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Laissez-faire (pronunciation: French, [lesefɛʀ] (help·info); English, IPA: /ˌleɪseɪˈfɛər/) is a French phrase meaning "let do". From the French diction first used by the 18th century physiocrats as an injunction against government interference with trade, it became used as a synonym for strict free market economics during the early and mid-19th century. It is generally understood to be a doctrine that maintains that private initiative and production are best allowed to roam free, opposing economic interventionism and taxation by the state beyond that which is perceived to be necessary to maintain individual liberty, peace, security, and property rights.^[1]

In the laissez-faire view, the state has no responsibility to engage in intervention to maintain a desired wealth distribution or to create a welfare state to protect people from poverty, instead relying on charity and the market system. Laissez-faire also embodies the notion that a government should not be in the business of granting privileges. As such, advocates of laissez-faire support the idea that the government should not create legal monopolies or use force to damage de facto monopolies. Supporters of laissez-faire also support the notion of free trade on the grounds that the state should not use protectionist measures, such as tariffs and subsidies, in order to curtail trade through national frontiers.

In the free-market economy advocated by economic libertarians, individuals coordinate their economic decisions through the institutions of private property, freedom of contract, and the free price system. Libertarians argue that the free market produces greater prosperity and personal freedom than other economic systems.

In the early stages of European and American economic theory, laissez-faire economic policy was in conflict with mercantilism, which had been the dominant system of the United Kingdom, Spain, France and other European countries, during their rise to power.

The term laissez-faire is often used interchangeably with the term "free market". Some use the term laissez-faire to refer to "let do, let pass" attitude for matters outside of economics.^[2]

Laissez-faire is associated with classical liberalism, libertarianism, and Objectivism.^{[citation needed]} It was originally introduced in the English-language world in 1774, by George Whatley, in the book Principles of Trade, which was co-authored with Benjamin Franklin. Classical economists, such as Thomas Malthus, Adam Smith and David Ricardo did not use the term. Bentham employed it, but only with the advent of the Anti-Corn Law League did the term receive much of its (English) meaning.^[3] Free-market anarchists take the idea of laissez-faire to its full length by opposing all taxation, preferring law and order to be privately funded.

This French phrase means ‘allow to act’ and is used to describe a leader who leaves his or her colleagues to get on with their work

The exact origins of the term "laissez-faire" as a slogan of economic liberalism are uncertain.

According to historical folklore, the phrase stems from a meeting c. 1690 between the powerful French finance minister Jean-Baptiste Colbert and a group of French businessmen led by a certain M. Le Gendre. When the eager mercantilist minister asked how the French State could be of service to the merchants, Le Gendre replied simply "Laissez-nous faire" ('Leave us be', lit. 'Let us do').^[4]

The 'laissez faire' slogan became closely associated with Vincent de Gournay, a French intendant of commerce in the 1750s and ardent proponent of the removal of restrictions on trade and the deregulation of industry in France, and a mentor of the later Physiocrats. Gournay was delighted by the LeGendre anecdote, and forged it into a larger maxim all his own: "Laissez faire et laissez passer, le monde va de lui même!" ('Let do and let pass, the world goes on by itself!'). Although Gournay left no written tracts on his economic policy ideas, his immense personal influence on the thinking of his contemporaries, notably the Physiocrats, is generously acknowledged in their testimonies. Among others, Jacques Turgot, the Marquis de Mirabeau, the Comte d'Albon and, most insistently, DuPont de Nemours credit both the 'laissez-faire' slogan and doctrine to Gournay. ^[5]

The honor of the first recorded use of the 'laissez faire' maxim goes to the contemporary French minister Rene de Voyer, Marquis d'Argenson, another champion of free trade. ^[6] However, there is little dispute that it was Gournay who gave the maxim its vogue - or at least it was persistently ascribed to him by the Physiocrats, particularly DuPont de Nemours. D'Argenson, during this time, was better known for the similar but less-celebrated motto "Pas trop gouverner" ("Govern not too much").^[7]

In English, a variety of "free trade" and "non-interference" slogans had been coined already in the 17th C. The first known appearance of the French motto 'laissez faire' in an English text is in the writings of the London merchant Charles Bosanquet in 1808.^[8]. Nonetheless, it was probably James Mill's reference to the 'laissez-faire' maxim (together with 'pas trop gouverner') in an 1824 entry for Encyclopedia Britannica that really brought the term into wider English usage.

