Laissez-Faire

LAISSEZ-FAIRE IS THE economic doctrine of “leaving alone,” or more literally, “letting make” or “letting do.” The term arises from the 18th-century French slogan “laissez faire, laissez passer,” which was employed as a rallying cry against government intervention in the economy.

Laissez-faire economics emphasizes the need to let market activity occur without interference from governments or similar coercive actors. In the English-speaking world, it is most strongly associated with the thinking of Adam Smith (1723–90) and his claims that competition among trading individuals can prove beneficial for all, so that a harmony of interests can emerge even without it being set in place by a political ruler. To promote prosperity, governments may “leave alone” their subjects within the prescribed sphere of the market. For Smith this is a sphere that is formed by government securing of negative property rights, and is intruded upon by the type of interventions that occur with government-imposed tariffs or mercantilist monetary policies. Smith argues that such interventions generally damage a nation's prosperity.

Notable forerunners of Smith are Richard Cantillon (1680–1734), who gave an account of the beneficial operations of the unguided market, and Anne Robert Jacques Turgot (1727–81), who likewise argued that economic harmony could be achieved by the unguided market.

Unfortunately there is no single, widely accepted standard for what counts as a proper form of economic “leaving alone.” Even Smith can be seen to have implied that local government is to have a role in funding education, and Smith very clearly argues that certain longterm projects, such as road-building, are to be funded by the government. Other examples abound: a notable one is found in the person of a leading 20th-century economist, Friedrich Hayek, who is typically associated with laissez-faire economics but who nonetheless argues for at least a limited form of the welfare state. Putting these conceptual difficulties aside, we can say that laissez-faire economists emphasize the way in which consistent [Page 625]minimization of government interference with individuals’ actions can lead to increases in both overall societal prosperity and the material well-being of most individuals in society, and the economic dangers posed by government activity that goes beyond offering protection of negative property rights.

With this understanding in place, we can point to a number of types of challenges to the two key features of laissez-faire thought. First, there is the instability thesis, which claims that markets, when left to their own devices, fail to maintain their character as uncoordinated promoters of prosperity. Marxists offer one instability thesis with their claim that capitalism leads inevitably to the proletariat's seizure of the means of production. John Maynard Keynes offers another with his claim that the market may remain stuck on the downward slope of the business cycle unless regulated by appropriate monetary and fiscal stimuli.

Second, there is the inefficiency thesis, which suggests that prosperity can be more effectively achieved by combining with generally laissez-faire policies certain carefully designed, ongoing government interventions. Typically these are interventions deemed necessary to produce requisite levels of so-called public goods (drinking water, electricity, education, clean environment) and, in particular, goods prey to the free-rider problem. Hayek, James Buchanan, and many members of the Chicago School can be seen as offering versions of the inefficiency thesis.

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