Laissez-faire, or "hands-off" capitalism, has been lauded as the hallmark of the American economic system and part of the reason America has become an economic powerhouse. In reality, however, America business and industry has always been aided by the government, and history shows American capitalism required government assistance to prosper. The times that the U.S. government did attempt to keep its hands off private industry, the country experienced economic downturns, most significantly with the Great Depression, which began in 1929, and the more recent recession that started in 2008.
The term laissez-faire, French for "let it be," is a theory of economics that argues that private business and industry will prosper if left alone by the government. The term originated with John-Baptiste Colbert, French finance minister during the reign of Louis XIV, but the idea of laissez-faire capitalism was popularized by Scottish economist Adam Smith in his famous book “The Wealth of Nations,” published in 1776, the same year a new country was born.
Early American Economics
This country, the United States, did not at first follow the principles of laissez-faire. Early American economic policy was developed by Alexander Hamilton, who argued for a strong national bank and high tariffs, or taxes on imported goods, to encourage Americans to support local industries that were still growing. Hamilton's ideas were developed by Henry Clay and the Whigs, a powerful political party in early American politics, into a policy termed the American System, which had at its core a strong central government heavily involved in economics.
The Gilded Age
Though the Whigs lost influence as a political party before the Civil War, their American System became the basis for America's rapid economic development during the Gilded Age, the period after the Civil War. At this time, American economic expansion relied on the growth of railroads, which the U.S. government encouraged through laws, tax breaks and tariffs, as well as by using its military to help break workers’ strikes. Industrial giants such John D. Rockefeller and Andrew Carnegie could not have prospered at this time without considerable government assistance.
Private business, however, soon began to see government involvement in economics as interference after progressive President Theodore Roosevelt began breaking up monopolies, so they ensured the election of three laissez-faire presidents in the 1920s: Harding, Coolidge, and Hoover. Yet by letting business speculate freely, these presidents caused the Great Depression of 1929, the product of their laissez-faire policies. Some economists also argue that the recession of 2008 was caused by similar laissez-faire policies, particularly toward the financial industries, during the ’80s, ’90s, and early 2000s.
Aatif Rashid writes on international politics and culture. His articles have appeared in magazines such as "The Oxonian Globalist" and online at Future Foreign Policy and ThinkPolitic. He holds Bachelor's degrees in English and history from U.C. Berkeley and a Masters degree from the University of Oxford.