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In economics, laissez-faire (English pronunciation: /ˌlɛseɪˈfɛər/  ( listen), French: [lɛsefɛʁ]  ( listen)) means allowing industry to be free of state intervention, 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."

Laissez faire, telle devrait être la devise de toute puissance publique, depuis que le monde est civilisé  . . . Détestable principe que celui de ne vouloir grandir que par l'abaissement de nos voisins! Il n'y a que la méchanceté et la malignité du coeur de satisfaites dans ce principe, et l’intérêt y est opposé. Laissez faire, morbleu! Laissez faire!!

(Let it be, such should be the motto of every public power, ever since the world is civilized  . . . A detestable principle that we cannot grow but by the lowering of our neighbors! There is nothing but mischief and malignity of heart that are satisfied with that principle, and interest is opposed to it. Let it be, damn it! Let it be!!)

According to historical myths, 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').[1]

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.[2]

Prior to Gournay, P.S. de Boisguilbert, had enunciated the phrase "on laisse faire la nature" ('let nature run its course').[3] 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").[4]

The first known English-language use of "laissez faire" in economics 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[5] 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.[6] 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.

Adam Smith first used the metaphor of an "invisible hand" in his book The Theory of Moral Sentiments to describe the unintentional effects of economic self organization from economic self interest.[7] Some have characterized this metaphor as one for laissez-faire,[8] but Smith himself never used the term laissez-faire, and likely intended something somewhat different.[5]

Contents

History of laissez-faire debate

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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 with Confucian factions tending to oppose extensive government controls and "Reform" factions favoring such moves. 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 Qing Dynasty, state monopolies were reinstated.[9]

Europe

In Britain, in 1843, the newspaper The Economist was founded, and became an influential voice for laissez-faire capitalism.[10] In response to the Irish famine of 1846-1849, in which over 1.5 million 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."[11] 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.[12] 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,[13] 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 19th century, 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

The Federal reserve, headquarters in Eccles Building is criticized by laissez-faireists as the cause of business cycles.

Although the period before the New Deal 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 1860s. 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.[14] Public works such as the provision and regulation transportation such as railroads took effect. The Pacific Railway Acts provided the development of the First Transcontinental Railroad.[14] 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.[15] Pietro S. Nivola wrote in 1986:

By and large, the comparative strength of the dollar against major foreign currencies has reflected high U.S. interest rates driven by huge federal budget deficits. Hence, the source of much of the current deterioration of trade is not the general state of the economy, but rather the government's mix of fiscal and monetary policies– that is, the problematic juxtaposition of bold tax reductions, relatively tight monetary targets, generous military outlays, and only modest cuts in major entitlement programs. Put simply, the roots of the trade problem and of the resurgent protectionism it has fomented are fundamentally political as well as economic.[16]

Ayn Rand was a self-identified radical for a "full, pure, uncontrolled, unregulated laissez-faire capitalism—-with a separation of state and economics, in the same way and for the same reasons as the separation of state and church".

See also

References

  1. ^ The anecdote on Le Gendre is briefly referenced in J. Turgot's "Eloge de Vincent de Gournay," Mercure, August, 1759).
  2. ^ Gournay was credited with the phrase by Jacques Turgot, the Marquis de Mirabeau, the Comte d'Albon and DuPont de Nemours among others. J. Turgot, op cit. V.R. Marquis Mirabeau, in Philosophie rurale 1763 and Ephémérides du Citoyen, 1767. C.C. Comte d'Albon,"Éloge Historique de M. Quesnay", Nouvelles Ephémérides Économiques, May, 1775, p.136-7. P.S.DuPont de Nemours, in Ouevres de Jacques Turgot, 1808-11, Vol. I, p.257 and p.259 (Daire ed.)
  3. ^ "Tant, encore une fois, qu'on laisse faire la nature, on ne doit rien craindre de pareil", P.S. de Boisguilbert, 1707, Dissertation de la nature des richesses, de l'argent et des tributs.
  4. ^ DuPont de Nemours, op cit, p.258. Oncken (op.cit) and Keynes (op.cit.) also credit the Marquis d'Argenson with the phrase "Pour gouverner mieux, il faudrait gouverner moins" ('"To govern better, one needs to govern less"), possibly the source of the famous "That government is best which governs least" motto popular in American circles, attributed variously to Thomas Paine, Thomas Jefferson and Henry Thoreau.
  5. ^ a b Roy C. Smith, Adam Smith and the Origins of American Enterprise: How the Founding Fathers Turned to a Great Economist's Writings and Created the American Economy, Macmillan, 2004, ISBN 0312325762, p. 13-14.
  6. ^ Abbott P. Usher et al. (1931). "Economic History—The Decline of Laissez Faire". American Economic Review 22 (1, Supplement): 3–10. 
  7. ^ Andres Marroquin, Invisible Hand: The Wealth of Adam Smith, The Minerva Group, Inc., 2002, ISBN 1410202887, page 123.
  8. ^ The mathematical century: the 30 greatest problems of the last 100 years (2006) Piergiorgio Odifreddi, Arturo Sangalli, Freeman J Dyson, p. 122
  9. ^ Li Bo and Zheng Yin, 5000 years of Chinese history, Inner Mongolian People's publishing corp , ISBN 7-204-04420-7, 2001
  10. ^ Scott Gordon (1955). "The London Economist and the High Tide of Laissez Faire". Journal of Political Economy 63 (6): 461–488. doi:10.1086/257722. 
  11. ^ James L. Richardson, Contending Liberalisms in World Politics, 2001, Lynne Rienner Publishers, ISBN 1555879152
  12. ^ Antonia Taddei (1999). "London Clubs in the Late Nineteenth Century" (PDF). http://www.nuff.ox.ac.uk/economics/history/paper28/28taddeiweb1.pdf. Retrieved 2008-12-30. 
  13. ^ Walker, S.P. (1996). "Laissez-faire, Collectivism And Companies Legislation In Nineteenth-century Britain". The British Accounting Review (Elsevier) 28 (4): 305–324. doi:10.1006/bare.1996.0021. 
  14. ^ a b Guelzo, Allen C. (1999), Abraham Lincoln: Redeemer President, Grand Rapids, Mich.: W.B. Eerdmans Pub. Co, ISBN 0-8028-3872-3, http://www.questia.com/PM.qst?a=o&d=99466893 
  15. ^ Robert W. Crandall (1987). "The Effects of U.S. Trade Protection for Autos and Steel". Brookings Papers on Economic Activity 1987 (1): 271–288. doi:10.2307/2534518. 
  16. ^ Pietro S. Nivola (1986). "The New Protectionism: U.S. Trade Policy in Historical Perspective". Political Science Quarterly 101 (4): 577–600. doi:10.2307/2150795. 

Bibliography

Further reading

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