SKEPTICS MAY question whether "laissez faire" economics ever has been practiced at all except in college classrooms and in the musings of elderly professors of economics. Roughly translated from the French, this still-vibrant phrase suggests that, under capitalism, economic participants should be left alone to pursue theft private interests--and the final results will best serve the public by creating greater prosperity than if the economy had been burdened by weighty taxes and crippling regulations.
Although laissez faire has been attacked since its inception, this 18th-century concept does have 21st-century backers--witness the rhetoric of the Tea Party movement and its supporters, such as former vice-presidential candidate Sarah Palin, political analyst Glenn Beck, Rep. Paul Ryan (R.-Wis.), and a number of other newly elected Republican politicians, although their concerted efforts at eliminating, or at least reducing, America's welfare state look to be in vain. During the 2008 presidential campaign, then-Sen. Barack Obama (D.-Ill.) stated: "The market is the best mechanism ever invented for efficiently allocating resources to maximize production.... I also think that there is a connection between the freedom of the marketplace and freedom more generally."
With this eyebrow-raising comment, it appeared that the influence of the University of Chicago's distinguished economics faculty--Obama was once a law professor at that elite university--can be discerned. However, after almost two and a hall" years in the White House, Obama obviously has changed his mind (or never really meant what he said in the first place).
Laissez fake can be traced back to the rising French business class in the 1700s clamoring for freedom from the influence of the government, which was acting with the authority of the soon-to-be-defunct French monarchy. In 1774, laissez faire appeared for the first time in an English language publication (George Whatley's Principles of Trade, coauthored by the American bon vivant, inventor, and statesman, Benjamin Franklin). None of the classical economists--Englishmen Thomas Malthus and David Ricardo and Scotsman Adam Smith, to name a few--used this phrase, but they vigorously applied the concept, especially Smith, whose "invisible hand" metaphor famously described the beneficial results of economic self-interest. By the 19th century, laissez fake was employed, at times, in Europe, particularly by Great Britain, which practiced flee-market policies from 1860 until the outbreak of World War I. Yet, laissez faire never was absolute anywhere, and many then-developing countries, including Germany and the U.S., relied upon protectionism to shelter their infant industries from competition.
Free-market principles did not really catch on in America, except among economists and political reformers; instead, the U.S. edged awkwardly toward a mixed economy, with the Federal government playing an increasingly active role. During the Great Depression of the 1930s, the U.S. practiced state capitalism (more commonly known as the New Deal) under Pres. Franklin D. Roosevelt.
According to University of Chicago law professor Bernard Harcourt, author of The Illusion of Free Markets, "the persistence of the rhetoric of free markets is remarkable." Harcourt contends that our mast in free markets is based upon the notion of "natural order" that evolved during the 18th century. Most advocates of laissez faire, such as Milton Friedman and Friedrich Hayek, have theorized that free markets constitute a critical component of a self-regulating economic system that only can prosper if the disruptive influence of government actions and political meddling can be eliminated. For Harcourt, the heart of the natural order theory is the belief that free markets will provide a stable and orderly self-sustaining equilibrium that will result in prosperity.
Today, three years into the Great Recession, that Panglossian vision also could be characterized by a now-tarnished phrase--efficient markets hypothesis. …