Laissez-Faire Essay ⋆ Political Science Essay Examples ⋆ EssayEmpire

The apocryphal origin of the term laissez-faire is traced to Jean-Baptiste Colbert, finance minister to Louis XIV in seventeenth-century France. Colber t, who believed in state wealth and regulation (turning France into “a nation of shopkeepers” according to English political economist Adam Smith), at one time asked a group of manufacturers what the state might do for them. One replied, “Laissez nous faire,” translated as “let us do” or “leave us alone. ”These words, recorded by French physiocrats in the eighteenth century who believed in unhindered commerce, were later taken up by influential thinkers such as Smith, who made them famous in his work The Wealth of Nations, first published in 1789. While writing of the free exchange and trade of goods, Smith shied away from the term laissez-faire itself, which is now closely associated with him, especially in the r ise of capitalism and free trade in nineteenth-century Europe. Meanwhile, economic historians often note that the physiocrats stood more for “pas trop gouverner” (do not govern too much) than a complete hands-off approach. Advocates of laissez-faire agree on minimal government intervention in the economy; the debates are on what minimal would constitute. Smith himself relegated issues such as defense, currency, education, and control of monopolies to public means. The popular meaning of the term laissez-faire now refers to minimal government interventions and unhindered capitalism, markets, and commerce thereof.

European Origins

Ideas of laissez-faire contain several antecedents in the moral political economy of the modern era. That human beings should profit from their enterprise and be allowed to exchange the product of their labors can be traced back to Niccolò Machiavelli, who distinguished between “virtue” that is acquired and “fortune” given from birth. He privileged virtue, the exercise of which he saw as the source of good governance. However, Machiavelli’s contribution to a laissez-faire approach lies in favoring virtuous conduct among individuals, consistent with Renaissance philosophy; ideas of a noninterventionist state arose later. For example, French physiocrats likened the economy to a human body, believing that a natural harmony among various parts was possible if economic flows were continued unhindered and each part was allowed to function independently with its productive capacity encouraged. Adam Smith would reflect this idea of moral harmony in his writings on political economy, speaking of the “invisible hand” that guides productive endeavors:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. (Smith, 1977, 18) Ideas of self-love were also part of Scottish Enlightenment, which Smith furthered. For Smith, self-love and self-interest would generate growth and wealth rather than the visible hand of the state.

The growth of the English Industrial Revolution, attributed to economic incentives rather than regulation, boosted laissez-faire ideas and capitalism itself. In particular, enforcement of private property rights created large landholdings. The increased economies of scale from production and the consequent fall in the prices of products along with improvement in the means of transportation led to the creation and unification of national markets and search for international ones. By the mid-nineteenth century, exports accounted for about 20 percent of Britain’s national product. German markets began to be unified with the creation of the Zollverein, or the customs union, in 1834. France, by the mid-nineteenth century, was the leading producer of textiles on the continent. Modern markets were themselves a result of the Industrial Revolution.

The repeal of corn laws in Britain in 1846 was a triumph of industry over agriculture and followed the tilt of British legislative policies in Britain, which began to favor industrial towns over the agricultural countryside by the 1830s. These changes in the 1850s might be seen as the climacteric toward free trade in Britain followed by continental Europe. Again, free exchange and possibilities of peace were emphasized in intellectual thought best summarized in French economist Frédéric Bastiat’s words: “Where goods do not cross frontiers, armies will.”

Decline And Renewal

Between the late nineteenth century and World War II (1939–1945), laissez-faire ideas declined as many countries turned again to restrictions on trade and policies of mercantilism enforced through the visible hand of the state. This rise in protectionism coincided with the growth of the modern welfare state, central planning, and public ownership. Criticism of these developments was leveled by thinkers like Austrian economist Ludwig von Mises, who argued that the calculations required to sustain an economy were too complex for central planners. The Austrian school (which included F. A. Hayek and von Mises) and the Chicago school (including Milton Friedman) of economists intensified their defense of laissez-faire in the mid-twentieth century in response not only to the Soviet and Chinese central planning models, which they attacked as inimical to human freedom and enterprise, but also to Keynesian policies that grew the welfare state in the West. Meanwhile, at the international level, the foundation of the General Agreement on Tariffs and Trade (GATT) in 1947 led to progressive doses of liberalized, if not free, trade among its member states. GATT evolved to become the World Trade Organization (WTO) in 1995; together the two bodies have undertaken nine major rounds of liberalizing trade negotiations among countries.

Conclusion

Despite the continuing presence of the WTO and other regional trade blocs, the cause of free trade is increasingly in jeopardy, at least in Western countries, due to slow growth rates, global financial crises, and fears of imports from emerging markets. Academic and policy communities question whether unregulated self-interest or markets by themselves generate wealth and consumer welfare without leading to vast income inequalities or deleterious business cycles. The political will to open international markets is also declining. Nevertheless, world exports of goods and services were at an all-time high of $15.8 trillion and $3.7 trillion, respectively, in 2008. Domestically, capitalism is flourishing, even if government intervention occurs in varying degrees. Nevertheless, despite a brief period of success in the 1980s influencing U.S. president Ronald Reagan and British prime minister Margaret Thatcher, laissez-faire advocates have yet to win the battle of ideas in politics. The political fortunes of laissez-faire from Colbert’s France to the current regime in Communist China have been tied up in economic interests and their ability to persuade the state to “let go.”

Bibliography:

De Soto, Hernando. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. New York: Basic Books, 2003.
Hayek, F. A. The Road to Serfdom. 1944. Reprint, Chicago: University of Chicago Press, 1994.
Kindleberger, Charles. Economic Response: Comparative Studies in Trade, Finance, and Growth. Cambridge, Mass.: Harvard University Press, 1978.
Landes, David. The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present. New York: Cambridge University Press, 1969.
Rosenberg, Nathan, and L. E. Birdzell Jr. How the West Grew Rich: The Economic Transformation of the Industrial World. New York: Basic Books, 1986.
Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. 1789. Reprint, Chicago: University of Chicago Press, 1977.

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