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Laissez-faire is short for "laissez faire, laissez passer," a French phrase meaning "let do, let pass." It is pronounced approximately lessEH fare, lessEH pahssEH.

First used by the eighteenth century Physiocrats as an injunction against government interference with trade, it is now used as a synonym for strict free market economics. Laissez-faire economic policy is in direct contrast to statist economic policy. 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).

As well as being used in economic management, the term has also been applied more broadly to a style of management and leadership. It describes any form of control where the controlled are given most or all of the decision-making power.

Some use the term anarchist as a synonym for this use of laissez-faire. Small Government and Minarchism are other synonyms used when describing this theory being applied to government. Both terms can include economic policy.

Some critics of laissez-faire argue that the attainment of pure capitalism is impossible, for example since it is difficult to deal with market failures without an active role for government.

Laissez-faire (imperative) is distinct from laisser faire (infinitive), which refers to a careless attitude in the application of a policy, implying a lack of consideration or thought.

Economic Theory

The laissez-faire school of economic thought holds a pure or free 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 economy.

History

Pre WWII

Thomas Jefferson was one of the first to use the laissez-faire philosophy, as it can easily be interpreted through his inaugural speech.

Laissez-faire philosophy was dominant in the late 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, there are critics who suggest that what was described as "laissez-faire" policy was simply pro-business policy, as with large subsidies for businesses to produce the railroads in the United States or the common use of tariffs by Republican presidents there. 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.

For many, laissez-faire theories fell into disrepute because of their failure to allow governments to deal with managing the economy during and after World War I, and their alleged role in creating the Great Depression.

However, some libertarians, such as Milton Friedman argue that by the time of the Great Depression, significant government economic regulation had already taken place in most major economies, as workers and employees in all industries organized themselves into trade unions to demand better living standards, as well as various checks and balances to the perceived "tyranny of laissez-faire".

Workers succeeded in obtaining minimum wage laws and a progressive income tax in some countries. International trade barriers were also in the policy pipeline (e.g. Smoot-Hawley Tariff in the USA). So, according to the above-mentioned libertarians, the economies that suffered from the Depression, although possibly closer to laissez-faire than any other economic models that were ever used, still did not embrace pure capitalism.

Post WWII

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) and such luminaries as Ludwig von Mises and Friedrich Hayek. Some argued that if the Free World was truely defined by it's freedom, then it's citizens should have full economic freedoms.

Hong Kong was the first Free World territory to embrace laissez-faire economic policy in this era, having officialy followed that path since the 1960s and perhaps earlier.

During the late 1970's, the Free World experienced many economic difficulties. The government of Prime Minister Margaret Thatcher in the United Kingdom believed that lessening the power of the state in the economy would improve things. After a period of intense pain to many, this was found to be the case.

Following Thatcher's lead, President Ronald Reagan of the United States, Finance Minister Roger Douglas of New Zealand and Chile's military ruler General Augusto Pinochet also followed a generally laissez-faire path during the 1980's. Other Western leaders implemented more laissez-faire policies at this time, but not to the same extent as these countries.

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, significant redistribution through tax, welfare and subsidy programs, government ownership of businesses, regulation of market competition and economic trade barriers.

However, much less intervention occurs than did before Thatcher and Reagan's changes were made.

• Supply-side economics

Contrast:

• Central planning
• Collectivism
• Communism
• Corporatism
• Dirigisme
• Economic Democracy
• Fascism
• Government ownership
• Market socialism
• Mixed economy
• Planned economy
• Public ownership
• Socialism
• Statism
• Third way

• Economic ideologies