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Laissez Faire Economics: Definition & Examples

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  • 0:00 Definition
  • 0:30 Brief History
  • 1:45 Notable Events And Dates
  • 2:40 Examples Of Actual and…
  • 5:00 Lesson Summary
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Lesson Transcript
Instructor: Aaron Hill

Aaron has worked in the financial industry for 14 years and has Accounting & Economics degree and masters in Business Administration. He is an accredited wealth manager.

Find out what 'laissez faire' means and why so many people feel strongly in this economic belief. Learn why the approach seems to come and go through history and where it got its origins.

Definition

Laissez faire is the belief that economies and businesses function best when there is no interference by the government. It comes from the French, meaning to leave alone or to allow to do. It is one of the guiding principles of capitalism and a free market economy. It is the belief that each individual's self-interest to do better, strong competition from others, and low taxes will lead to the strongest economy, and therefore, everyone will benefit as a result.

Brief History

Laissez faire is often associated with the well-known economist Adam Smith and his book Wealth of Nations (1776), which noted that human beings are naturally motivated by self-interest, and when there is no interference in their economic activities, a natural and more efficient balance in society exists.

In the 18th century, French economists became upset with taxes and subsidies that were being imposed on their businesses. They believed that governments should leave the individual businesses alone, except when social liberties were infringed upon. In the 19th century, this philosophy became mainstream in the U.S. It wasn't long after this that the 'free market' approach started to display problems, such as large gaps in distribution of wealth, poor treatment of workers, and lack of safety in the workplace. By the mid-19th century, governments in most advanced countries became more involved in protecting and representing the safety and concerns of workers and the general population. This was the beginning of many of the factory laws and consumer protection laws that are being established and modified today.

Notable Events and Dates

There are several notable events in the evolution of laissez faire economics.

  • Laissez faire support hit a high point in the 1800s with the Industrial Revolution.
  • Public opinion during the presidencies of Theodore Roosevelt and Woodrow Wilson started changing to support more government involvement and a less laissez faire approach, and to curb the abuses of child labor, long factory hours, and poor working environments.
  • Laissez faire became popular again during the strong economy of the 1920s but fizzled after the 1929 stock market crash and the Great Depression in the 1930s.
  • In the 1970s and '80s, Ronald Reagan and Margaret Thatcher both stressed the importance of laissez faire, as evidence mounted around the inefficiencies in state-run government and policies.

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