Laissez-Faire

Laissez-Faire (French, “let things alone”), in economics, policy of domestic nonintervention by government in individual or industrial monetary affairs. The doctrine favors capitalist self-interest, competition, and natural consumer preferences as forces leading to optimal prosperity and freedom. It arose in the late 18th century as a strong liberal reaction to trade taxation and nationalist governmental control known as mercantilism.

In Western Europe during the 18th century it was believed that the natural economic order, untouched by regulations or adjustments, was best designed to produce maximum well-being for all. Pioneer economists in France, known as the physiocrats, first developed the theory of laissez-faire, which stressed noninterference with commercial ventures. The most important and influential proponent of laissez-faire capitalism, however, was the 18th-century Scottish economist Adam Smith, who believed that individual welfare was more important than national power. In his book The Wealth of Nations (1776), he advocated a policy of free trade so that the “invisible hand” of competition could act as an economic regulator. Smith's advocacy of private enterprise as the best stimulus to equitable distribution of wealth gained increasing support in the early 19th century, partly because of the wave of libertarian revolution sweeping Europe and the U.S. His theories were further developed by the British economists David Ricardo and John Stuart Mill.

The principles of laissez-faire and free trade appealed strongly to the growing class of capitalists of the Industrial Revolution. These business owners and merchants wished to be free of government regulation and taxation in order to pursue their own interests. Inevitably, with the tremendous growth of industry, laissez-faire policies led to abuses, especially in the use of child labor. Gradually, more and more businesses combined to control production and prices for the benefit of their owners. Thus, competition—a basic tenet of the laissez-faire system—was eliminated. This trend toward monopolies, in turn, led to calls for reform. Throughout the Western world government controls were reasserted.

State economic restraints and the growth of socialism in the 20th century have not eradicated the basic individualistic appeal of the laissez-faire philosophy. It still exists today in the emphasis placed on the profit motive and on individual initiative in economic progress.