Wednesday, March 31, 2010

Somewhat of an Exaggeration

Charles Rowley on his Blog HERE on Laissez-Faire

“Laissez-faire, a French term that translates loosely as ‘let things alone’, originated in the eighteenth century with a school of French economists known as the Physiocrats, who opposed trade restrictions that supported mercantilism. Adam Smith popularized the term and gave it added influence in his 1776 book, The Wealth of Nations. Smith argued that a nation’s well-being and economic progress are assured when individuals are free to apply their capital and labor, without state intervention, in a competitive market economy. He outlined how the self-interested activities of individuals promotes the general welfare under such conditions. The doctrine of laissez-faire thus involves not only a policy implication of non-intervention by the state, but also a positive philosophy that recognizes a natural harmony between individual and social interests.”

Adam Smith did not advocate laissez-faire – he never used the term. This crept into economic discourse not via Adam Smith’s Wealth Of Nations, but in the 19th Century the terms was popularised J. S. Mill, The Economist, the Manchester School, and others.

It may be that “Great Britain epitomized the system of laissez-faire capitalism” by repute, but not in substance. The 19th century also saw a vast extension state-power in burgeoning military budgets for colonialism, some expensive wars, education, municipal local government, and infrastructure.

The narrative of “how the self-interested activities of individuals promotes the general welfare under such conditions” gained traction from modern economists anxious to show the superiority of market economies over socialist planning from the 1950s. Beyond a single example given in Wealth Of Nations (WN IV.ii.9: 456) - which was not a general statement, but about some risk-averse merchants, whether self-interest led to public benefits was an open question. Indeed, Smith gives over 70 examples in Books I, II, and III, of self-interested actions that had the opposite effect on public benefits.

Laissez-faire was an ideology, not found in practice nor connected to any ‘golden age’.


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