Laissez-faire is the doctrine that the government of a state should have no control at all over economic matters. It is especially associated with 19th-century Liberalism, butis by no means absent from the modern world. In origin it was a liberal opposition to traditional, semi-feudal, monopolistic patterns in which the state involved itself in direct control of aspects of the economy for general purposes of policy. It later came to signify opposition to any governmental infringement on the absolute freedom of contract, because it was believed that maximal economic performance was possible only where the market forces of supply and demand were allowed to find their own balance, under which conditions everyone, whether entrepreneur or unskilled worker, would be better off. Thus controls, even minimum-wage laws or restrictions on child labour hours, were seen as unacceptable infringements on total economic freedom. The political theory of laissez-faire was buttressed by adherence to the early versions of technical economic theory, the ‘perfect competition’ theories of writers like David Ricardo (1772–1823) and Alfred Marshall (1842–1924), who tried to show that an economy consisting of many equally-small units of production would automatically work to maximize social value.
For a long time the common law doctrines of contract also operated to support this position, despite the fact that both legal and effective monopolies were distorting the perfect competition model, and inequalities of bargaining power, especially between workers and employers, were reducing the theoretical fairness of laissez-faire policies. Although it was claimed that laissez-faire required a total independence of the economy and the political system, it was in fact dependent on political support for established power relations. Nevertheless, advocates of laissez-faire economic policies are still occasionally influential in policy-making in modern societies, and there are certain connections between this doctrine and other conservative economic policies, especially monetarism.
Rather weak and modified versions of laissez-faire economic philosophy have been behind the policies of recent conservative governments, notably the Thatcher governments in the United Kingdom and the administrations of Reagan and the elder and younger Bush in the USA. Essentially identical policies were followed by ‘New Labour’ after its election in 1997, including their granting independence to the Bank of England. One reason why these and similar governments cannot return entirely to laissez-faire is that the old theories relied on the external control of the gold standard to regulate currency values, which was abandoned by most countries in the early 1930s. Modern versions of automatic currency control, the process culminating in the European Union’s Economic and Monetary Union, have perhaps nudged European economies a little further back to this economic theoretical ideal.
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