Laissez-Faire

laissez-faire (lĕs´ā fâr´) [Fr.,=leave alone], in economics and politics, doctrine that an economic system functions best when there is no interference by government. It is based on the belief that the natural economic order tends, when undisturbed by artificial stimulus or regulation, to secure the maximum well-being for the individual and therefore for the community as a whole.

Formulations of the Doctrine

Historically, laissez-faire was a reaction against mercantilism, a system of commercial controls in which industry and trade, especially foreign trade, were merely seen as means of strengthening the state. Navigation laws, trade monopolies, taxes, and paternalistic regulations of all kinds bore heavily upon the rising class of merchants in the period of European colonial expansion. It was on behalf of this class that the French physiocrats, pioneer economists in the 18th cent., first formulated the principles of laissez-faire. With the physiocrats, state noninterference became a cardinal teaching; they especially opposed the taxation of commercial pursuits.

Opposition to mercantilism and state paternalism also motivated Adam Smith, father of classical economics, whose name more than any other is connected with British laissez-faire doctrines. Smith believed that individual welfare rather than national power was the correct goal; he thus advocated that trade should be free of government restrictions. When individuals were free to pursue self-interest, the "invisible hand" of rivalry or competition would become more effective than the state as a regulator of economic life. Smith did not believe in laissez-faire in an absolute sense; he found a place for government activity in public works, such as the building of canals and docks to facilitate trade, and in the regulation of foreign commerce to protect certain home industries.

In the hands of Jeremy Bentham the doctrine of laissez-faire became a philosophy of individualism and of utilitarian ethics, and John Stuart Mill brought it to what was probably its highest point. The strong individualism of the theory naturally appealed to the factory owners and merchants of the Industrial Revolution, whose attempts to transform society along capitalistic lines were often hampered by old laws and the opposition of landed interests.

The so-called Manchester school of economics, especially Richard Cobden and John Bright, popularized the doctrines of free trade and laissez-faire, which, after initially being considered radical doctrines, were becoming the accepted theory of classical economics. Cobden and Bright, both successful businessmen, brought laissez-faire into the arena of politics: they secured the repeal of the corn laws—mercantilist import duties that raised the price of food needed by the industrial workers—and they opposed even the minimal provisions of the factory acts that Parliament had passed in order to regulate such abuses as long hours and woman and child labor. Laissez-faire principles were nowhere embodied fully in legislation. Governments, at the very least, continued to levy tariffs as a means of protecting domestic manufacturers.

Modifications

As the system of capitalist enterprise evolved in the 19th cent., more and more businesses found it in their interest to combine with their competitors in huge trusts or cartels in order to control prices and production. Competition, which had been expected to regulate the market, seemed instead to be encouraging monopoly. The principle of state noninterference was discarded; indeed, during the 20th cent. the state was often called upon to restore and preserve freedom of competition where it appeared to be in danger of disappearing. Agreements in restraint of trade and practices of "unfair" competition were outlawed. Thus the practice of laissez-faire was modified. The theory, however, was not abandoned; it became a tenet of the opponents of socialism. It was credited with lowering consumer prices by eliminating the high costs of competition. In that way, the emphasis in laissez-faire theory was shifted from competition to the importance of profit as an incentive to production and of individual initiative as necessary to economic progress.

Bibliography

See J. W. McConnell, Basic Teachings of the Great Economists (1943); F. W. Hirst, ed., Free Trade and Other Fundamental Doctrines of the Manchester School (1903, repr. 1968); A. W. Coats, ed., The Classical Economists and Economic Policy (1971).

The Columbia Encyclopedia, 6th ed. Copyright© 2014, The Columbia University Press.

Selected full-text books and articles on this topic

The Ideology of the Laissez Faire Program
Henry, John F.
Journal of Economic Issues, Vol. 42, No. 1, March 2008
Eighteenth Century Economics: Turgot, Beccaria and Smith and Their Contemporaries
Peter Groenewegen.
Routledge, 2002
Librarian’s tip: Chap. 11 "Laissez Faire"
Laissez Faire and International Trade: A Critique of the Proposed United States - Colombia Free Trade Agreement
Relyea, Clint W.; Tejada, Sandra Liliana; Fish, Kelly E.; Guha, Gauri-Shankar.
Journal of International Business Research, Vol. 10, No. 1, January 1, 2011
PEER-REVIEWED PERIODICAL
Peer-reviewed publications on Questia are publications containing articles which were subject to evaluation for accuracy and substance by professional peers of the article's author(s).
How to Be a Value-Free Advocate of Laissez Faire: Ludwig Von Mises's Solution
Gunning, J. Patrick.
The American Journal of Economics and Sociology, Vol. 64, No. 3, July 2005
PEER-REVIEWED PERIODICAL
Peer-reviewed publications on Questia are publications containing articles which were subject to evaluation for accuracy and substance by professional peers of the article's author(s).
Value Freedom, Laissez Faire, Mises, and Rothbard: A Comment on Professor Gunning
Block, Walter.
The American Journal of Economics and Sociology, Vol. 64, No. 3, July 2005
PEER-REVIEWED PERIODICAL
Peer-reviewed publications on Questia are publications containing articles which were subject to evaluation for accuracy and substance by professional peers of the article's author(s).
Commons and Keynes: Their Assault on Laissez Faire
Atkinson, Glen; Oleson, Theodore, Jr.
Journal of Economic Issues, Vol. 32, No. 4, December 1998
The Cult of Capitalism: Hayek, Novak & the Limits of Laissez Faire
Sibley, Angus.
Commonweal, Vol. 135, No. 8, April 25, 2008
Schools and Streams of Economic Thought
Edmund Whittaker.
Rand McNally, 1960
History's Missed Moment: Why Did the Greatest Failure of Laissez-Faire Capitalism since the Great Depression Lead to a Turn to the Right Rather Than the Left in Both Europe and the U.S.?
Kuttner, Robert.
The American Prospect, Vol. 22, No. 8, October 2011
Capitalism: A Treatise on Economics
George Reisman.
Jameson Books, 1990
Laissez-Faire Banking
Kevin Dowd.
Routledge, 1996
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