Adam Smith Laissez-Faire

Was Adam Smith laissez-faire?

What did it mean that Adam Smith was laissez-faire? This asks another question, did Adam Smith really support an economy free from government interference? Generally yes, but there is more to the story and it is worth trying to understand more on the subject. The most important thing is to understand why Adam Smith believed, what he believed in. He believed a government that leaves people alone to live their lives according to their own judgment is the best for all.

The reasoning behind this is the collective unconsciousness of society moves at the speed of light to shift and respond to the patterns of consumer demand.  What is valued today will change and people will intuitively pick up on societies demands and bring to market those needs.

laissez-faire urban farmer
This is me, your humble author. I am an Economics professor, but I have several small fields of organic vegetables. I am responding to free-market forces which in the last few years have changed and demanded local organic food.

Capitalism does not have to be bad. Adam Smith recommended laissez-faire with a government that facilitates the development of the human mind and promotes the peace, however, not one that has its hands the market.

The core tenets Laissez-faire

  • The individual is the basic unit and mover in economics
  • Individual rights and freedoms are to be protected, this is the role of government
  • The natural order of things in nature, the physical world, and economics are self-regulating creating a harmony
  • Watch corporations for the disruption of the spontaneous order

Spontaneous order is what happens when you leave people alone—when entrepreneurs… see the desires of people… and then provide for them. They respond to market signals, to prices. Prices tell them what’s needed and how urgently and where. And it’s infinitely better and more productive than relying on a handful of elites in some distant bureaucracy.  – Lawrence Reed

For everyone protesting capitalism and free-market economics, consider the good it does. As in this illustration above, I am incentivized by the market to grow organic vegetables. How is that bad? How is that not enlightened self-interest? It benefits society as a whole. It is not the cold-hearted pedantic Objectivism of Ayn Rand, nor the greed of dishonest Wall Street bankers, nor the bloated ludicrous Washington, DC establishment, (like Panem in the Hunger Games), but rather, you and I left to our own creative expressions to take things to market.

govenment job versus entrepreneur
Who do you have more confidence in, an entrepreneur who not afraid to get this hand dirty or government worker? Then why not choose the Adam Smith free market?

The government? They move at a snail’s pace and complicate things.  Laissez-faire economics, in contrast, draws on the intelligence and creativity of individuals in aggregate. A free market that has limited, but some government.

Worker entrepreneur
Workers are not exploited in a free market but rather entrepreneurship flourishes in workshops and projects with intellectual capital.

Adam Smith’s laissez-faire economics meant:

When people are given the freedom to be the best they can be, the result is the rich and the poor have a better economic situation. Yes, the poor are the ones who win in the free trade capitalism of Adam Smith.  The purpose of government is not to make everyone equal. It can not happen, but rather give everyone the freedom to make choices on their own enlightened self-interest.

The philosophers of the enlightenment believed that the role of government was to protect the rights of the individual so people and society as a whole would be happier. After all, happiness is the goal of life. In my heart of hearts, I truly believe in the ideals of the enlightenment. It was a great time for humanity and philosophy. I believe in the innate goodness of men. I believe that all people have the ability to achieve great things in this world, everyone.

  • The only two things that can hold you back are wrong thinking or wrong government.

It believed that men basically have the same innate ability to do well in life if given a chance. This means freedom. After all, I am an American who has to spend a good part of my life in Eastern Europe. I can compare two economies, one that is free and one that is not.

In contrast, John Maynard Keynes in his essay The End of Laissez-faire in 1926 believed the market can not regulate everything and the government should be involved on a case-by-case basis. Keynesian economics has caused uncounted suffering of people because it has been the playbook for government in the 20th and 21st century discounting the ideas of Adam Smith.

What does this have to do with laissez-faire?

With this freedom from the burden of government people strive to be the best they can be, individuals will be happier and so will society.

The poor will become middle class relatively fast with laissez-faire.

Laissez-faire means ‘let do’ translated from French or ‘let it be’. Adam Smith never uses the term in his Wealth of Nations nor in his The Theory of Moral Sentiments. This is surprising as it often connected to Adam Smith.  I think simply because it was a French expression. However, there is another reason.

I think people confuse his idea of the invisible hand with laissez-faire. The invisible hand is more about the unintended consequences of individual action on society as a whole. While laissez-faire is a philosophy where the government is hands-off business. And does not compete, regulate, tax business excessively. Similar ideas but a slightly different focus. The classical liberal thinkers like Adam Smith wanted to answer the question of how to maximizes your happiness.

The origins of laissez-faire

This French word import dates back several hundred years. It comes from M. Le Gendre when he and some French business leaders were asked my the French Mercantilist economic minister what the government could do to help their business. His reply was laissez-faire, lets us be. Every job creator knows the best thing government can do is let the markets work. Vincent de Gournay was the French 1750s version of Ronald Reagan. The French commerce minister fought hard against encroaching government regulation. He tried to deregulate business and the result was positive. We need this today.

