Following up on my previous post, I want to share two major Smithian themes from my rereading of Book 2 of The Wealth of Nations as well as pose a question to students of Adam Smith:

1. Theme #1. Economic liberty is crucial. As a general rule, people should be free to pursue their private interests, and the government does more harm than good when it protects its domestic market from foreign competition or by otherwise impeding the free flow and movement of goods and services.
2. Theme #2. But so too is law. Smith, for example, is willing to tolerate some restrictions on liberty, such as the elimination of small denomination bank notes and the legal regulation of interest rates, when those restrictions promote the general welfare or otherwise protect a larger group of people from harms caused by a few. In other words, every rule — even Smith’s general rule in favor of liberty — has to have an exception, right?
3. The Adam Smith Question. These two themes combine to produce what I consider to be the real Adam Smith problem: how can we prevent Smith’s pragmatic exception from swallowing up his general rule in favor of liberty? That is, where should we draw the line between law and liberty?