Laissez-faire and Adam Smith’s Wealth of Nation encompass fundamental aspects of capitalism. What does laissez-faire mean? Laissez-faire is a French word, which dates to the 18th century and translates to “leave alone.” In simplest terms, laissez-faire is the concept that the government should not interfere with the economic actions of individuals. For example, imagine, you are going Christmas shopping in New York City and the government has set the prices in every store you enter. You have no opportunity to negotiate a price with a retailer or enter into another shop and find a different price for the same item. Similarly, imagine when you go online to shop for items; there is no difference in price between the various e-commerce sites. In these scenarios, the government is dictating the prices of what you can purchase, meaning there is no market for the negotiation of prices or for the market forces of supply and demand to set the price. Under these restrictive circumstances, markets like eBay and the New York Stock Exchange would no longer represent what consumers are willing to pay and producers are willing to supply because the prices would be predetermined.
Adam Smith, an economist who is most famous for his economics treatise, Wealth of Nations, set forth his belief that the economic system is natural and functions through an “invisible hand.” While some historians interpret the “invisible hand” that Smith references as the hand of God, for many economists the “invisible hand” supports the fundamental principle that market forces should remain unfettered. That is, consumers and suppliers should dictate market terms and set prices. Capitalism thrives on the concept of a free market and this principle distinguishes capitalism from other economic systems.
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