Laissez Faire In Classical
Laissez-faire, in classical economic theory a doctrine based on the proposition that the economic affairs of society will in the main take care of themselves if neither the state nor any other body armed with authority attempts to interfere with their working as determined by the individual actions of men.
In the works of Adam Smith the source of wealth for the nation is held to lie in the efforts made by individuals in theft use of the factors of production land, labour and capital and in their success in producing goods and services under the inducement of the chance of economic reward. Although this pursuit may be unenlightened or based on self-interest, Adam Smith argued that individuals acting independently are likely to be better judges than any collective body of the means or methods of producing the maximum amount of wealth. This will come about because of the natural order in which the interests of the individual are harmonized with the good of society: an individual can serve his own interest best by rendering services that are desired by others. Interference with the free working of this natural order therefore diminishes the total amount of wealth produced, although interference may be justified on non-economic grounds in exceptional cases, e.g. his famous dictum that 'defence is of more importance than opulence'.
It has been argued (by Professor Lord Robbins and others) that it is incorrect to describe the classical economists as advocating an economic system without state action because they envisaged state activity at many points to maintain freedom in economic activity.
With the new theories of economic value that were formulated in the nineteenth century, the doctrine of laissez-faire acquired new support. Free consumers' demand, regarded as the force governing supply in the absence of restrictions, was considered as the guarantee of maximum production of wealth and satisfaction; state intervention was deplored since it interfered with the free expression of consumers' demand by altering the conditions of supply and price. Emphasis thus shifted away from the self-interest of each producer making for the maximum production of economic values to the assurance given by the free play of consumers' demand that the production of goods and services would be such as to create the maximum total of human satisfaction. Economists who expound laissez-faire doctrines normally state their case on this ground, urging the necessity for allowing free play to consumers' demand as a means to securing maximum utility in preference to attempts by the state to influence the prices or production of goods and services.
In the nineteenth century the influence of laissez-faire doctrines was extensive. In the twentieth century attention changed to ensuring an equitable distribution of income by systems of taxes and benefits, and state intervention in industry and commerce grew as a new set of economic and social opinions developed. Many economists urge the advantages of a planned economy in which the state would direct the use of economic resources in the interest of the community as measured by estimates of desirable trends in investment, export and consumption. Others, regarded as in the laissez-faire tradition, urge the advantages of a market economy -within a framework of law and institutions designed to maintain private property, decentralized economic initiative independent of the state and free choice of goods and services, employment and investment.
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