Definition of laissez-faire
What is laissez-faire?
Laissez-faire is an eighteenth-century economic theory that opposes government intervention in business. The guiding principle of laissez-faire, a French term that translates to “leave alone” (literally “let yourself be done”), is that the less the government is involved in the economy, the better off business is. extension, society as a whole. The laissez-faire economy is a key component of free market capitalism.
Key points to remember
- Laissez-faire is an economic philosophy of free market capitalism that opposes government intervention.
- The laissez-faire theory was developed by French physiocrats in the 18th century and believes that economic success is more likely the less governments are involved in business.
- Later, free market economists relied on laissez-faire ideas as a path to economic prosperity, although critics criticized it for promoting inequality.
Understanding the laissez-faire
The underlying beliefs that form the foundations of the laissez-faire economy include the idea that economic competition constitutes a “natural order” that rules the world. Because this natural self-regulation is the best kind of regulation, laissez-faire economists argue that business and industry need not be complicated by government intervention.
As a result, they oppose any kind of federal participation in the economy, which includes any kind of legislation or oversight; they are against minimum wages, rights, trade restrictions and corporate taxes. In fact, laissez-faire economists view these taxes as a production penalty.
History of laissez-faire
Popularized in the mid-1700s, the laissez-faire doctrine was one of the first articulated economic theories. He hails from a group known as the Physiocrates, who flourished in France from around 1756 to 1778.
Led by a physician, they attempted to apply scientific principles and methodology to the study of wealth. These “economists” (as they called themselves) argued that a free market and free economic competition were extremely important to the health of a free society.Government should only intervene in the economy to preserve property, life and individual liberty; otherwise, the natural and immutable laws that govern market forces and economic processes – what the British economist Adam Smith later dubbed the “invisible hand” – should be able to unfold unhindered.
Legend has it that the origins of the expression “laissez-faire” in an economic context come from a meeting in 1681 between the French Minister of Finance Jean-Baptise Colbert and a businessman by the name of Le Gendre. Throughout the story, Colbert asked the Gendre how the government could best help trade, to which Le Gendre replied: “Leave it to us”; basically, “Whatever.” The Physiocrats popularized the expression, using it to name their basic economic doctrine.
Unfortunately, a first effort to test laissez-faire theories did not work well. As an experiment in 1774, Turgot, Louis XVI’s controller general of finance, abolished all restrictions on the tightly controlled grain industry, allowing imports and exports between provinces to function as a free trade system. But when poor harvests caused shortages, prices skyrocketed; merchants ended up accumulating supplies or selling grain in strategic areas, even outside the country for greater profit, while thousands of French people starved. Riots followed one another for several months. In mid-1775, order was restored and, with it, government control over the grain market.
Despite this inauspicious start, laissez-faire practices, developed by British economists such as Smith and David Ricardo, reigned during the industrial revolution of the late 18th and early 19th centuries. And, as its detractors have noted, it has resulted in unsafe working conditions and wide disparities in wealth. It was not until the beginning of the 20th century that developed industrialized countries like the United States began to implement important government controls and regulations to protect workers from unsafe conditions and consumers from unfair trade practices. ; although it is important to note that these policies were not intended to restrict business practices and competition.
Criticism of laissez-faire
One of the main critiques of laissez-faire is that capitalism as a system has moral ambiguities: it does not inherently protect the weakest in society. While laissez-faire supporters argue that if individuals serve their own interests first, societal benefits will follow. Critics argue that laissez-faire actually leads to poverty and economic imbalances. The idea of letting an economic system run without regulation or correction actually rejects or further victimizes those who need help the most, they say.
Twentieth-century British economist John Maynard Keynes was a prominent critic of the laissez-faire economy, and he argued that the question of the market solution versus government intervention should be decided at case by case.