Main article: Free market

The laissez-faire means that the neoclassical school of economic thought holds a pure or economically liberal market view: that the free market is best left to its own devices, and that it will dispense with inefficiencies in a more deliberate and quick manner than any legislating body could. The basic idea is that less government interference in private economic decisions such as pricing, production, consumption, and distribution of goods and services makes for a better, or more efficient, economy.

The Austrian School of economics and the Chicago School of economics are important foundations of the economic libertarianism. Economic libertarians, as well as generalized libertarians, advocate laissez-faire capitalism, where all the means of production are privately owned, economic and financial decisions are made entirely privately, goods and services are exchanged in a free market, and there is little or no positive state intervention in the economy. As a consequence, now-ubiquitous worldwide money regulating agencies such as the U.S. Federal Reserve System and other government owned-and-operated central banking systems are seen as artificial at best and damaging at worst.

Like most mainstream economists, the Austrian and Chicago schools support the subjective theory of value, which says that only a buyer and seller, while using information shared and available in the marketplace, can determine how valuable goods or services are to them and thereby set a mutually agreeable price. Libertarians contend that supply and demand, as ordered by the incidence of independent, subjective valuations in a free market, are the only sensible means of establishing prices. Moreover, they believe that only prices rendered in a free market can synthesize and communicate the preferences and relevant, time-sensitive data to millions of consumers and producers alike, and that any attempt to objectify these transactions by a centralized authority will fail. According to them, any government intervention such as regulation, trade barriers, or taxes, interfere with this judgment being reflected accurately in the price (though economists often argue that market failures can interfere with pricing as well). Most economists agree that accurate pricing is an important part of efficient markets, and thus important for maximizing economic utility.

Market failures are a tremendous source of controversy amongst libertarians. This is what usually divides the mainstream ones who advocate for continued public ownership of policing, military and so forth and anarcho-capitalists who want full privatization of goods. For many of the hard line group, the principle of liberty must overcome the goal of wealth. The public good of police, for instance, could be seen as immoral coercion no matter how efficient over private security.

Libertarians do not see unequal wealth distribution as a moral problem, and firmly support the private ownership of land and capital. They oppose mandatory egalitarian redistribution of wealth because they believe this would qualify as initiation of force against individuals and their legitimate property (see Non-aggression principle for more on this idea, and its criticisms). In addition, libertarians claim that redistribution of wealth takes capital from the most productive sectors of the economy, and that enforcing economic egalitarianism reduces the incentive to work [2]. They may further argue that any temporary equality of outcome gained by redistribution would quickly collapse without coercion because people have different levels of motivation and native abilities, and would make different choices based on their differing values. Those that were more productive or traded more effectively would quickly gain disproportionate wealth, others would waste their resources, and some of those would choose to save for retirement or earn little on their own. Some may choose not to generate wealth, preferring to spend their time in other areas they find more fulfilling like non-commercial artistic expression or religious growth — an avenue libertarians do not oppose. However, they do oppose forced subsidization of any such venture. Material inequality, they argue, is a necessary outcome of the freedom to choose one's own actions without imposing on others. To the extent that they accept any kind of welfare, libertarians tend to prefer Milton Friedman's negative income tax as an alternative (but not a supplement) to the existing system, arguing that it is simpler and has fewer of the "perverse incentives" of "government handouts".

Libertarians tend to believe that minimizing the amount of money citizens pay to government minimizes the ability of the government to fund bad programs and prevents citizens from needing government assistance because they have more of their own money (see "starve the beast"). Because they oppose taxes, libertarians also oppose most programs funded by taxes. Many libertarians oppose government run or regulated schools, hospitals, industry, agriculture, and social welfare programs. Others justify public schools on grounds of efficiency, fairness, or both, though most would prefer a school voucher system to the status quo.

Libertarians, especially the Cato Institute have long supported Social Security privatization as a first step to dismantling Social Security [3].

Lastly, many libertarians support the gold standard as opposed to paper currency because they do not trust the government to restrain itself from over-expanding the money supply which would result in inflation. Inflation is commonly regarded by libertarians as a surreptitious method of taxation employed to usurp value from privately held money without levying an apparent tax and demanding physical transfer of money (see Chicago School of economics).

Laissez-faire is largely premised on the notion that all citizens have equality in rights, and that governments should not be in the business of enforcing an equality of outcome through government redistribution and other actions. As such, advocates of laissez-faire favor a state that is neutral between the various competing interest groups that vie for privileges and political power in a country. Supporters of laissez-faire are critical of mixed economies on the grounds that it leads to an interest-group politics where each group is seeking to benefit itself at the expense of another and the consumer.

