Laissez-Faire

It is said that the 17th-century French finance minister Colbert once asked a group of businessmen what he could do for them. One of them, Legendre, is supposed to have replied, “Laissez nous faire” (“leave us alone!”). The reply became a slogan, serving ever since as a tag for the policy of keeping government direction of the economy to a minimum. (Some argue that the minimum should be none.)

The theory of laissez-faire stems from the fact that what we call an economy is a vast array of interactions among individuals, each of whom is concerned with making his or her living by organizing and exerting skills and energies to that end. In the process, the agent will frequently find it advantageous to benefit from the productive energies of other agents by making trades. There are two hallmarks of these trades. First, each party is motivated by his or her own interests—not “advancing the general good” or some other theoretically questionable motive, but by his or her own interests, whatever they are. Second, each individual participating is free to take or leave any particular proposal made by the other party. The two are linked together in that when parties freely exchange, we infer that each sees the choice as being to his or her own benefit—otherwise why would they do it? But given that it is to one's benefit, why would not one do it? Having an actual interest in something is an intelligible explanation of why someone did something, and having an interest in oneself, whatever else, is something we're generally safe in presuming for anyone.

The case for “leaving them alone” derives from this presumption. Each participant is inherently motivated to seek out trades and to take the best options available. It is not obvious why any direction or regulation would be required to accomplish this end. Why might it be?

Here are several familiar answers.

• 1.
  Countering Force and Fraud. One answer is that while people are indeed motivated to promote their respective advantages, they are not necessarily motivated to do so in a way that respects the freedom of others. Besides trading, another way of getting something from someone is simply by taking it, by stealth or force. Still another is by fraud—claiming to be offering one kind of good or service when in fact what will be delivered is not as described, or perhaps not delivered at all: “Take the money and run” is, in short, a temptation. The need for intervention of some kind is inferred from this possibility. We may need to set up mechanisms either for preventing fraud and violence in the first place, or at least for detecting, apprehending, and punishing those who engage in it. In this respect, of course, the need for intervention in exchanges is the same as in the case of any interpersonal actions.
• 2.
  Limited Knowledge. The other answer is rather different. According to it, trades take place on the basis of knowledge on the part of each participant. But what if the individual's knowledge is insufficient? That party may then be unable to pursue advantage as intended. The proposal, then, is to see to it that all operate within an environment of relevant knowledge. The state is then called on to provide it, on a basis of equal provision for all.
• 3.
  Providing the Framework for the Market. A variant of this second idea is that trade takes place within a framework provided by the law. Law and regulation establish the forms for trade and thus encourage it, smoothing the way and providing paths, as it were. In one version of this reply, we need law to make trade possible at all: Trade, it is claimed, cannot proceed without a framework of law. Specific ways in which government is said to be needed in this respect would include the provision of forms of currency or money and laws and regulations governing exchange. In the other version, government is needed for the provision of infrastructure, such as roads, bridges, canals, and communication facilities, and economic policy to prevent inflation, deflation, and other economic ills that are thought to have bedeviled economies over the past few centuries.

Advocates of laissez-faire have replies to all of these. They point out that there is no obvious reason why people cannot make exchanges among themselves without any external overseers, and that trades occur all the time among people without police standing over them. Trade has occurred among very primitive peoples as well and between people from distant tribes or communities with no common state to oversee the activity. They also note that infrastructure can be and has often been provided by privately acting [Page 1259]parties. This includes even the provision of monetary facilities such as coinage and banking procedures and forms. Economists explore the potential for nongovernmentally based facilities of these kinds, and it seems fairly clear that the case for the literal necessity of the state as the provider of them has been by no means established.

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