Laissez-faire
Laissez-faire implies that nothing restricts what happens, irrespective of the potential consequences.
In the financial area, it is a type of economic system in which transactions between private individuals are free from any form of economic interventionism.
Applied to a system of thought, laissez-faire implies the following axioms: "the individual is the basic unit in society, i.e., the standard of measurement in social calculus; the individual has a natural right to freedom; and the physical order of nature is a harmonious and self-regulating system." The original phrase was laissez faire, laissez passer, with the second part meaning "let pass". It is generally attributed to Vincent de Gournay.
In its application to markets, the principle of laissez-faire holds that markets should naturally be competitive, a rule that the early advocates of laissez-faire always emphasized.
The Physiocrats were early advocates of laissez-faire and advocated for an impôt unique, a tax on land rent to replace the "monstrous and crippling network of taxation that had grown up in 17th century France". Their view was that only land should be taxed because land is not produced but a naturally existing resource, meaning a tax on it would not be taking from the labour of the taxed, unlike most other taxes.
Proponents of laissez-faire argue for a near complete separation of government from the economic sector. The phrase laissez-faire is part of a larger French phrase and literally translates to "let do", but in this context the phrase usually means to "let it be" and in expression "laid back". Although never practiced with full consistency, laissez-faire capitalism emerged in the mid-18th century and was further popularized by Adam Smith's book The Wealth of Nations.
Etymology and usage
The term laissez-faire likely originated in a meeting that took place around 1681 between powerful French Controller-General of Finances Jean-Baptiste Colbert and a group of French businessmen headed by M. Le Gendre. When the eager mercantilist minister asked how the French state could be of service to the merchants and help promote their commerce, Le Gendre replied simply: "Laissez-nous faire".The anecdote on the Colbert–Le Gendre meeting appeared in a 1751 article in the Journal économique, written by French minister and champion of free trade René de Voyer, Marquis d'Argenson—also the first known appearance of the term in print. Argenson himself had used the phrase earlier in his own diaries in a famous outburst:
Vincent de Gournay, a French Physiocrat and intendant of commerce in the 1750s, popularized the term laissez-faire as he allegedly adopted it from François Quesnay's writings on China. Quesnay coined the phrases laissez-faire and laissez-passer, laissez-faire being a translation of the Chinese term wu wei. However, this translation could be a deviation from its meaning in the original context of Classical Chinese philosophy. Gournay ardently supported the removal of restrictions on trade and the deregulation of industry in France. Delighted with the Colbert–Le Gendre anecdote, he forged it into a larger maxim all his own: "Laissez faire et laissez passer". His motto has also been identified as the longer "Laissez faire et laissez passer, le monde va de lui même !". Although Gournay left no written tracts on his economic policy ideas, he had immense personal influence on his contemporaries, notably his fellow Physiocrats, who credit both the laissez-faire slogan and the doctrine to Gournay.
Before d'Argenson or Gournay, P. S. de Boisguilbert had enunciated the phrase "On laisse faire la nature". D'Argenson himself during his life was better known for the similar, but less-celebrated motto "Pas trop gouverner".
The Physiocrats proclaimed laissez-faire in 18th-century France, placing it at the very core of their economic principles and famous economists, beginning with Adam Smith, developed the idea. It is with the Physiocrats and the classical political economy that the term laissez-faire is ordinarily associated. The book Laissez Faire and the General-Welfare State states: "The physiocrats, reacting against the excessive mercantilist regulations of the France of their day, expressed a belief in a 'natural order' or liberty under which individuals in following their selfish interests contributed to the general good. Since, in their view, this natural order functioned successfully without the aid of government, they advised the state to restrict itself to upholding the rights of private property and individual liberty, to removing all artificial barriers to trade, and to abolishing all useless laws."
The French phrase laissez-faire gained currency in English-speaking countries with the spread of Physiocratic literature in the late 18th century. George Whatley's 1774 Principles of Trade re-told the Colbert-LeGendre anecdote; this may mark the first appearance of the phrase in an English-language publication.
Herbert Spencer was opposed to a slightly different application of laissez faire—to "that miserable laissez-faire" that leads to men's ruin, saying: "Along with that miserable laissez-faire which calmly looks on while men ruin themselves in trying to enforce by law their equitable claims, there goes activity in supplying them, at other men's cost, with gratis novel-reading!"
As a product of the Enlightenment, laissez-faire was "conceived as the way to unleash human potential through the restoration of a natural system, a system unhindered by the restrictions of government". In a similar vein, Adam Smith viewed the economy as a natural system and the market as an organic part of that system. Smith saw laissez-faire as a moral program and the market its instrument to ensure men the rights of natural law. By extension, free markets become a reflection of the natural system of liberty. For Smith, laissez-faire was "a program for the abolition of laws constraining the market, a program for the restoration of order and for the activation of potential growth".
However, Smith and notable classical economists such as Thomas Malthus and David Ricardo did not use the phrase. Jeremy Bentham used the term, but it was probably James Mill's reference to the laissez-faire maxim in an 1824 entry for the Encyclopædia Britannica that really brought the term into wider English usage. With the advent of the Anti-Corn Law League, the term received much of its English meaning.
