The answer from the Lord lays down the principles of baptism. Christ came to call sinners to repentance, and the role of baptism is integral to that repentance process. However, it is because baptism is essential to the process of repentance that it is properly applied to those who can be repentant. One cannot be repentant if one has not sinned, and one cannot sin without understanding sin and agency.
This first statement declares the positive principle. The final statement indicates the nature of the reasoning that led to the controversy. It comes as a contradiction of the assumptions that lead to the erroneous assumption. It is important to note that while Mormon considers the baptism of children a heretical practice, it was nevertheless one that had a logic to it that was based on certain gospel principles. This was not the wholesale adoption of a pagan rite, but rather a reworking of baptism through a theologizing of principles that existed in the religion. The problem was likely not the intent of the thinking, but rather that the thinking that led to the practice did not come from God, and therefore did not understand the information correctly.
[little children are whole, for they are not capable of committing sin]: This tells us the reason that baptism does not apply to little children. There is a point in the life of man where we are both helpless, and innocent. We are learning to be what we will become, and little children are in that learning process. One of the things that we must learn is right and wrong, and how to distinguish between them. Even though we are born with the Light of Christ, we still must learn what that means and how to apply it. This process of learning to judge for ourselves is the very process of agency, the very reason we come to this earth. Until we have learned, however, we are not capable of committing sin. We are capable of error, of doing the wrong things; but not sin. Sin requires our agency to be behind the selection of the sinful act. Before we are able to understand, before we know the law, we cannot sin.
Romans 5:13
13 For until the law sin was in the world: but sin is not imputed when there is no law.
[wherefore the curse of Adam is taken from them in me, that it hath no power over them]: It is clear from this statement that one of the justifications for the practice was the application of the atonement as a means of countering the Fall of Adam. Of course this is precisely what the atonement does, but the principle was extended past its proper application. The atonement does counter the Fall, as was so succinctly stated by Paul:
1 Corinthians 15:22
22 For as in Adam all die, even so in Christ shall all be made alive.
The problem is that these absolute balances can be misinterpreted. The presumption is that there is a complete balance that extends also to time. In Adam we die, and that applies to us as we are born. Therefore, something must balance that, even as Paul indicates. What happens, however, is that the dual role of the atonement of Christ is not clearly understood. The Book of Mormon emphasizes the dual nature of the atonement as applying to a physical redemption and a spiritual redemption. Adam caused the condition of mortality into which we are born. That very condition is completely balanced by the similar universal resurrection. Death and life are equally and universally balanced.
The baptism of infants uses that model to move the second aspect of the need for the atonement, and the resolution of that need, to the time of birth. In addition to the condition of mortality, the Fall places us in the condition of agency – a condition under which we may sin. Baptism is the covenant that we make that we accept Christ’s conditional atonement from sin. Because we must voluntarily sin, we must voluntarily accept the redemption from sin through baptism. The issue is one of timing. The baptism of little children recognizes the need for baptism, but misunderstands the relationship of baptism to the ability to exercise agency. We cannot sin until we are responsible for our actions, therefore, there is no need for baptism until that time. The idea of baptizing little children therefore simply misapplies the principles.
[and the law of circumcision is done away in me]: The addition of this phrase indicates a second reason that was being given for the baptism of little children. It also tells us that while the baptism was for little children, it was also being applied to infants. Circumcision was to take place after eight days. The argument was being made that baptism of infants was the replacement for this covenant. Circumcision marked the entrance into a covenant people, which is done through inheritance. That initial rite was being replaced by baptism because baptism was also a convenant. However, the nature of the covenant was different, circumcision being applied to the lineage and therefore applicable after birth, but baptism required the prior repentance, and therefore requires the ability to sin. It was another misapplication of principles. Christ notes that circumcision is “done away,” not that it was replaced. There is no need for that prior covenant, and therefore baptism does not take its place, but is a different covenant entirely.