Laissez-Faire

BIBLIOGRAPHY

The term “laissez-faire” has been used in the literature of economics and politics with such a wide variety of meanings that it is necessary to be some-what arbitrary in denning what I shall take it to mean for the purpose of this article. Most of the explicit use of the term in the literature wears a negative aspect, being used by the writer not merely as a description but as a term of obloquy and even derision of the supposed views of others. This article however, deals with the positive substance of the concept of laissez-faire rather than with the etymological history of the term. For this purpose, I shall regard it as referring to a theory of the role of the state in economic life, but as something more than a theory—rather a maxim or doctrine, a principle of political theory that is fundamental, in the sense that particular questions of politics may be referred to it for judgment while it need not itself be referred to anything else.

The origin of the term has been ascribed to one Legendre, who, when the great Colbert asked a meeting of French businessmen what the state might do to assist them, pointedly replied, “laissez-nous faire.” The French economistes (physiocrats) of the third quarter of the eighteenth century used the term as a maxim of policy and were inclined to speak of the economy in terms which seemed to imply a belief in the natural harmony of the economic system. Despite the strong liberalist character of their political views, their disposition to argue in a priori terms, and their conception of the economy as an ordre naturel, they did not in fact hold as a principle that the state should never interfere in economic matters, so they ought not to be characterized as espousing a laissez-faire doctrine.

In England . Laissez-faire as a doctrinaire belief in the harmonious functioning (when let alone) of an economy of self-seeking private agents is most commonly attributed to the English school of classical economists. The name of Adam Smith, founder of the school, is treated in much of the literature, scholarly as well as popular, as almost a synonym for laissez-faire. Viner’s penetrating study (1927) of Smith shows that there is some ground for interpreting his first book, The Theory of Moral Sentiments, as representing a harmonistic conception of society but that this is not true of The Wealth of Nations. Viner’s interpretation is supported by any moderately attentive and unprejudiced reading of The Wealth of Nations and is deepened by an appreciation of the nature of governmental economic intervention in Smith’s time. The Wealth of Nations was a tract as much as a treatise, Smith being greatly concerned with attacking the chaotic mass of legislative and administrative restrictions that hampered economic activity in his day. If the phrase “laissez-faire” were construed to identify one who distrusts state intervention and believes that the world would be better off with less of it, Adam Smith, in the context of his own time, could properly be called an advocate of laissez-faire. But if it is a dogmatic principle that we are seeking to ascribe to him, we would be forced to depend for evidence on brief isolated passages from The Wealth of Nations that are clearly designed more for literary effect than for analytical service.

Robbins (1952) and others have shown that the writings and activities of the major classical economists after Ricardo also cannot be validly interpreted as evidencing doctrinaire laissez-faire. The classical economists did not attempt to present a harmonistic view of the unregulated economic world, and they did not advocate that the role of the state should be solely that of justice and defense. They supported state intervention in such concrete matters as sanitation, health, and conditions of factory employment. What misgivings they expressed regarding such proposals of state intervention in their time were based more on a concern for the maintenance of freedom of individual action than on any belief that the economic process would work best (normatively or technically) if left to work itself out without governmental intervention.

Doctrinaire laissez-faire views were, however, extensively expressed in Britain during the mid-nineteenth century by other, mainly popular, writers; and political economy was often claimed by them as scientific authority for a strict laissezfaire maxim. Harriet Martineau’s didactic novels, Illustrations of Political Economy, and the weekly issues of the London Economist under James Wilson’s editorship are outstanding examples of laissez-faire advocacy in this period (Gordon 1955). Thomas Hodgskin’s writings are interesting in that he carried the laissez-faire dogma to the point of anarchism and, as a result, is classified by most historians as a socialist! The most elaborated and thoroughgoing philosophy of individualism of the nineteenth century is to be found in the writings of Herbert Spencer. He and Frédéric Bastiat in France should be cited as the prime sources of laissez-faire doctrine in the writings of the mid-nineteenth century that pretended to more than journalistic significance. Bastiat referred to what he conceived to be the analytic content of classical political economy, but Spencer, whose scholarly influence proved to be much greater and more enduring, drew little or not at all from this source. There is some evidence that laissez-faire beliefs were strongly held by some influential members of the British bureaucracy in the mid-century period, and that, through them, the doctrine exerted an important influence upon policy in particular cases. This is a matter of uncommon historical interest, but too little is known as yet about this aspect of British political life to judge how extensive or how important it was. Late in the century, in response to a growing current of political radicalism and trade union agitation, extreme individualist views were expressed by a group of writers mainly connected with the Liberty and Property Defence League (e.g., the Duke of Argyll, Donisthorpe, Mallock, and Mackay), but no intellectual movement of any depth or persistence resulted.

