The 20th-century British economist John Maynard Keynes was a prominent critic of laissez-faire economics, and he argued that the question of market solution versus government intervention needed to be decided on a case-by-case basis. Ivar Jonsson. Routledge, Mises Institute. Foundation for Economic Education. John Maynard Keynes. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.
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I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Economics Behavioral Economics. What Is Laissez-Faire? Key Takeaways Laissez-faire is an economic philosophy of free-market capitalism that opposes government intervention. The theory of laissez-faire was developed by the French Physiocrats during the 18th century and believes that economic success is more likely the less governments are involved in business.
By laissez faire they mean simply let work, and by laissez passer, allow exchange; in other words, the physiocrates demand, by these phrases, the liberty of labor, and the liberty of commerce. Jabard made this same assertion, about half a century ago, in the numerous pamphlets which he published, and even went so far as to assert that by laissez faire and laissez passer economists understood "unrestrained depredation.
Economists do not apply their axiom to morals, politics or religion, which subjects they do not consider at all as economists, but only inasmuch as they relate to human activity and human industry; they do not pretend that men should be allowed to do everything, and that everything should be allowed to pass, but simply that men should be allowed to work and to exchange the fruits of their labor without hindrance and without being subjected to preventive measures, under the protection of laws repressing attempts against the property and labor of another.
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Based on these principles, laissez-faire economics endorse a system of capitalism, in which private parties control the means of production. Rather than regulating the market, the government should let capitalism run free without interference. Another tenet of this theory is the idea of a free market economy according to natural laws of supply and demand. Free market theory states that if prices are set too high, consumers will not pay for goods and services and the market will naturally correct itself.
Finally, rational market theory is a fundamental principle in laissez-faire economics. This assumes that investors base their actions on facts and logic, taking emotions out of the equation. A purely laissez-faire economy has yet to be seen, but governments have applied some of its principles.
Here are a few laissez-faire examples you can see at play in the real world:. Trickle-down economics: Former US President Ronald Reagan was a major believer in trickle-down economics in the s. Based on laissez-faire policy, it allowed private businesses to make as much money as possible without intervention in the idea that this wealth would trickle down to individuals. Tax cuts: When governments cut taxes to stimulate the market, this is based on laissez-faire theory as well.
The idea is that removing regulations or taxes helps put more money into the market by encouraging spending. Privatising state assets: When the government sells state assets, such as transport or postal services, this is laissez-faire economics at work.
Laissez-faire capitalism creates incentives for entrepreneurs to work harder and be more productive.
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