What Is Laissez-Faire?
Laissez-faire is an economic theory from the 18th century that advocates for minimal government intervention in business affairs. It is based on the principle that an economy functions most efficiently when it is free from governmental regulation. The term ’laissez-faire’ is French for ’leave alone’ or ’let you do.'
Key Takeaways
- Laissez-faire is a doctrine of free-market capitalism that resists government intervention.
- Originated by French Physiocrats in the 18th century.
- Advocates believe that government involvement hampers economic success.
- Critics argue it promotes economic inequality and lacks essential regulatory oversight.
Understanding Laissez-Faire
Laissez-faire economics operates on the belief that economic competition is a ’natural order’ that self-regulates the market. Advocates contend that government involvement complicates business activities, arguing against minimum wages, trade restrictions, production duties, and corporate taxes. The philosophy aligns closely with libertarian economic views, proposing that government should limit its role to protecting national borders, property rights, and producing public goods.
History of Laissez-Faire
First articulated around the mid-1700s, laissez-faire ideology emerged from the work of the Physiocrats in France. They argued for a free market and minimal government intervention, based on scientific principles. While an early effort to apply these ideas in the 1774 grain market met with failure, the doctrine strengthened over time, influencing British economists like Adam Smith, who popularized the concept of the ‘invisible hand.’ Despite initial criticism and poor first attempts, laissez-faire principles played a significant role during the Industrial Revolution, despite concerns about unsafe working conditions and wealth inequality.
Criticism of Laissez-Faire
Detractors argue that laissez-faire economics overlooks societal needs, potentially leading to poverty and economic disparities. Key critics, like John Maynard Keynes, have emphasized the importance of government involvement on a case-by-case basis, addressing the shortcomings of an entirely free-market system.
Pros and Cons of Laissez-Faire
Pros:
- Reduces inefficient government involvement
- Encourages innovation and self-responsibility
- Promotes free markets and competition
Cons:
- Lacks regulatory protection for consumers and the environment
- May result in economic inequality and negative externalities
- Can incentivize unethical practices by businesses
Literal Meaning of ‘Laissez-Faire’
In French, ’laissez-faire’ translates to ’let you do.’ The phrase was reportedly introduced in a 1681 conversation between French finance minister Jean-Baptiste Colbert and businessman Le Gendre, who suggested the government’s best course was non-intervention.
Example of Laissez-Faire
An ideal laissez-faire economy would involve no government participation in markets or business operations, leaving these sectors solely controlled by market forces. Nevertheless, true laissez-faire conditions don’t exist, as even the most libertarian countries have some level of government regulation.
Laissez-Faire Capitalism
Laissez-faire capitalism advocates for minimal government regulation or taxation, allowing companies to prioritize pure profit motives. While proponents trust that the market itself can discourage bad actors, real-world scenarios often require governmental oversight to prevent prolonged unethical behavior.
The Bottom Line
Laissez-faire economics argues for minimal governmental intervention, promoting the belief that reduced regulation makes for a healthier, more prosperous society. Originating in 18th-century France, this philosophy remains prominent in countries valuing libertarian principles today.
Related Terms: Libertarianism, Free Market, Invisible Hand, Capitalism, Economic Competition.
References
- Ivar Jonsson. The Political Economy of Innovation and Entrepreneurship: From Theories to Practice, Page 10. Routledge, 2016.
- Mises Institute. “Physiocracy and Free Trade in 18th-Century France”.
- Foundation for Economic Education. “Turgot: The Man Who First Put Laissez-Faire into Action”.
- John Maynard Keynes. “The End of Laissez-Faire”.
- Foundation for Economic Education. “What Is Laissez-Faire?”