A large part of the identification of classical political economy with laissez-faire stems from the role played by Malthusian population theory and classical wage theory in the intense controversies of the 1830s over the poor law and the legal status of workmen’s combinations. The “laws of political economy” were sternly invoked against labor unions and state welfare provisions. It was a small step for the working classes and others who felt keenly for their condition to conclude, first, that classical political economy preached laissez-faire and, second, that the whole business was only to be regarded as middle-class propaganda. From this period and this connection stem the most common use and identification of laissez-faire to be found in the literature down to the present day—that is, as a (rather scornful) label for the viewpoint of the bourgeois class, not really having to do with the limits of state intervention but with the question of who is to control, and in whose interest, the power structure of society.

The controversy over the corn laws in the 1840s also played an important role in the history of laissez-faire ideology. The leaders of the free-trade movement did not hold a general maxim of laissezfaire (Grampp 1960), although they often spoke in harmonist terms, which suggested a general laissezfaire belief, in their energetic attack on tariffs. The repeal of the corn laws in 1846 was followed by an extraordinary free-trade enthusiasm, amounting almost to the fervor of an evangelical faith. A good deal of the current belief that the Victorian age was actually one of laissez-faire results from a failure to distinguish between the general principle of laissez-faire and the much more limited scope of free international trade policy. England was a free-trade nation in the latter half of the century, but simultaneously with this development the state accepted more and more responsibilities (and opportunities) in the domestic economy. What is often called “the age of laissez-faire” was, in fact, the beginning of the modern welfare state (and even the planned economy). The political philosophy of liberalism, whose basic foundations were utilitarianism and humaneness (not, as is often supposed, fear of and opposition to state power), gradually evolved during the nineteenth century into its modern form, in which the state is regarded as a useful, indeed indispensable, instrument of human progress.

In the United States American economic and political thought of the early nineteenth century is sometimes characterized as laissez-faire, and, indeed, there is a strong general tradition of fear of governmental power in American life. The Jeffersonian conception of a severely limited government did not, however, become established, either in thought or in policy, in the first century of the republic. The economic writers who are sometimes represented to have held laissez-faire views (for example, John McVickar, Henry Vethake, Francis Wayland, and others) turn out, upon examination, to mark out a larger role for government in the economy than is consistent with a laissez-faire dogma. The presidential contest between Andrew Jackson and John Quincy Adams in 1828 was focused to a considerable degree on the issue of state economic intervention, but Jackson’s victory did not in fact begin an era of laissez-faire in either the domestic or external economic policy of the United States.

It is not possible to describe any substantial period of United States economic policy as one of general laissez-faire, but there was a period in American intellectual history when a dogmatic school of laissez-faire thought was of some significance. This was during the last quarter of the nineteenth century and was associated with the great popularity in American intellectual and business circles of Herbert Spencer’s ideas. Spencer’s chief intellectual disciple in America was William Graham Sumner, who taught at Yale and energetically advanced a thoroughly doctrinaire faith in laissez-faire. Sumner and the social Darwinists (Hofstadter 1944) were for a time an important influence in American academic circles, but there is little evidence that their extreme individualist doctrine penetrated generally into American intellectual life. The doctrine was sometimes advanced by businessmen during the period of radical ferment, muckraking, and trade union agitation of the late years of the nineteenth and early years of the twentieth century, but this was too palpably self-serving to win widespread support. Generally, the phase of social Darwinism has been much exaggerated in American intellectual historiography.

Whatever laissez-faire leanings existed among the established American economists (and they were by and large too qualified to be considered doctrinaire) were opposed frontally in the 1880s by the younger economists led by R. T. Ely. The American Economic Association was founded by them explicitly as a vehicle for the expression of their views on the principle of the necessary positive role of the state.

There are certain elements of American history and political tradition that would seem to provide good conditions for the persistence and growth of an extreme individualist philosophy, but, in fact, such views have never had more than a peripheral, though recurring, manifestation in American political life and thought. A general antigovernment predilection is an important element of the contemporary school of American conservatism and of some popular political movements of the right. But, fundamentally, philosophical conservatism is based upon an organismic, not an atomistic-mechanistic, conception of society, and the writings of many of the modern American conservatives are more closely related to this (Burkeian) political tradition than to individualism and laissez-faire. More distinctly and fundamentally in the laissez-faire category are the writings of the contemporary Russian-born American novelist Ayn Rand. These are of interest because of their notable sales records and because they present the most extreme philosophy of individualism to be found in the whole literature of political thought, not excepting Herbert Spencer or the nineteenth-century philosophical anarchists.

