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Laissez-faire (/ˌlɛsˈfɛər/; French: [lɛsefɛʁ] (About this soundlisten); from French: laissez faire, lit. 'let do') is an economic system in which transactions between private parties are absent of any form of economic interventionism such as regulation and subsidies. As a system of thought, laissez-faire rests on the axioms[1] that the individual is the basic unit in society and has a natural right to freedom; that the physical order of nature is a harmonious and self-regulating system; and that corporations are creatures of the state and therefore the citizens must watch them closely due to their propensity to disrupt the Smithian spontaneous order.[2]

These axioms constitute the basic elements of laissez-faire thought. Another basic principle holds that markets should be competitive, a rule that the early advocates of laissez-faire always emphasized.[1] With the aims of maximizing freedom and of allowing markets to self-regulate, early advocates of laissez-faire proposed a impôt unique, a tax on land rent (similar to Georgism) to replace all taxes that they saw as damaging welfare by penalizing production.[3]

Proponents of laissez-faire argue for a complete separation of government from the economic sector.[4][verification needed] The phrase laissez-faire is part of a larger French phrase and literally translates to "let [it/them] do", but in this context the phrase usually means to "let it be" and in expression "laid back."[5] Laissez-faire capitalism started being practiced in the mid-18th century and was further popularized by Adam Smith's book The Wealth of Nations.[6][7] It has been most prominent in Britain and the United States in the 19th century. While associated with capitalism in common usage, there are also non-capitalist forms of laissez-faire, including some forms of market socialism.

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" ("Leave it to us" or "Let us do [it]", the French verb not requiring an object).[8]

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.[9] Argenson himself had used the phrase earlier (1736) in his own diaries in a famous outburst:

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 cœur de satisfaites dans ce principe, et l’intérêt y est opposé. Laissez faire, morbleu ! Laissez faire !![10]

Let go, which should be the motto of all public power, since the world was civilized [...]. [It is] a detestable principle of those that want to enlarge [themselves] but by the abasement of our neighbours. There is but the wicked and the malignant heart[s] [who are] satisfied by this principle and [its] interest is opposed. Let go, alas.[11]

— René Louis de Voyer de Paulmy d'Argenson

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.[12] Quesnay coined the phrases laissez-faire and laissez-passer,[13] laissez-faire being a translation of the Chinese term wu wei (無為).[14] Gournay ardently supported the removal of restrictions on trade and the deregulation of industry in France. Delighted with the Colbert–Le Gendre anecdote,[15] he 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 his contemporaries, notably his fellow Physiocrats, who credit both the laissez-faire slogan and the doctrine to Gournay.[16]

Before d'Argenson or Gournay, P. S. de Boisguilbert had enunciated the phrase "On laisse faire la nature" ("Let nature run its course").[17] D'Argenson himself during his life was better known for the similar, but less-celebrated motto "Pas trop gouverner" ("Govern not too much").[18] However, Gournay's use of the laissez-faire phrase as popularized by the Physiocrats gave it its cachet.[citation needed]

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.[19] It is with the Physiocrats and the classical political economy that the term laissez-faire is ordinarily associated.[20] 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".[19]

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 (co-authored with Benjamin Franklin) re-told the Colbert-LeGendre anecdote—this may mark the first appearance of the phrase in an English-language publication.[21]

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!"[22] In Spencer's case, the right of private ownership was being assailed and it was that miserable spirit of laissez-faire in halls of legislation that exhausted men in the effort of protecting their right.[citation needed]

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".[1] In a similar vein, Adam Smith[when?] 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.[1] By extension, free markets become a reflection of the natural system of liberty.[1] 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".[1]

However, Smith[23] 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[original research?] James Mill's reference to the laissez-faire maxim (together with the "Pas trop gouverner" motto) 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 (founded 1838), the term received much of its English meaning.[24][need quotation to verify]

Smith first used the metaphor of an invisible hand in his book The Theory of Moral Sentiments (1759) to describe the unintentional effects of economic self-organization from economic self-interest.[25] Although not the metaphor itself, the idea lying behind the invisible hand belongs to Bernard de Mandeville and his Fable of the Bees (1705). In political economy, that idea and the doctrine of laissez-faire have long been[by whom?] closely related.[26] Some have characterized the invisible-hand metaphor as one for laissez-faire,[27] although Smith never actually used the term himself.[23] In Third Millennium Capitalism (2000), 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".[28]

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".[29]

History

Europe