The liberal theory of economics is the theory of economics developed in the Enlightenment, and believed to be first fully formulated by Adam Smith which advocates minimal interference by government in the economy. The case for economic liberalism which began to be argued in the eighteenth century was the then-startling claim that if everyone is left to their own economic devices instead of being controlled by the state, then the result would be a harmonious and more equal society of ever-increasing prosperity^[9] (see spontaneous order and invisible hand). It is the economic component of the political ideology of classical liberalism. The concept of economic liberalism or market liberalism underpinned the move towards a free market capitalist economic system in the late 18th century, and the subsequent demise of the mercantilist system. Today, the liberal theory of economics is strongly associated with libertarianism, neoliberal economics and some schools of conservatism, particularly liberal conservatism. Proponents are Anders Chydenius, Anders Chydenius, François Quesnay, Jean-Baptiste Say, and Frédéric Bastiat.

Initially, the liberal theory of economics had to contend with the supporters of feudal privileges for the wealthy, aristocratic traditions and the rights of kings to run national economies in their own personal interests. By the end of the 19th century and the beginning of the 20th, these were largely defeated.

In 19th century Britain, laissez-faire found a small but strong following by such Manchester Liberals as Richard Cobden and Richard Wright. In 1867, this resulted in a free trade treaty being signed between Britain and France, after which several of these treaties were signed among other European countries. The newspaper The Economist was founded earlier in 1843, and free trade was discussed in such places as The Cobden Club, founded a year after the death of Richard Cobden, in 1866. ^{[10] [11]}

However, laissez-faire was never the main doctrine of any nation, and at the end of the eighteen-hundreds, European countries would find themselves taking up economic protectionism and interventionism again. France for example, started cancelling its free trade agreements with other European countries in 1890. Germany's protectionism started (again) with a December 1878 letter from Bismarck, resulting in the iron and rye tariff of 1879.

Although the period before the American Civil War was notable for the limited extent of the federal government, there was still a considerable degree of government intervention in the economy--particularly after the 1820s. Notable examples of government intervention in the period prior to the Civil War include the establishment of the First National Bank and Second National Bank as well as various protectionist measures (e.g., the tariff of 1828). Several of these proposals met with serious opposition, and required a great deal of horse trading to be enacted into law. For instance, the First National Bank would not have reached the desk of President George Washington in the absence of an agreement that was reached between Alexander Hamilton and several southern members of Congress to locate the capital in the District of Columbia.

Most of the early proponents of a mixed economy in the United States subscribed to the American School (economics). This school of thought was inspired by the ideas of Alexander Hamilton, who proposed the creation of a government sponsored bank and increased tariffs to favor northern industrial interests. Following Hamilton's death, the more abiding protectionist influence in the antebellum period came from Henry Clay and his American System.

Following the Civil War, the movement towards a mixed economy accelerated with even more protectionism and government regulation. In the 1880s and 1890s, significant tariff increases where enacted (see the McKinley Tariff and Dingley Tariff). Moreover, with the enactment of the Interstate Commerce Act of 1887, the Sherman Anti-trust Act, the federal government began to assume an increasing role in regulating and directing the country's economy.

The Progressive Era saw the enactment of even more controls on the economy, as evidenced by the Wilson Administration's New Freedom program.

However, new challenges arose from nationalists as well as the left. The most significant challenge to the liberal theory of economics in the nineteenth century came with the reinstitution of tariffs in Germany, which undertook that action to achieve self-sufficiency in order to be able to survive a long war.^{[citation needed]}

The 19th century was a heyday for economic libertarianism, as monopolies were dismantled and trade barriers fell across much of the Western world. Prominent Nineteenth Century advocates of economic libertarianism include British free trader Richard Cobden and French polemicist Frédéric Bastiat.

Another significant challenge to the economic liberalism came from the progressive and socialist schools of thought that favoured redistribution of wealth, greater economic equality, government programs to help the poor and, in some cases, planned economies. At the turn of the century, many of the liberal parties were taken over by the progressives that opposed economic liberalism and appropriated the mantra of liberals for themselves.

Following World War I and the Great Depression, the theory fell out of favour.^{[citation needed]} It was largely superseded by Keynesian economics in 1945–70 period, which take into account macro-level phenomena and call for a mixed economy involving significant state intervention.

