Laissez-faire vs. Government Intervention

Essay by MondayHigh School, 12th grade January 2008

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Less government intervention in economic affairs means more economic freedom and prosperity. In other words, when people are free to choose and pursue profitable opportunities, the economy of a country runs more efficiently, creating greater wealth and improving the standard of living. While this is a true statement for some people, others argue that government involvement is necessary in order to respond to market failures and limit abuses of market power.

Laissez-faire is a French expression based upon the theories of Adam Smith, an 18 century Scot political economist, whose writings greatly influenced the growth of capitalism in several parts of the world (Biography). Smith believed that as long as markets were free and competitive, the actions of private individuals, would lead to better social results. The idea behind the concept of Laissez-faire is that economies function more efficiently when people can pursue their economic activities and interests freely. Laissez-faire opposes governmental regulation and intervention in commerce and states that the government should not interfere with decisions made by individuals.

The theory also embodies free trade. It indicates that protectionist measures should not be used.

Protectionism is a view that free trade is injurious and should be restricted. Protectionist policies are used in order to protect domestic industries. Protectionism is often criticized by the supporters of free trade as harming economies instead of assisting them (Frank and Bernanke). Tariff is an example of a protectionist measure which the supporters of Laissez-faire view as an obstacle to free trade among nations limiting their opportunities to benefit from exchanging goods and services with one another.

People who support a laissez faire system are against minimum wages and any other forms of trade restrictions. They also consider limited government interference in private economic decisions such as pricing and production of goods and/or services...