Leissez-faire philosophy of public finance
According to Merriam Webster dictionary, Leissez-faire is a “doctrine which opposes government interference in economic affairs beyond the minimum necessary for the maintenance of peace and property rights.”
In 2008 Nicholas Sarkozy, Conservative French President, proclaimed that “leissez-faire is finished.”
When governments regulate or intervene, they interfere with the natural working of markets.
Markets are known to be self-correcting in nature according to Adam Smith in his book Wealth of Nations. This means that markets should be left alone. This is what is referred to as leissez-faire philosophy.
John Keynes wrote about the power of economists and their ideas saying that “the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful that it is commonly understood. Indeed the world is ruled by little else. Madmen in authority, who hear voices in the air are distilling their frenzy from some academic scribbler of a few years back,” General Theory of Employment, Interest and Money.
Kuttner (1992) argues that the end of cold war and the collapse of Marxism were the true signals of the end of laissez-faire philosophy. What are we saying here? The two important historical events lead to the end of government of a requirement for governments not to interfere with the economy.
Keynesian economics took over after the Second World War and as you may be aware John Keynes advocated for government expenditure’s role in stimulating the economy. This is commonly referred to as fiscal policies.
The British Economist, Lord John Keynes, recognized that the government has a role of caring for the needy, putting in place infrastructure projects, providing health and education services and preventing shrewd business people from conspiring against public interest.
Despite many scholars agreeing with some ideas in Keynes’ General Theory, still they respect Adam Smith’s idea that governments should not interfere with price systems in the markets. The invincible hand of Adam Smith should be left to do its work.
They further, argue that if the government must intervene then that intervention should be as market-like as possible.
Critics have found out that pure free market economies are usually unstable and they promote inequity or unfairness.
Cahill, D. (2014). The end of laissez-faire?: On the durability of embedded neoliberalism.
Fried, B. (1998). The progressive assault on laissez faire: Robert Hale and the first law and economics movement. Cambridge, Mass: Harvard University Press.
Kasper, S. D. (2002). The revival of laissez-faire in American macroeconomic theory: A case study of the pioneers.
Kuttner, R. (1992). The end of laissez-faire: National purpose and the global economy after the Cold War.