Economic libertarians were on the defensive for most of the 20th Century, as they faced a strong challenge from communist, fascist, and welfare liberal economic philosophies. Prominent economic libertarians during the 20th Century included Friedrich Hayek and Milton Friedman. Economic libertarianism saw a resurgence in the 1980s, with the election of Margaret Thatcher in Great Britain, the election of Ronald Reagan in the United States, and economic liberalization in many developing nations, including South Korea, Taiwan, and Chile. In the early 1990s, economic libertarianism advanced further with the fall of Communism and economic liberalization across Latin America.

After Keynesianism failed to explain stagflation in the 1970s, many concepts from the classical liberal theory were revived by monetarist and new classical economists. Keynesian economics as practiced in the post World War period is generally considered incapable of explaining the behavior of modern economies.^{[citation needed]} There has been a revival in some Keynesian ideas based more rigorously on economics theory in certain universities under the name New Keynesian economics. The dominant discourse in modern macroeconomics in particular and economics in general, is new classical. New classical economics is rigorously based in theory, in contrast to Keynesian models.^{[citation needed]} The majority of central banks as well as international institutions such as World Bank and International Monetary Fund use the new liberal models in their policy making process.

Main article: Causes of the Great Depression

There is much debate over the relationship between laissez-faire economics and the onset of the Great Depression. Some economists and historians (such as John Maynard Keynes) argue that laissez-faire economic policy fostered the conditions under which the Great Depression arose. Other scholars, such as Milton Friedman and Murray Rothbard, say that the Depression was not a result of laissez-faire economic policy but of government intervention on the monetary and credit system. The issue, as outlined below, remains heavily debated in economic, historical, and political spheres.

In Keynes's 1936 work, The General Theory of Employment Interest and Money, Keynes introduced concepts and terms that were intended to help explain the Great Depression. One argument for a laissez-faire economic policy during a recession was that if consumption fell, then the rate of interest would fall. Lower interest rates would lead to increased investment spending and demand would remain constant. However, Keynes believed that there are reasons why investment does not necessarily automatically increase as a response to a fall in consumption. Businesses make investments based on expectations of profit. According to Keynes, if a fall in consumption appears to be long-term, businesses analyzing trends will lower expectations of futures sales. Therefore, according to Keynes, the last thing they are interested in doing is investing in increasing future production even if lower interest rates make capital inexpensive. In that case, according to Keynes and contrary to Say’s law, the economy can be thrown into a general slump. (Keen 2000:198) Keynesian economists and historians argue that this self-reinforcing dynamic is what happened to an extreme degree during the Depression, where bankruptcies were common and investment, which requires a degree of optimism, was very unlikely to occur. The solution to this problem, according to Keynes, was to alleviate market instability through government intervention. In his view, since private actors cannot be counted on to create aggregate demand during a recession, the government has the responsibility to create demand.^[12]

Scholarly debate over the cause of the Great Depression questions the involvement of Laissez-faire economics in the incident, some blaming it and others exonerating it.

As a consequence of this view, Keynes seems to have had a more favorable view of the fascist governments of the time, because, as he goes on to highlight in the foreword to the German edition of 'The General Theory of Employment Interest and Money, "the theory of aggregated production, which is the point of ['The General Theory of Employment Interest and Money'], nevertheless can be much easier adapted to the conditions of a totalitarian state [eines totalen Staates] than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire." ^[13]

Friedrich August von Hayek and Milton Friedman, in contrast, argued that the Great Depression was not a result of laissez-faire economic policy but a result of too much government intervention and regulation upon the market. They note that the Great Depression was the longest depression in U.S. history and the only depression in which the government heavily intervened. In Friedman's work, Capitalism and Freedom he argues: "A governmentally established agency--The Federal Reserve System--had been assigned responsibility for monetary policy. In 1930 and 1931, it exercised this responsibility so ineptly as to convert what otherwise would have been a moderate contraction into a major catastrophe."^[14]

Furthermore, the U.S. Federal government had created a fixed currency pegged to the value of gold. At one point the pegged value was considerably higher than the world price which created a massive surplus of gold. Demand for gold surged and the world price increased but the pegged value was too low in the U.S. and this created a massive migration of gold from the U.S. Milton Friedman and Hayek both argued that this inability to react to currency demand created a run on the banks that the banks were no longer able to handle, and that and the fixed exchange rates between the dollar and gold both worked to cause the Great Depression by creating, and then not fixing, deflationary pressures.^[15] He further argued in this thesis, that the government inflicted more pain upon the American public by first raising taxes, then by printing money to pay debts (thus causing inflation), the combination of which helped to wipe out the savings of the middle class. Friedman concludes that the effects of the Great Depression were not mitigated until after World War II when the economy saw a return to normalcy with the elimination of many price controls. This opinion specifically blames a combination of Federal Reserve policies and economic regulation by the U.S. government as causes of the Great Depression, and that the depression was exacerbated by raising income taxes on the highest incomes from 25% to 63%, a "check tax", and the Smoot-Hawley tariff. Friedman believed that Herbert Hoover's interventionist policies and Franklin Roosevelt's New Deal further lengthened and worsened the depression. Friedman concludes, "The Great Depression in the United States, far from being a sign of the inherent instability of the private enterprise system, is a testament to how much harm can be done by mistakes on the part of a few men when they wield vast power over the monetary system of a country."^[16]

Main articles: Neoliberalism, Ordoliberalism, Social market economy, Reaganomics, and Thatcherism

After the Second World War, laissez-faire thinking was in part resurrected through the Austrian School and Chicago School, and such liberal thinkers as Ludwig von Mises, Friedrich Hayek and Milton Friedman, who argued that if the Free World was truly defined by its freedom, then its citizens should have full economic freedom. Hong Kong was the first territory to embrace laissez-faire economic policy in this era, having officially followed that path since the 1960s.

Germany implemented, with broad coalition support between the Christian Democratic and Social Democratic parties, what is called the Social market economy, which restored Germany's war-devastated economy by letting prices float freely. Later in the 1970s and 1980s, the ideas of the Chicago School found "resonance" in Pinochet's economic policies in Chile, Ronald Reagan's Reaganomics, and in the privatization policies of Thatcher.^{[citation needed]}

The return of market economies after the Second World War is still a far cry from the concept laissez-faire. The United States, in the 1980s, for example, sought to protect its automobile industry by "voluntary" export restrictions from Japan.^[17] One scholar wrote about the early 1980s that:

Modern industrialized nations today are not representative of laissez-faire principles or policies, as they usually involve significant amounts of government intervention in the economy. This intervention includes minimum wages, corporate welfare, anti-trust regulation, nationalized industries, and welfare programs among other forms of government intervention. Subsidy programs for businesses and agricultural products; government ownership of some industry (usually in natural resources); regulation of market competition; economic trade barriers in the form of protective tariffs - quotas on imports - or internal regulation favoring domestic industry; and other forms of government favoritism.

According to the 2007 Index of Economic Freedom issued by the Heritage Foundation, the seven countries with the most free economies are currently the following: Hong Kong, Singapore, Australia, United States, New Zealand, United Kingdom and Ireland (all of them former constituents of the British Empire). Hong Kong is ranked number one for 12 consecutive years in the Index which attempts to measure "the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself." Milton Friedman praised the Hong Kong Laissez-faire approach to the economy and credits that policy for the rapid move from poverty to prosperity in 50 years.^[19] Much of this growth came under British colonial control prior to the 1997 takeover by Communist China.

However at a press conference on 11 September 2006, Donald Tsang, the Chief Executive of Hong Kong said that "Positive non-interventionism was a policy suggested by a previous Financial Secretary many years ago, but we have never said that we would still use it as our current policy... We prefer the so-called 'big market, small government' policy." Responses in Hong Kong were widely divided, some see it as an announcement to abandon the positive non-interventionism, others see it as a more realistic response to the government policies in the past few years, such as the intervention of the stock market to prevent brokering.^[20].

• Brebner, John Bartlet (1948). "Laissez Faire and State Intervention in Nineteenth-Century Britain". Journal of Economic History 8: 59-73. 
• Fisher, Irving (January 1907). "Why has the Doctrine of Laissez Faire been Abandoned?". Science 25 (627): 18-27. 
• Taussig, Frank W. (1904). "The Present Position of the Doctrine of Free Trade". Publications of the American Economic Association 6 (1): 29-65. 

• August Oncken (1886). Die Maxime Laissez faire et laissez passer : ihr Ursprung, ihr Werden. Ein Beitrag zur Geschichte der Freihandelslehre. Bern: K.J. Wyss. 
• Wu-Wei in Europe. A Study of Eurasian Economic ThoughtPDF (773 KiB) by Christian Gerlach, London School of Economics – March 2005

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Look up laissez faire in Wiktionary, the free dictionary.

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