Adam Smith Doesn’t Agree with You: Regulation Edition

It’s a time-honored tradition, and something of a mug’s game, to pick quotations from Adam Smith that clash with contemporary free market doctrine.  But uses and misuses of Smith aside, this one happens to hit the conceptual nail on the head.  Jared Bernstein, who is evidently working on a longer piece on debt, pulls this quotation from Adam Smith on the regulation of financial institutions:

Such regulations may, no doubt, be considered as in some respects a violation of natural liberty.  But these exertions of the natural liberty of a few individuals, which might endanger the security of the whole society are, and ought to be, restrained by the laws of all governments…[T]he obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed.