DEFINITION of ‘Laissez Faire’
French for ‘leave alone’, laissez-faire is an economic theory that became popular in the 18th century. The driving idea behind laissez-faire as a theory was that the less the government is involved in free market capitalism, the better off business will be, and then by extension society as a whole.
BREAKING DOWN ‘Laissez Faire’
The underlying beliefs that make up the fundamentals of of laissez-faire economics include first and foremost that the natural world is a self-regulating system, and that natural regulation is the best type of regulation. Laissez-faire economists argue that because of this there is no need for the complicating involvement of government. Government involvement, according to this economic theory, would include any type of regulation, minimum wage, taxation, or oversight. Laissez-faire economists see taxation on companies as a penalty for production.
Toufic Gaspard laid out what he saw as the axioms of laissez-fair in his book a Political Economy of Lebanon:
- The individual is the basic unit in society
- The individual has a natural right to freedom.
- The physical order of nature is harmonious and self regulating system.
- Corporations are creatures of the State and therefore must be watched closely by the citizenry due to their propensity to disrupt the Smith’s spontaneous order
The argument for the laissez-faire approach as it appeared in Europe was that the government should only intervene in the market economy in order to preserve property, life, and individual freedom. Just as many liberal French supported free thought, a free market and free competition was seen as extremely important to the health of a free society. King Louis of France bought the argument, and in 1754 he abolished restraints on grain as an experiment. For over a decade things seemed to go swimmingly, until a poor harvest in 1768 shot prices of grain through the roof and merchants ended up selling grain outside the country for better profit while French citizens starved, and the ability of the government to interfere in markets was replaced in 1770.
One of the chief critiques of the theory of laissez-faire, is that capitalism as a system has built into it moral ambiguities, it does not – detractors of laissez-faire argue – inherently protect the weakest and most needy in society. By extension, the idea of letting this economic system run without regulation or correction would be to dismiss those most in need of assistance. Keynes was a prominent critic of laissez-faire economics, and he argued that the question of market solution versus government intervention needed to be decided on a case-by-case basis.
History of Laissez-faire
The origins of the phrase and its connection to a specific economic theory came from a meeting between the French finance minister Colbert, and a businessman named Le Gendre. As the story goes, Colbert asked Le Gendre how best the government could help commerce, to which the businessman replied (in French) ‘Let us do what we want to do’.