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. Although not the metaphor itself, the idea lying behind the invisible hand belongs to Bernard de Mandeville and his Fable of the Bees. In political economy, that idea and the doctrine of laissez-faire have long been closely related. Some have characterized the invisible-hand metaphor as one for laissez-faire, although Smith never used the term.
American individualist anarchists such as Benjamin Tucker saw themselves as economic laissez-faire socialists and political individualists while arguing that their "anarchistic socialism" or "individual anarchism" was "consistent Manchesterism".
In Third Millennium Capitalism, Wyatt M. Rogers Jr. notes a trend whereby recently "conservative politicians and economists have chosen the term 'free-market capitalism' in lieu of laissez-faire".
History
Rome
Roman law developed during the 1st to 3rd centuries AD, and was divided between public and private law. Public law dealt with the administration of government, whereas private law regulated interactions between individuals. According to Rothbard, Roman "Private law developed the theory of the absolute right of private property and of freedom of trade and contract. While Roman public law theoretically allowed state interference in the life of the citizen, there was little such interference in the late Republic and early Empire. Private property rights and laissez-faire were therefore the fundamental heritage of the Roman law to later centuries, and much of it was adopted by countries of the Christian West."Europe
In Europe, the laissez-faire movement was first widely promoted by the Physiocrats, a movement that included Vincent de Gournay, a successful merchant turned political figure. Gournay is postulated to have adapted the Taoist concept wu wei, from the writings on China by François Quesnay. Gournay held that government should allow the laws of nature to govern economic activity, with the state only intervening to protect life, liberty and property. François Quesnay and Anne Robert Jacques Turgot, Baron de l'Aulne took up Gournay's ideas. Quesnay had the ear of Louis XV, King of France, and in 1754 persuaded him to give laissez-faire a try. On September 17, the King abolished all tolls and restraints on the sale and transport of grain. For more than a decade, the experiment appeared successful, but 1768 saw a poor harvest, and the cost of bread rose so high that there was widespread starvation while merchants exported grain to obtain the best profit. In 1770, the Comptroller-General of Finances Joseph Marie Terray revoked the edict allowing free trade in grain.The doctrine of laissez-faire became an integral part of 19th-century European liberalism. Just as liberals supported freedom of thought in the intellectual sphere, so were they equally prepared to champion the principles of free trade and free competition in the sphere of economics, seeing the state as merely a passive policeman, protecting private property and administering justice, but not interfering with the affairs of its citizens. Businessmen, British industrialists in particular, were quick to associate these principles with their own economic interests. Many of the ideas of the physiocrats spread throughout Europe and were adopted to a greater or lesser extent in Sweden, Tuscany, Spain and in the newly created United States. Adam Smith, author of The Wealth of Nations, met Quesnay and acknowledged his influence.
In Britain, the newspaper The Economist became an influential voice for laissez-faire capitalism. Laissez-faire advocates opposed food aid for famines occurring within the British Empire. In 1847, referring to the famine then underway in Ireland, founder of The Economist James Wilson wrote: "It is no man's business to provide for another". More specifically, in An Essay on the Principle of Population, Malthus argued that there was nothing that could be done to avoid famines because he felt he had mathematically proven that population growth tends to exceed growth in food production. However, The Economist campaigned against the Corn Laws that protected landlords in the United Kingdom of Great Britain and Ireland against competition from less expensive foreign imports of cereal products. The Great Famine in Ireland in 1845 led to the repeal of the Corn Laws in 1846. The tariffs on grain which kept the price of bread artificially high were repealed. However, repeal of the Corn Laws came too late to stop the Irish famine, partly because it was done in stages over three years.
A group that became known as the Manchester Liberals, to which Richard Cobden and John Bright belonged, were staunch defenders of free trade. After the death of Cobden, the Cobden Club continued their work. The breakdown of laissez-faire as practised by the British Empire was partly led by British companies eager for state support of their positions abroad, in particular British oil companies.
In Italy, philosopher Benedetto Croce created the term "liberism", a term for the economic doctrine of laissez-faire capitalism; it is synonymous with economic liberalism. He claimed that "Liberalism can prove only a temporary right of private propriety of land and industries." It was popularized in English by Italian political scientist Giovanni Sartori. Sartori specifically imported the term from Italian to distinguish between social liberalism, which is generally considered a political ideology often advocating extensive government intervention in the economy, and those economic liberal theories that propose to virtually eliminate such intervention. In informal usage, liberism overlaps with other concepts such as free trade, neoliberalism, right-libertarianism, the American concept of libertarianism, and the laissez-faire doctrine of the French liberal Doctrinaires. The intention of Croce and of Sartori to attack the right to private property and to free enterprise separating them from the general philosophy of liberalism, that is primarily a theory of natural rights, was always criticised openly by the quoted philosophers and by some of the main representatives of liberalism, such as Luigi Einaudi, Friedrich Hayek, and Milton Friedman. The Austrian School economist Eugen von Böhm-Bawerk argues that the differences between the economical concept of liberism and the economical consequences of liberalism can be summarized by saying that "A market is a law system. Without it, the only possible economy is the street robbery."