markets (see Paras. 3 to 32);
• Laws and regulations that “increas[e] the competition in some employments beyond what it would naturally be”; i.e. laws and regulations that artificially increase the supply of workers in certain markets (see Paras. 33 to 40);
• Laws and regulations that “obstruct[] the free circulation of labour and stock both from employment to employment”; i.e. oppressive laws like immigration restrictions and capital controls that artificially restrict or impede the free flow of capital and labor across borders (see Paras. 41-67).

Smith then surveys (and rightfully condemns!) many examples of specific laws and regulations that distort labor markets and obstruct capital flows, especially mandatory apprenticeship laws, education subsidies, and the infamous Poor Laws. But what is even more remarkable about this chapter is the fact that Smith’s diagnosis and critique of “those absurd laws” (I.x.c.43) are just as relevant and stinging today as they were in 1776! For what are occupational licensure laws but oppressive and wasteful and artificial restrictions on labor? What are federal student loan programs but subsidies to higher education that artificially inflate the number of college students? And what are immigration restrictions and taxes on capital flows but artificial restrictions to the free circulation of labour and stock?

But my favorite quote from Chapter 10 is Smith’s scathing critique of rent-seeking and business conspiracies:

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.” (I.x.c.27)

Here, Smith introduces what is to my mind a radical idea and a tension that will haunt the rest of his great work, for he implies that business can be just as detrimental to the public good as the government! (To be continued …)