Dictionary of Meaning

<<Back
Please select a letter:
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z | 0-9

Laissez-Faire

*** Shopping-Tip: Laissez-Faire
'''Laissez-faire''' (''lÉ›ze fÉ›r'') is short for "''laissez faire, laissez aller, laissez passer''," a French language French phrase meaning "let do, let go, let pass." from the French dictionary first used by the eighteenth century Physiocrats as an injunction against government interference with trade, it became used as a synonym for strict free market economics during the early and mid-19th century. It is generally understood to be a doctrine opposing economic interventionism by the state beyond that which is perceived to be necessary to maintain peace and property rights. In the early stages of European and American economics theory, laissez-faire economic policy was usually contrasted to ''statism statist'' economic policy. Though the contrast between ''free'' and ''controlled markets'' still has political currency, economists typically dismiss the contrast as simplistic, as with other of 19th century theories related to economy, politics, sociology, and even ethnicity. Thus the term ''laissez-faire'' is largely antiquated outside of certain contexts, and the term "free market" is dominant. Some may use the term ''laissez-faire'' to refer to "let do, let pass" attitude for concepts in areas outside of economics.{{fn|1}}

History
Adam Smith played a large role in popularizing ''laissez-faire'' economic theories in English-speaking countries, though he was critical of a number of aspects of what is currently thought of as laissez-faire (such as lack of government regulation of business practices). ''Laissez-faire'' philosophy was dominant throughout the late 19th century 19th and early 20th century in the wealthier countries of Europe and North America. Many historians also see that period as the height of ''laissez-faire'''s implementation in those countries. However, critics claim that what was described as "laissez-faire" policy was simply a proactive ''pro-business'' policy, and in practice there was little difference between pro-business and laissez-faire. In this context, ''laissez-faire'' rhetoric was used to justify denial of similar subsidies to the poor and working classes. Some believe these claims are still valid. Some argue that ''laissez-faire'' policies played a role in creating the Great Depression but many economists, such as Milton Friedman, argue that by the time of the Great Depression, significant government economic regulation had already taken place and that it was a combination of Federal Reserve policies and interventionist policies by the Herbert Hoover administration (such as raising income taxes on the highest incomes from 25% to 63%, a "check tax," and the Smoot-Hawley tariff which set off a protectionist world trade war) caused the Depression, by creating an environment in which the market depended upon it to act, and then attempting to remedy the situation by further interventions. The action of the Federal Reserve has been compared to ''putting a penny in the fuse-box'' of the economy. It is further argued by Friedman, and other laissez-faire advocates, that Roosevelt's New Deal further lengthened and worsened the depression. Like pure communism communism, pure capitalism capitalism has never existed in the real world. [This is debatable; the economy of current-day Somalia appears to be very much like pure capitalism.]

Cold War era
In the Cold War era, state regulation and involvement in the economy reached a peak. Such policies were implemented by most countries, no matter what side of the Iron Curtain they were on. In this environment ''laissez-faire'' economics assumed a stronger ideological edge, especially through the Austrian School (cf. Chicago School (economics) Chicago School) and such libertarian thinkers as Ludwig von Mises and Friedrich Hayek who argued that if the Free World was truly defined by its freedom, then its citizens should have full economic freedoms. Hong Kong was the first territory to embrace ''laissez-faire'' economic policy in this era, having officially followed that path since the 1960s and perhaps earlier. During the late 1970's, the West experienced many economic difficulties due in large part to the oil embargo and in the United States the reduction of protective tariffs for industry starting with the Kennedy-Round trade talks. Britain which had long followed the path of 'free trade' and 'imperialism' had lost many of its colonies in the 1960's. The government's in the United Kingdom also followed a more socialistic path taking over private industry and establishing a heavy welfare state without also increasing the amount of productive enterprises than did France under Dirigisme or Germany under Social Market Economy or Japan through her MITI economic programs; all of which resulted in economic 'miracles' of industrial growth in manufacturing in those three countries. The government of Prime Minister Margaret Thatcher in the United Kingdom believed that lessening the power of the state in the economy would improve conditions. She called for such measures as privatizing many state run corporations and services contrary to the successful programs practiced in France or Germany just across the English Channel. Following Thatcher's lead, President Ronald Reagan of the United States, Finance Minister Roger Douglas of New Zealand and Chile Chile's military ruler General Augusto Pinochet also follow a generally ''laissez-faire'' philosophy during the 1980's. Pinochet and Douglas followed the most severe forms where in Chile their Social Security programs were privatized and in New Zealand their mail service was privatized in both cases resulting in what modern trends show as poor results and in Chile's case very bad results for their Social Security program. President Reagan called his plan the "New Federalism" and it called for a reduction in welfare programs across the board; however Reagan did not follow a strict 'laisssez-faire' mentality towards trade, whereas several times during his administration he imposed quotas on Japanese cars, tariffs to protect certain industries such as tool-making (Craftsman tools) or motorcycles (Harley-Davidson). Other Western leaders implemented more ''laissez-faire'' policies at this time, but not to the same extent as these countries. Most modern industrialised nations today are not typically representative of ''laissez-faire'' principles, as they usually involve significant amounts of government intervention in the economy. This intervention includes minimum wages, corporate welfare subsidies to industry, anti-trust regulation, nationalization nationalized industries, progressive income taxes, social welfare welfare, subsidy programs for businesses and agricultural products, government ownership of businesses, regulation of market competition, and economic trade barriers. However, there are some economies regarded to be laissez-faire. The most often-cited is Hong Kong. Hong Kong is ranked number one in the Index of Economic Freedom which attempts to measure "the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself." Milton Friedman has praised the Hong Kong laissez-faire approach to the economy and credits that policy for the rapid move from poverty to prosperity in 50 years. [http://www.hooverdigest.org/983/friedman.html]