Another branch of contemporary laissez-faire doctrine, of more technical interest but possibly less political importance than the currents of thought mentioned above, is a branch of academic economics. To appreciate this properly it is necessary to recognize that there is a sense in which the whole history of economic analysis since Adam Smith can be thought of as the investigation of the functioning of the “invisible hand.” The welter of buying and selling that goes on in a division-of-labor economy is not a chaos. It is an orderly integrated system by which wants and productive efforts are meshed together, and the autonomous changes that occur in either are accommodated by a disciplined adjustment in the system of economic interdependencies. The full model of such a system was first clearly developed by Leon Walras’ analysis of the economy as a general equilibrium system in his El’ments d’économie politique pure of 1874–1877. Alfred Marshall’s Principles of Economics, appearing in 1890, presented a similar, though less explicit, picture, which has been very influential in the development of English-language economics in the twentieth century.

This neoclassical theory is a model of a competitive private enterprise economy without government, and therefore, in a positive (i.e., nonnormative) sense, it is a model of a system of laissez-faire. The construction of this theory, though it is one of great intellectual elegance, even beauty, did not, however, lead immediately to any significant development of laissez-faire ideology among economists. The trend of economic thought in the generation after Marshall was, in fact, more in the direction of the analysis of the needs and opportunities for state intervention.

An important current of thought, best represented by Henry C. Simons, was the development of a “positive program for laissez-faire”—an analysis of the institutional changes and governmental interventions required to permit and to induce the economy to operate like the competitive model and so achieve the optimum use of scarce economic resources. A more doctrinaire laissez-faire current in contemporary economics is represented by Ludwig von Mises and Milton Friedman. In the writings of these and associated economists, a political philosophy of extreme individualism, opposition to the governmental form (and certain other forms) of social coercion, and modern economic theory are joined in support of a laissez-faire maxim which, though much more sophisticated than earlier examples, is nonetheless quite doctrinaire in nature.

H. S. Gordon

[Other relevant material may be found in the biographies ofBastiat; Marshall; Simons; Smith, Adam; Spencer; Sumner; Von Mises, Ludwig.]

BIBLIOGRAPHY

Brebner, J. Bartlet 1948 Laissez-faire and State Intervention in Nineteenth-century Britain. Journal of Economic History 8 (Supplement): 59–73. → On the theme that the characterization of nineteenth-century Britain as laissez-faire is a myth. Criticism of Albert Venn Dicey’s interpretation of the thought of the period.

Coates, Willson H. 1950 Benthamism, Laissez-faire, and Collectivism. Journal of the History of Ideas 11:357–363. → On the controversy concerning the relation between laissez-faire and utilitarianism. Fine, Sidney 1956 Laissez-faire and the General-welfare State: A Study of Conflict in American Thought, 1865–1901. Ann Arbor: Univ. of Michigan Press; London: Cresset.

Gordon, H. Scott 1955 The London Economist and the High Tide of Laissez-faire. Journal of Political Economy 63:461–488. → A study of the early years of this famous periodical, during which it advanced a doctrinaire laissez-faire philosophy.

Grampp, William D. 1960 The Manchester School of Economics. Stanford Univ. Press; London: Oxford Univ. Press. → A study of the political and economic theories of the businessmen who fought for the repeal of the British corn laws in the 1840s.

Henrich, Frederick K. et al. 1943 Symposium on “The Development of American Laissez-faire.” Journal of Economic History 3, no. 3:51–100.

Hofstadter, Richard 1944 Social Darwinism in American Thought. Philadelphia: Univ. of Pennsylvania Press.

Keynes, John M. 1926 The End of Laissez-faire. London: Woolf. → One of Keynes’s great essays on current affairs. Reprinted in John M. Keynes, Laissez-faire and Communism, published by New Republic, New York, 1926.

Macgregor, David H. 1949 Economic Thought and Policy. London, New York, Toronto: Oxford Univ. Press. → See especially Chapter 3.

Macpherson, C. Brough 1962 The Political Theory of Possessive Individualism: Hobbes to Locke. Oxford: Clarendon Press. → A new interpretation of seventeenth-century political theory which throws light on the relation between the political and economic philosophies of liberalism.

Robbins, Lionel Charles 1952 The Theory of Economic Policy in English Classical Political Economy. London: Macmillan. → An extensive examination of the views of the classical economists on the proper role of the state in the economy.

Viner, Jacob (1927) 1958 The Long View and the Short: Studies in Economic Theory and Policy. Glencoe, 111.: Free Press. → See especially “Adam Smith and Laissez-faire,” pages 213–245.

Viner, Jacob 1960 The Intellectual History of Laissezfaire. Journal of Laiv and Economics 3:49–69. → A penetrating study of the historical background of the idea of laissez-faire broadly construed.