Laissez Faire Ideals
The Laissez Faire is an economic policy that advocates for allowing matters to run their own course with the minimum government intervention possible. It is said that Adam Smith never used the exact phrase "Laissez Faire". However, the ideals of this policy do reflect those of Smith. Both essentially force the market to self-regulate. He believed this approach would always result in the best outcome. This is where the "Invisible Hand" comes in (Beebee).
The hand is a metaphor for the free market economy. If all businesses acted in their best interests, both the entrepreneur and the country would accumulate wealth. Smith did not believe that this would create economic equality. Instead it was intended to give citizens the freedom and rights that government was designed to give them to make their own choices and create their own success. His belief that competition was the key to a free market success is the foundation of modern capitalism (Dhamme). Smith wrote a book titled, "The Wealth of Nations", which highlights the advantages of a free enterprise market. It is interesting to note that the term "Invisible Hand" was only referred to three times as the book was about much more than that. The book discusses the faults of mercantilism and argues that the wealth of a nation should be measured by its production. It is one of the most influential works in the history of economics. |
It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."
Example of the Invisible Hand:
Oil becomes scarce because of tension in the Middle East. Demand for gas will rise and gas stations will raise the price, but only to a level where they can still compete with other stations. The consumer then searches for the best prices and gives his business tot hat gas station. There is no government max or minimum price so the cost is driven strictly by scarcity and competition. |