In economics,
Laissez-faire (, ) means allowing industry to be free of government restriction, especially restrictions in the form of tariffs and government monopolies. The phrase is
French and literally means "let do," though it broadly implies "let it be" or "leave it alone." Sometimes, but rarely, the phrase is used to describe a form of philosophic
anarchism.
Economic and political theory
The exact origins of the term laissez-faire as a slogan of
economic liberalism are uncertain. The first recorded use of the "laissez-faire" maxim was by French minister
René de Voyer, Marquis d'Argenson, a champion of free trade, in his famous outburst:
According to historical folklore, the phrase stems from a meeting c. 1680 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').
The
laissez faire slogan was popularised by
Vincent de Gournay, a French intendant of commerce in the 1750s. Gournay was an ardent proponent of the removal of restrictions on trade and the deregulation of industry and economic prosperity in France. Gournay was delighted by the LeGendre anecdote, and forged it into a larger maxim all his own: "Laissez faire et laissez passer" ('Let do and let pass'). His motto has also been identified as the longer "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, he had immense personal influence on the thinking of his contemporaries, notably the
physiocrats, who credit both the 'laissez-faire' slogan and doctrine to Gournay.
Prior to Gournay,
P.S. de Boisguilbert, had enunciated the phrase "on laisse faire la nature" ('let nature run its course'). Laissez-faire was one of a number of French "free trade" and "non-interference" slogans coined in the seventeenth century. D'Argenson, during this time, was better known for the similar but less-celebrated motto "Pas trop gouverner" ("Govern not too much").
The first known English-language use of "laissez faire" was in 1774, by
George Whatley, in the book
Principles of Trade, which was co-authored with
Benjamin Franklin. Notably,
classical economists, such as
Thomas Malthus,
Adam Smith and
David Ricardo, did not use the term.
Jeremy Bentham used the term, but only with the advent of the
Anti-Corn Law League did the term receive much of its (English) meaning. 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.
History of laissez-faire debate
China
During the
Han,
Tang,
Song, and
Ming dynasties, Chinese scholar-officials would often debate about the interference the government should have in the economy, such as setting monopolies in lucrative industries and instating price controls. Such debates were often heated. During the Han and Tang, emperors sometimes instated government monopolies in times of war, and abolished them later when the fiscal crisis had passed. Eventually, in the later Song and Ming dynasties, state monopolies were abolished in every industry and were never reinstated during the length of that dynasty. During the dynasty of Qing, founded by an ethnic group in northern China,
state monopolies were reinstated.
Europe
In Britain, in 1843, the newspaper
The Economist was founded, and became an influential voice for laissez-faire capitalism. In response to the
Irish famine of 1846-1849, in which a million and a half people died of starvation, they argued that for the government to supply free food for the Irish would violate natural law.
Clarendon, the Lord Lieutenant of Ireland, wrote, "I don't think there is another legislature in Europe that would disregard such suffering." The group calling itself the
Manchester Liberals, to which
Richard Cobden and Richard Wright belonged, were staunch defenders of free trade, and their work was carried on, after the death of Richard Cobden in 1866, by the
The Cobden Club. In 1867, a free trade treaty was signed between Britain and France, after which several of these treaties were signed among other European countries.
British
laissez-faire was not absolute. The
United Kingdom company law, the
Limited Liability Act 1855, and the
Joint Stock Companies Act 1856 were exceptions.
Austrian scholars consider that 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.
United States
thumb|200px|The [[Federal reserve, headquarters in
Eccles Building was criticized by laissez-faireists as the cause of
business cycles.]]
Although the period before the
American Civil War was notable for the limited extent of the federal government, the
Austrian School suggest that there was 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 Bank of the United States and
Second Bank of the United States 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. In contrast to Hamilton and the Federalists was the opposing political party the Democratic-Republicans.
Most of the early opponents of laissez-faire capitalism 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.
In the mid-19th century, the
United States followed the
Whig tradition of economic liberalism, which included increased state control, regulation and
macroeconomic development of
infrastructure.
such as the provision and regulation
transportation such as railroads took effect. The
Pacific Railway Acts provided the development of the
First Transcontinental Railroad.
In order to help pay for its war effort in the
American Civil War, the
United States government imposed its first personal
income tax, on
August 5,
1861, as part of the
Revenue Act of 1861 (3% of all incomes over US $800; rescinded in 1872).
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 were 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.
Following
World War I and the
Great Depression,
Keynesian policies turned the state into a
mixed economy. The United States, in the 1980s, for example, sought to protect its automobile industry by "voluntary" export restrictions from Japan. One scholar wrote about the early 1980s that:
See also
