What is Laissez Faire?
Laissez Faire is an economic policy based on the premise that the government should not intervene in the marketplace. The laissez faire doctrine advocates for minimal meddling by the government in the economic affairs of individuals and society.
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How the Laissez Faire Economic Theory Works
The term “laissez faire” traces its origins to eighteenth-century economists in France, and translates to “left alone” (or “let it be”).
The laissez faire doctrine rejects the practice of government intervention in a country’s economic affairs. In fact, governmental interference is viewed as an impediment to a country’s economic growth, prosperity, and development.
But contrary to common misconception, laissez faire does not mean the government should have no involvement at all in the lives of the people it represents. Instead, the belief system is that there should be no interference beyond the necessary scope, such as the maintenance of peace, safety, and property rights.
The government’s involvement in the economy and the lives of its people should be constrained to circumstances where their life and private property are at risk, rather than at all times.
What are the Characteristics of Laissez-Faire Policies?
An economic system built upon laissez-faire is a free market, wherein the role of the government is limited.
Economist Adam Smith – the author of The Wealth of Nations – wrote about the “invisible hand” in the markets, which describes the natural forces at play in free markets and capitalism.
In theory, societies thrive in free markets if the economy is left in the hands of those who compete without any interference from the government. Proponents of laissez-faire policies state that the market is most functional when it is allowed to self-regulate through supply and demand.
Suppose the government does attempt to control the marketplace by establishing laws and rules. The natural forces within the economy are obstructed, and the economic growth from increased production and consumption will decline.
The most notable characteristics of countries governed under laissez-faire policies are as follows.
- Free Market (i.e. “Self-Regulating”)
- Limited Government Interference in Marketplace
- Individuals Act in Self-Interest (and Self-Interest → Societal Benefits)
- Unrestricted Trade (i.e. No Taxes, Few Regulations)