Laissez-Faire, a French phrase that means literally “let do” meaning “let a person alone,” was applied to economics by English and French thinkers of the seventeenth and eighteenth centuries. The phrase generally applies to the same conditions in modern as in pre-modern times. Proponents of laissez-faire believe that government controls on economic behavior-trade, companies, prices, wages-curtail the freedom of the individual, not just in his economic life, but in all aspects of life, since economics are often closely tied to social status, moral behavior, and religious beliefs. Laissez-faire philosophy has been associated with both liberal and conservative political philosophies depending on whether it is the liberal or the conservative thinker of a given time who puts the most emphasis on liberty in economic matters.
The origins of the phrase are unclear save that it was apparently in use by the time Adam Smith wrote The Wealth of Nations in 1776. Indeed, Smith become of the early proponents of the doctrine. Previous to Smith, one finds isolated remarks by English and French observers that mercantilism hampers natural liberty. Mercantilism was (and is) the doctrine that a government imposes rules on trade, particularly international trade. A famous example of mercantilism involves the control of the trade of the British-American colonies in the colonial period before 1776. The British government passed a series of Navigation Acts that curtailed the freedom by which an American producer could export his crop. As a result farmers in the American south were forced to sell their produce to English merchants at a reduced price. Clearly such restrictions seemed to curtail economic potential and the freedom of the individual producer to exchange goods for the best price. Under mercantilism, the British were less apt to restrict domestic trade, which could reveal to any insightful observer the advantages of such liberty.
John Locke (1632-1704) the English philosopher of the Glorious Revolution anticipated Adam Smith, the greatest proponent of laissez-faire economics, in his Second Treatise of Civil Government. Locke argued that humans, though concerned with self-interest, tend to do good, and join together into governmental or economic associations for mutual benefit, but not at the expense of natural liberty. The earth is as it were a public domain set aside by God for all humans to enjoy equally. The apparently endless plenty of nature allows for each person to acquire sufficient materials for his needs. Excess is against the plan of the Creator, hence immoral. Competition among humans for their share of the public domain is natural, yet not harmful, as long as there is more than enough to satisfy every person’s needs. Private property, one of Locke’s fundamental natural rights shared by all humans, derives from a person putting forth labor to acquire goods from the public domain. Private property is therefore not evil, rather a good, as is the competition and labor that results in its acquisition.
Another group that anticipated Adam Smith was the group of diverse intellectuals known as the Physiocrats. During the mid-eighteenth century the French economy was still very much beholden to the old regime economy of aristocratic land owners and peasant laborers. The Physiocrats believed that such a dominant almost feudal structure limited the exchange of goods and use of capital in the French countryside. Part of the problem they identified was the extensive impositions of the French government on trade and the heavy taxes imposed on farmers. By removing restrictions and reducing taxes, that is by the government accepting a “hands off” or laissez-faire policy, exchange of goods and capital would flow more freely in France; economic liberty would be commensurate with more political liberty.
Adam Smith observed as much, agreed with the Physiocrats that government policies should give way to the natural liberty of economic production and trade, and agreed with Locke that private property is a sanctified right as a consequence of human labor, and that competition, even for private interests, is valuable and good. Smith despised the contrast of mercantilist policies with free trade. Adam Smith (1723-1790) was a Scottish intellectual who taught at the University of Glasgow. He was essentially a moral philosopher who published The Theory of Moral Sentiments in 1759. Smith believed that human self-interest is not a barrier to altruism because humans use reason to temper their acquisitiveness. This rational self-interest meant that economic competition would occur according to natural laws of human behavior instructed by reason. There was no justification, therefore, for government to impose restrictions on economic behavior. Such restrictions would be necessary only if humans irrationally engaged in destructive competitive behavior, which was clearly not true to the Enlightenment mind of Adam Smith.
Smith is usually identified as a proponent of economic liberalism, because he combined his optimistic view of economic competition and restrained self-interest with the liberal assumptions of man’s inherent goodness and collective goal to work for the interests of the common good. Unlike modern liberals, Smith believed that economic behavior did not require government intervention to achieve the maximum good for society. Said goodness could not be imposed, rather would be a natural consequence of human behavior.
The eighteenth-century American counterpart to the John Locke, the Physiocrats, and Adam Smith was Thomas Jefferson (1743-1826). Jefferson was the epitome of the Renaissance man, talented in architecture, music, philosophy, government, history, literature, and so on. He was one of the most complex men of his time, being simultaneously one of the great liberal thinkers of all time yet a slave owner, a proponent of laissez-faire economics yet the president who pushed for the trade embargo of 1808, a believer in limited government yet one of the architects of the United States of America. Jefferson epitomized eighteenth-century economic liberalism in his advocacy of limited government involvement in economic affairs, proponent of free trade among all nations, opposition to protectionism and tariffs, and firm supporter of the agricultural way of life. To Jefferson, as he wrote in his Notes on the State of Virginia (1784), the farmer is the most virtuous of humans because of the inherent liberty of the farming way of life. The farmer pursues self-interest but not at the expense of the common good. The farmer is the best republican because he votes his mind and believes that what is good for him is good for the whole. Jefferson feared the Industrial Revolution because he feared a nation of entrenched urban wage-earners who could not exercise their natural liberty in economic matters and who would become aggressively self-interested without a thought for the common good because of the intense competition waged for limited resources.