Leave it to itself has been the proper motto of public powers since the dawn of civilization. Appalling is the principle of seeking glory solely by debasing our neighbors. In it are but the malice and spitefulness of heart typical of fat cats; the public interest lies elsewhere. Leave it to itself, for the love of God. Leave it. – Colbert–Le Gendre – Journal économique 1751

In English it first appears two years before Wealth of Nations, in 1774 in 1774, Principles of Trade by George Whatley, he co-authored the book with Benjamin Franklin. The first classical economics to use the term was Jeremy Bentham.

What does Adam Smith have to do with laissez-faire?

It is interesting that Adam smith does not use this term once in any of his works. Smith was describing something similar, but more radical and detailed than the simple notion of ‘let us be’.  Adam Smith was making an argument that when government protects individuals freedoms. This is classical liberalism. I rather than business, societies will thrive, people will be happy.

Economic liberalism
Rent controls are a classic example of government action in the free market, decreases the happiness of the supplies and consumers of apartments. In contrast, free enterprise competition brings society to equilibrium or harmony.

Wealth of Nations Adam Smith laissez-faire economics did not mean:

  • Greed
  • Selfishness
  • No government
  • Taking advantage of workers

Adam Smith is one of the most referenced economists of all time, but I think many people use his thinking to support their own views on Political economy without reading him. I have created a free e-book of Adam Smith’s wealth of nations. This book was not written for the capitalist class, but for all people especially the poor. I created a free e-book that has his complete Wealth of Nations for free to download if you want to read him directly and read about laissez-faire economics first hand.

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5 responses to “Adam Smith Laissez-Faire”

  1. Kay Van Houten

    Republicans have used Adam Smith to support their economic view–NO Government Interference even if it means we have to go through what the Bush/Cheney Administration put us though for the last 4 years., no government regulations. He did not support greed, selfishness, no government and taking advantage of workers.

  2. plasticmoney888

    “Republicans have used Adam Smith to support their economic view”

    Word are meaningless in politics.

    Republicans have been big spenders just like Democrats. Greed exist with in Government or with Government assistance as an continuous instrument of conflicting interest operating against the public good.

    Adam Smith talked of voluntary exchange.
    No one is forcing me or you to make a transactions, no is forcing me or you to Purchases or to Sell any thing in a free market and no one benefits at the expense of others.

    We are force to buy or sell only when there are no choices such as in a non free market.

    There is no need of force in a free markets, Wars are replaced by trades in free market countries.

    “No Government regulations” ?? What ?
    Where do you live?
    There are so many regulations it’s ridiculous.
    Regulation is what bureaucrats and lawyers love, big firms often benefit from them by eliminating competition.They can also manage to use to do bad things legally.

    What is needed is: “A lot less regulation” and “A lot more transparency” which a real free market would have.

    The reason people lost money is a total lack of credible information and lack of knowledge. With out those two it’s impossible to make any rational investment decisions.

    We have Central Banks that act as GOD on interest rates and mislead people in thinking money was available at next to no cost. That’s the exact opposite of a free market, it’s called “Control”

    Would any one in a free market have loaned money at lower and lower rates as risk and excess demand was increasing exponentially?
    NO Way unless you they are masochistic.

    If you tell every one there is Gold in your Bank and that the Door are not looked during the coming weekend should we be surprise that MR Greed will show up during that weekend.

    Why worry, Why make any basic research or due diligence when the Government tells every one that Fannie Mae and Freddie Mac are guarantied. Close your eyes and and buy there bonds so that they can turn around and lend it to any one that shows up pleasing politicians that will claim the economy is doing very well.

    Stock prices moved up base on what was perceived as very strong earnings, Housing price moved up on extra strong demand and every one borrowed against there new increasing and perceived wealth, assets and housing valuation.

    Non performing loans started to add up and eventually bingo:
    The entire economic debt pyramid system collapses.

    This is way off from what a free market is suppose to be.
    Most student don’t even understand the free market system.
    No surprise there, Government schools make sure to praise the BIG BROTHER’s dependency system instead.

    1. Mark Biernat

      It amazes me that economists often use the price of a commodity like ‘wheat’ to illustrate how markets work. That is how prices convey information to individuals and in aggregate the market achieves equilibrium. The price of wheat is determined by supply and demand for wheat. Often economics talk about the harm of agricultural subsidies. Yet there is not yet a general rebellion or uproar by economics regarding the most important commodity of all, that is money. ‘Wheat’ or ‘Orange’ prices can be determined by market forces, that is supply and demand, yet, the money markets are not allowed to be?
      They are centrally controlled? This is crazy. Look at every business cycle in this and the last century including the great depression and the great recession and tell me that the US central bank did not fumble its macro engineering of the economy.
      If people say capitalism does not work, it is because we have not tried it yet. Money needs to be free or we are just putting our figures in the dam to stop the leak.

  3. John Roccaro

    Why mention Keynes if he is so discredited and his critics have had their way for the past half century?

    1. Mark Biernat

      I agree. Keynesian ideas are out of date, discredited, however, there are people these ideas because in the short run they apparent negative consequences of Keynesian policy is not manifest. However, the negative impact of Keynesian economics is everywhere from the debt/GDP to corportate welfare.

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