The Origins of Laissez Faire
Table of Contents
The origins of laissez faire can be traced to the Physiocrats, which Adam Smith referred to as ‘sect of men of letters in France who call themselves The Œconomists’.
It was founded by a physician, François Quesnay, who published an economic table attempting to visualize the flow of value among different kind of producers.
Smith writes in The Wealth of Nations, that the Physiocrats’ ideas were flawed because of “its representing the class of artificers, manufacturers, and merchants as altogether barren and unproductive.”
However, Smith was generally in favor of the Physiocrats because it prefers the labor theory, agricultural development, and most especially, human liberty for the benefit of society:
This system, however, with all its imperfections is, perhaps, the nearest approximation to the truth that has yet been published upon the subject of political œconomy, and is upon that account well worth the consideration of every man who wishes to examine with attention the principles of that very important science.
Smith wrote his own version of the Physiocrats’ laissez faire (which was itself derived from Chinese Taoist concepts) in his chapter on the Physiocrats:
All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.
The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.
According to the system of natural liberty, the sovereign has only 3 great duties to attend to that are plain and intelligible to common understandings:
- To protect the society from violence and invasion of other independent societies
- To protect every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice
- The duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expence to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.(emphasis added)
Unlike current laissez faire which focuses on the goals of private interests, Smith and the Physiocratic laissez faire focuses on the goals of society.
Unlike current laissez faire whose philosophical root is utilitarianism or the pursuit of pleasure, the classical laissez faire was based on social morality, with Smith’s being based on the Theory of Moral Sentiments and the Physiocrats being based on Taoist and Confucian morals, as written in Quesnay’s Le Despotisme de la Chine:
Les lois de la Chine sont toutes fondées sur les principes de la morale, car comme on l’a déjà dit, la morale et la politique ne forment à la Chine qu’une même science..
The timeline below shows how the classical laissez faire was corrupted into its current form:
| Year | Event |
|---|---|
| 1694 | Quesnay born |
| 1712 | de Guernay born |
| 1751 | de Guernay coins “bureaucratie” and “laissez faire” during his tenure as intendant du commerce |
| 1759 | de Guernay dies, Adam Smith publishes The Theory of Moral Sentiments |
| 1767 | Quesnay publishes Le Despotisme de la Chine, which introduces Eastern Taoist and Confucian concepts into Western politics and economic thought, giving the Physiocrats its logical anti-merchant, pro-morality, and pro-nature (natural order) basis, which has been the system observed in China for ages and had led to its greatness. |
| 1774 | Quesnay dies |
| 1776 | Smith publishes The Wealth of Nations |
| 1789 | Start of French Revolution |
| 1824 | James Mill defines laissez faire without its anti-mercantile nor Chinese background, corrupting it |
| 1848 | John Stuart Mill, son of James Mill, takes up the corrupt laissez faire concept and enshrines it in his Principles of Political Economy, which replaced Adam Smith’s Wealth of Nations as the main economic book |
| 1861 | John Stuart Mill defines utilitarianism as the Greatest-Happiness Principle or the simplistic pursuit of pleasure and freedom from pain, seemingly not knowing that Adam Smith already wrote in the Theory of Moral Sentiments that the greatest human happiness is in the peace of one’s mind and not in any pleasure. Mill advocates the corrupt, morality-less, laissez faire as the way towards utilitarianism. |
| 1871 | Willam Stanley Jevons and Carl Menger begin the Marginal Revolution, with the goal of maximizing utility or pleasure. |
| 1890 | All ideas on utility and the corrupted laissez faire are combined by Alfred Marshall into his Principles of Economics |
| 1919 | Marshall’s Principles of Economics becomes the standard economics book in Oxford |
| 1929 | The Great Depression, or the end result of the corrupt laissez faire concept, begins |
Conclusion
The undocumented corruption of classical laissez faire by James and John Stuart Mill has led to the confusion with the concept.
Classical laissez faire promotes society, increases productivity, and encourages trade, while Capitalist or Mercantile laissez faire promotes profit maximization at the expense of society.
Capitalist laissez faire systems will eventually find itself being bound by regulation in any society that it exists in, so that it may continue existing, which creates an unsustainable, inherent contradiction which is not present in the classical laissez faire system of the Physiocrats nor ancient Chinese economic system, which was able to grow in wealth until the arrival of the British.