Jefferson’s powerful ideas came to be adopted by many nineteenth-century liberals in America. “Jeffersonianism” became synonymous with laissez-faire liberalism. It must be said, however, that Jeffersonian philosophy was altered over the course of the nineteenth century. The aggressive competition and exploitation consequent upon the Industrial Revolution in Europe and America resulted in a host of philosophies that contradicted classic economic liberalism. Karl Marx (1818-1883), for example, reacted to the perceived class competition between the proletariat and bourgeoisie by advocating (in the Communist Manifesto, co-written with Friedrich Engels in 1848) the destruction of the free market and the embracing of government controls over the economy. At the opposite spectrum, English and American philosophers reacted to Darwin’s theories of natural selection and survival of the fittest by developing a theory to explain human competition. “Social Darwinism” advocated the notions of the free market and the common good built upon the victory of the strongest and fittest over the weakest. Some Social Darwinists, such as Andrew Carnegie, tempered these ideas by arguing that the strongest, hence wealthiest, should eventually give back to the community by means of philanthropic behavior.
On of the strangest distortions of laissez-faire philosophy involved the Populists of the 1890s. The Populists were a political party made up of farmers of the American south and midwest. Suffering from the exploitation of railroad monopolies that set high prices for transporting farm produce, the Populists advocated government intervention to establish a society and economy consistent with Jeffersonian principles and economic liberalism. In other words, the Populists believed that economic self-interest among farmers resulted in activities for the common good, but corrupt industrialists, monopolists, and politicians were thwarting traditional American economic liberalism. The situation could be remedied only by involvement of the federal government into the economy by means of government ownership of railroads and other utilities, a rejection of the monetary Gold Standard, and the adoption of a national income tax.
The Populist political program only succeeded with the rise to political power and socio-economic influence of the Progressives. The Progressives possessed the heritage of American economic liberalism but at the same time realized and wanted to address the varied problems brought about by the Industrial Revolution. It was under the influence of the Progressives that the first two decades of the twentieth century in America witnessed the onset of the income tax, legislation putting restrictions on business practices and monopolies, a constitutional amendment to make United States senators more directly answerable to the people, the creation of the Federal Reserve, and the achievement of women’s suffrage.
Similar occurrences marked English politics of the nineteenth and early twentieth centuries. Jeremy Bentham (1748-1832) and John Stuart Mill (1806-1873), the two most important English utilitarian philosophers, mitigated the classical laissez-faire theory of Adam Smith to take account of industrialization and its negative consequences. The utilitarians believed that private interest working for the common good–the essence of laissez-faire economics–should continue to be the driving principle behind the relationship of government to the economy. But sometimes the common good demanded government intervention to aid the plight of the poor, to restrict unfair corporate practices, and the like.
The ironic twist that laissez-faire took around the turn of the century is best illustrated by the example of American political parties. The Republicans, formerly the Whigs and before that the Federalists, had long advocated government involvement in the economy. Alexander Hamilton, for example, proposed the federal support of investment in the economy, the accumulation of federal debt (assuming it from the thirteen states), and the promotion of manufacturing. The Whigs of the 1830s advocated the American System of federal investment in America’s infrastructure. Abraham Lincoln and the early Republicans promoted the interests of American corporations and sought a strong and united economic union. But industrial changes and the growing protests of wage-earners and the poor put the Republicans into a defensive posture, so that they increasingly returned to a defense of laissez-faire economic policy to prevent government restrictions on American capitalists. The hands off policy of the American government reached a climax during the 1920s and the Republican administration of Calvin Coolidge.
The Democrats, on the other hand, who had long promoted the interests of the individual and the state, by 1900 demanded the tempering of laissez-faire economics with government intervention. The initial programs of the Populists and Progressives bore fruit during the 1930s with the Roosevelt administration. The Democrat Franklin Delano Roosevelt, who cut his political teeth on Progressive and Wilsonian politics, realized that the Great Depression symbolized the bankruptcy of laissez-faire economics. The New Deal of the 1930s followed by the Fair Deal of the 1940s and 1950s, and the New Frontier and Great Society of the 1960s, revealed the commitment of the Democratic party to government taking over the pursuit of the common good. Twentieth-century philosophers like John Maynard Keynes declared that the once positive assumptions of economic liberalism had fallen short, that private interest did not somehow miraculously work for the common good, that it was up to government to temper private interest for the good of all people.
The Great Depression of 1929 and after was the watershed in the history of laissez-faire economics. The Depression caused such panic and anxiety, weakened and destroyed the economies of great nations, that no Western industrial government would advocate a return to the principles of laissez-faire. Even the conservative Republicans of American politics and the Tories in Great Britain were forced to concede the failure of economic liberalism. Pure laissez-faire economics had come to an end.
Heilbroner, Robert L. The Worldly Philosophers: The Lives, Times, and Ideas of the Great Economic Thinkers. New York: Time Incorporated, 1962.
Ekelund, Jr., Robert B. and Robert F. Hebert. A History of Economic Theory and Method. New York: McGraw-Hill, 1975.
Jefferson, Thomas. “Notes on the State of Virginia.” In The Life and Selected Writings of Thomas Jefferson. New York: Modern Library, 1944. Hofstadter, Richard. The Age of Reform: From Bryan to FDR. New York: Knopf, 1981.