Economic theory
The ''laissez-faire'' school of economic thought holds a pure or libertarianism libertarian market view, that the free market is best left to its own devices; that it will dispense with inefficiencies in a more deliberate and quick manner than any legislating body could. The basic idea is that less government interference in private economic decisions such as pricing, production, and distribution of goods and services makes for a better (more efficient) economy. Adam Smith argued that the ''invisible hand'' of the market would guide people to act in the public interest by following their own self-interest, since the only way to make money would be through voluntary exchange, and thus the only way to get the people's money was to ''give the people what they want''. One does not get his dinner by appealing to the brother-love of the butcher, the farmer or the baker. Rather one appeals to their self interest, and pays them for their pains.

Other usage
{{fnb|1}}As well as being used in economic management, the term has also been applied more broadly to a style of management and leadership, where it typically describes any form of control where the controlled are given most or all of the decision-making power. In this limited usage, ''laissez-faire'' (imperative) has come to be distinct from ''laisser faire'' (infinitive), which refers to a careless attitude in the application of a policy, implying a lack of consideration or thought.

Criticism
As both laissez-faire and free markets are largely idealised concepts, critics use similar arguments against both, focusing largely on the inapplicability of any idealized theory of market economy to real world conditions. However some also have critiques of the intrinsic properties of theoretical "laissez-faire", maintaining that it has inappropriate bias of private over public goods, generates pervasive externalities throughout the system that invalidate economic calculation, etc. For example, critics believe that market failures are difficult to address in any meaningful way with market devices alone, and thus require regulation by a guardian central government or necessitate innovations in mechanisms and institutions that would effectively internalize external costs. Critics may consider ''laissez faire'' as only an ideological veneer, including for the public a simple type of folk mythology appealing to nostalgic sentiment, obscuring what is actually a system of localist protectionism often associated with typically conservative politics, which in turn may only function in the context of elite-controlled economic expansionism, (or economic imperialism). Some perceived market failures: *Markets without government intervention are claimed to aggregate into monopoly monopolies. One often claimed example of this is Standard Oil. However, it must be noted that when the trial that ultimately resulted in the government-imposed breakup of Standard began, the company was in competition with over 100 other refiners and Standard's share of oil refining was 64% from its high of 88% in 1890. *Markets without oversight are claimed to tend toward collusion as in Archer Daniels Midland *Markets without oversight are claimed to tend toward fraud as in Enron. However, laissez-faire does not mean there is no "oversight." In a laissez-faire system, fraud is illegal, and the state intervenes to stop it. Laissez-faire does not mean the lack of regulation, but the lack of regulations that go beyond protecting individuals from force and fraud.

See also
* Anarcho-capitalism * Economic liberalism * Capitalism * Criticisms of capitalism * Liberalism * Libertarianism * Manchester capitalism

Books
* ''Capitalism and Freedom'', by Milton Friedman, describes capitalism as the most free, most fair, and most egalitarian possible system * ''The Road to Serfdom'', by Friedrich Hayek, describes how collectivism and socialism lead to the Nazi takeover in Germany. * ''The Wealth of Nations'', by Adam Smith, describes the basis of capitalism, and is considered the first work to define economics as a science. * ''Capitalism: the Unknown Ideal,'' by Ayn Rand, argues that pure capitalism is the only moral social system

Contrast
*American System (economics) American System *Autarky *Central planning *Collectivism#Economics Collectivism *Communism *Corporatism *Dirigisme *Economic Democracy *Fascism *Government ownership *Market socialism *Mixed economy *Ordoliberalism *Planned economy *Socialism *Statism *Third way Category:Economic ideologies de:Laissez-faire et:Laissez faire es:Laissez faire fr:Laissez-faire it:Laissez-faire he:×œ×¡×” ×¤×¨ nl:Laissez-faire ja:ãƒ¬ãƒƒã‚»ãƒ•ã‚§ãƒ¼ãƒ« no:Laissez-faire pl:Leseferyzm pt:Laissez-faire sco:Laissez-faire sk:Laissez-faire fi:Laissez-faire sv:Laissez faire zh:ç©?æ¥µä¸?å¹²é ? see Laissez-faire

*** Shopping-Tip: Laissez-Faire