From Laissez Faire to Economic Stimulus

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John Maynard Keynes

Laissez-faire policies may be seen in governmental agencies, such as those charged with enforcing antitrust laws, that instead take a hands-off approach to enforcement.

Laissez faire is a french term that loosely translates into English as “let do,””leave to do,” “let it be,” or “leave it alone.” The term has historically described the doctrine or philosophy of a governmental abstention policy in such activities as international trade tariffs and anti-trust monopoly activities by companies within consumer markets in capitalist societies.

The Rise of Laissez-Faire in Europe

Historical lore provides that the political term laissez-faire is sprang from a meeting between Jean-Baptiste Colbert, the French finance minister under under King Louis XIV from 1665-1683, and a group of French merchants. It is said that Colbert reply to industry pressure to abstain from asserting certain government policies against industry with: Laissez faire, morbleu! Laissez faire!! (literally: Let it be, damn it! Let it be!!). Colbert operated in a French economy that was on the brink of bankruptcy. His policies included increasing tariffs and instituting other protectionist policies for French manufacturers.

By the 1750s, Vincent de Gournay, a French merchant, would popularize the maxim Laissez faire et laissez passer (“Let do and let pass”). By the 1840s, the British newspaper The Economist was launched and advocated the British laissez-faire philosophy of capitalism. The Economist’s commentary on the Irish famine of 1846-1849, where a million and a half Irish died of starvation, was that the government should not supply free food to the Irish.

Economic Interventionism and Protections through Tariffs and Business Antitrust Laws

By the end of the 19th century, European countries were adopting economic protectionism and interventionism policies. In 1890, France had canceled its free trade agreements with other European countries. Germany’s protectionism was restarted and resulted in the enactment of the iron and rye tariff of 1879.

After the end of the U.S. Civil War in 1865, Alexander Hamilton promoted greater federal government intervention, including his proposal to create a government sponsored bank. Ultimately, the First Bank of the United States (1791) and Second Bank of the United States (1816) were established.

In the 1880s and 1890s, the U.S. enacted the Interstate Commerce Act (1887), the McKinley Tariff (1890), the Sherman Anti-trust Act (1890), and the Dingley Tariff (1897). These federal government legislative enactments marked an extension of federal governmental control over macroeconomic conditions within the United States, which was becoming more active in both interstate trade and international trade with other countries.

Laissez-faire within the Tradition of U.S. Political Parties

The U.S. Whig political party was developed 1833-34 during the era of Jacksonian democracy by former National Republicans, such as John Quincy Adams and Henry Clay. It advocated for increased governmental protectionism and regulations. By 1856 the party was divided over the expansion of slavery into the new territories claimed by the American colonists.

When the Republic party (Grand Old Party or GOP) was developed about 1854 by anti-slavery activists and had a great number of supporters among African Americans. The Republican party first came to power with the election of Abraham Lincoln to the U.S. presidency. Lincoln, a former Whig, would preside over the U.S. Civil War and develop the policy of Reconstruction after the war.

By the 1890s, the Republicans had supported the enactment of the Interstate Commerce Act and the Sherman Anti-trust Act, responding to the complaints of American small business owners and farmers. The Republican party would later become more associated with laissez-faire economic policies that advocated less government intervention in society. It became associated with the party for greater independence of business industry policies without governmental controls. The Republican party opposed the U.S. alliance with the inter-governmental League of Nations. It also opposed high tariffs.

John Maynard Keynes’ The End of Laissez-Faire

During U.S. President Thomas Woodrow Wilson’s first term in office, he pursued Congress to pass the Federal Reserve Act, Federal Trade Commission, the Clayton Antitrust Act, Federal Farm Loan Act, and the Revenue Act of 1913. Subsequently, the Republican party controlled the presidency through the 1920s. After unprecedented prosperity in the U.S., the Republican party’s unbridled pro-business policies are often blamed as a contributing factor to the Wall Street Crash of 1929 and the Great Depression.

In July 1926, the British economist John Maynard Keynes wrote “The End of Laissez-Faire,” published as a pamphlet by the Hogarth Press. It was based on Keynes November 1924 speak at Oxford’s Sidney Ball Lecture. In June 1926, Keynes also lectured on laissez-faire at the University of Berlin.

“[L]aissez-faire had arrived to harmonise individualism and socialism, and to make at one Hume’s egoism with the greatest good of the greatest number,” wrote Keynes in The End of Laissez-Faire. In The End of Laissez-Faire, Keynes examined the writings of Bentham, Godwin, Hume, Locke, Paley, and Rousseau, and other philosophers. Keynes advocated that government intervention in economic policy through monetary and fiscal measures was needed to mitigate the impact of depressions, recessions, and bad business cycles. The economic doctrine became known as Keynesism.

Democrat Franklin D. Roosevelt was elected U.S. president in 1932 and heralded the New Deal coalition and increased governmental activism in addressing social ills. After Republican Dwight D. Eisenhower took the presidential office in 1953, African American began to move over to the older Democratic party.

General Disclaimer: This article is for informational purposes only and should not be used as a substitute for legal or tax advice.