Laissez-Faire

80-20 Rule

What is laissez-faire?

Laissez-faire is an 18th-century economic theory that opposes government intervention in business. The driving principle of laissez-faire, a French term which translates to “leave alone” (literally, “let yourself be done”), is that the less government is involved in the economy, the better business will be – and by extension , society as a whole. The laissez-faire economy is a key element of free market capitalism.

Key points to remember

  • Laissez-faire is an economic philosophy of free market capitalism.
  • The laissez-faire theory was developed by French physiocrats in the 18th century.
  • Later, free market economists drew on laissez-faire ideas as a path to economic prosperity, although critics criticized it for promoting inequality.

1:14

Let it happen

Understanding laissez-faire

The underlying beliefs that form the foundations of the laissez-faire economy include, above all, economic competition being a “natural order” that governs the world. Because natural self-regulation is the best type of regulation, laissez-faire economists argue that business and industrial affairs need not be complicated by government intervention. As a result, they oppose any kind of federal participation in the economy, which includes any type of legislation or oversight; they are against the minimum wage, duties, trade restrictions and corporate taxes. In fact, laissez-faire economists view these taxes as a penalty for production.

History of laissez-faire

Popularized in the mid-1700s, the laissez-faire doctrine was one of the first articulated economic theories. He is from a group known as the Physiocrates, which flourished in France from around 1756 to 1778; led by a doctor, they tried 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. The government should intervene in the economy only to preserve property, life and individual liberty; otherwise, the immutable natural laws that govern market forces and economic processes – what later British economist Adam Smith, dubbed the “invisible hand” – should be able to unfold without hindrance.

Legend has it that the expression “laissez-faire” in an economic context arose from a meeting in 1681 between the French Minister of Finance Jean-Baptise Colbert and a businessman by the name of Le Gendre. Over the course of history, Colbert asked Gendre how the government could help trade, to which Le Gendre replied “Let us do it” – basically, “let’s do it”. Physiocrats popularized the expression by using it to name their basic economic doctrine.

Unfortunately, a first effort to test laissez-faire theories did not go well. As an experiment in 1774, Turgot, general controller of finance for Louis XVI, abolished all restrictions imposed on the highly controlled cereal industry, allowing imports and exports between provinces to function as a free trade system. But when poor harvests caused shortages, prices skyrocketed; traders ended up accumulating supplies or selling cereals in strategic areas, even outside the country for a better profit, while thousands of French people were starving. Riots ensued for several months. In mid-1775 order was restored and with it the government controlled 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 critics have pointed out, this has resulted in unsafe working conditions and large differences in wealth. It was not until the beginning of the 20th century that industrialized developed countries like the United States began to implement important government controls and regulations to protect workers from hazardous conditions and consumers from unfair trading practices. – although it is important to note that these policies were not intended to restrict business. practices and competition.

Laissez-faire reviews

One of the main criticisms of laissez-faire is that capitalism as a system contains moral ambiguities: it does not intrinsically protect the weakest in society. While proponents of laissez-faire argue that if individuals serve their own interests first, the benefits to society will follow, critics believe that laissez-faire actually leads to poverty and economic imbalances. The idea of ​​letting an economic system operate without regulation or correction actually further rejects or victimizes those who need help the most, they say.

20th century British economist John Maynard Keynes was an eminent critic of the economics of laissez-faire, and argued that the question of the market solution versus government intervention should be resolved at case by case.

Leave a Comment

Your email address will not be published. Required fields are marked *