Laissez-faire

A French term meaning “allow to do,” it was transformed into an economic theory stating that business should be allowed to operate with as little government interference as possible. In economics, laissez-faire generally has been taken to mean hands off and to be the direct opposite of mercantilism, which suggested strong government interference in the private sector in the 18th and 19th centuries.

Laissez-faire succeeded mercantilism in the 19th century as the economies of the United States and Europe began to industrialize. Its best known exponents were from the British classical school, led by economist Adam Smith, who maintained that humans are most productive when they are motivated by unfettered economic self-interest, free of outside control. Competition flourishes when government influence is minimal, and a full array of goods and services will follow, subject only to the demands of the market.

The doctrine became very popular in the United States, especially during the period of rapid industrialization in the 19th century. Business developed at a much faster pace than government’s ability to keep pace with it, and the term became a synonym for a government’s generally lax industrial policy. But even during periods when laissez-faire economics appeared to be working, some protectionist government policies still intervened, such as the TARIFFS imposed against imports.

In the late 19th and early 20th centuries, the policies of progressivism began to attack the lenient attitude of government toward business. The administration of William McKinley was the last in which a hands-off policy toward business was evident—until the 1920s when Republicans controlled the White House and Congress. But stronger antitrust policies that began with the administration of Theodore Roosevelt, the founding of the FEDERAL RESERVE, and the regulations passed during the NEW DEAL all signaled a less permissive atmosphere for business than was the case in the 19th century. Similarly, the founding of many government-sponsored enterprises between the 1930s and the 1970s demonstrated that various administrations were not willing to allow certain sectors of the economy such as residential housing, the financing of higher education, and farm financing to be left totally to the private sector.

After the 1930s, the term was used to describe the lack of government interference in the marketplace rather than a specific economic policy. It is still used today to denote a general hands-off attitude of government toward business.

Laissez-faire

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