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A Brief History of Laissez-faire Capitalism

Rujuta Patil Mar 15, 2020
An economy without government interference, where individuals are free to trade, defines the system of laissez-faire capitalism. Historyplex gives you a brief overview of the history of this economic system, which emerged around the mid-18th century.


One of the first well-developed theories of economics, physiocracy, believed that all the wealth of nations came from 'land agriculture'. 18th century physiocrats proclaimed the idea of laissez-faire capitalism.
Legend has it that French minister Jean-Baptiste Colbert, a mercantilist, on asking French businessmen about how the French state could help their trade, got the answer 'Laissez-nous faire' from a merchant named M. Le Gendre. It meant 'let us be'.
The literal translation of the original French term 'laissez-faire' is 'let it/them do' or 'allow to do'. It is taken as 'let it be', or interpreted as letting things stay as they are. Therefore, laissez-faire is also known as free-trade, free-market capitalism, non-intervention, or simply non-interference of the government.

What is Laissez-faire Capitalism?

Laissez-faire indicates an economic system where individuals are free from government regulations, tariffs, or subsidies, and can carry out independent trade. Private industrial ownership is another way to describe such an economy. Capitalism is also defined as one economic system where industry is privately owned, without any government interference.
So, both the terms 'laissez-faire' and 'capitalism' indicate that the market (or even the society) is left alone to conduct all economic activities by itself. This system basically separates the spheres of economy and state (or government).

History of Laissez-faire Capitalism

French physiocrat Vincent de Gournay is believed to have made the term 'laissez-faire' popular. He is said to have adopted it from the writings of François Quesnay on China. The Chinese term 'wu wei', meaning 'non-action' or 'without-action', is the reason behind the coining of this French term by Quesnay.

Physiocrats (France)

Laissez-faire capitalism can be viewed in complete contrast with the former economic system of 'mercantilism' in Europe. Physiocrats (believing in the natural order, and that wealth accrued only from land agriculture) were most active between 1756 and 1778.
These physiocrats opposed mercantilist regulation policies of France. They maintained that individuals given liberty to work on their selfish interests leads to the common good, and thus upheld the principle of 'natural order'.
For this free action to become successful, they insisted upon no intervention by the government, also denying any aid from the state. The physiocrats demanded abolishing of all trade barriers (which they called artificial) and all restrictive laws.

Classical Economics (Britain)

Physiocratic literature spread to other nations besides France, especially to Britain. The concept of laissez-faire capitalism received good support within classical economics. The classical economics era―late 18th and early 19th century―is identified with economists like Adam Smith, Thomas Malthus, Jean-Baptiste Say, and David Ricardo.
Classical economics states that, market forces work the best without government intervention. The concept of 'the invisible hand' given by Adam Smith is thus seen as closely related to the idea of laissez-faire; also regarded to be one and the same by some.
Doing away with the laws constraining the market forces was advocated by classical economists, but they never used the term laissez-faire. John Stuart Mill, in his 'Principles of Political Economy' (1848), advanced the laissez-faire philosophy, from where it gained popularity. He argued for and against government's activity in the economy.
The Economist, a British newspaper started in 1843, was a potent voice of laissez-faire capitalism in Europe. The Economist was founded to further the repeal of the 'Corn Laws', or the laws protecting landowners' interests, levying taxes on imported wheat, thus resulting in high prices of bread.
"It is no man's business to provide for another", is what James Wilson said while referring to the ongoing Ireland famine, when laissez-faire pleaders were against food aid during famines.

Laissez-faire Capitalism During the Gilded Age (U.S.A.)

Herbert Spencer's 'Social Theory of Evolution', or what is commonly called 'Social Darwinism', was understood to justify laissez-faire capitalism. This theory served as its base in the United States.
According to Spencer, most taxes were like confiscation of wealth. He believed national defense and protection of private property to be the only purposes of government. Spencer opposed public school system, laws regarding health, housing, and aid to the poor.
The Gilded Age refers to the period from around 1860s to 1900. Along with free-trade, this period saw a rapid growth of industrialization in the US. There was no income tax levied on the huge profits made by owners of industries. Non-interference by government and competition in business led to monopolies, compromising the aspect of 'fair' trade.
Wages and working conditions of the laborers were also not regulated. Just like there was an immense economic growth, there were depressions too, which resulted in pay cuts and unemployment.
Workers' strikes and labor unions proved unsuccessful, also partly because the Supreme Court supported the system of laissez-faire. Therefore, many laws trying to regulate certain things like wages or working conditions were struck down as unconstitutional.
Although once a powerful thought of economic policy, laissez-faire capitalism is not to be found in its pure form in any economy. It is difficult to 'leave everything to market forces', and not expect a situation of anarchy.
Government intervention, either in the form of aid or legal restrictions, has proved to be a significant part of any economic organization. Which is why, a 'mixed economy', combining both liberal and welfare elements proves to be a better form.