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What was Lassiez-Fare economics?
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Message 1.Μύ
Posted by chalsealauren145 (U3301564) on Sunday, 26th February 2006
What was Laissez-fare economics?
I know it limited the role of govt economy but how was it related to Wealth of nation?
.........Do Reply............
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Message 2
Posted by Eliza6Beth (U2637732) on Sunday, 26th February 2006
Goodness me - what a wide variety of historical topics you seem to be covering simulatneously! Have you got exams coming up or somethjing? If you are only 13 this is very impressive - though perhaps rather confusing for you....
Yes, there is a close association with laissez-faire economics and the Wealth of Nations by Adam Smith. Smith was the first to formally advocate that if you left business to itself, competition between businesses would ensure that the consumer ended up better off, as each business company would strive to win more customers, by offering better products and service. As you can immediately see, this is still the way the west runs its economic systems. So far, no one has really come up with a better way - although whether there IS 'perfect competition' is very much in doubt.... (a twentieth century economist called Joan Robinson I believe formalised the udnerstandign that there was acutally an oligopoloy in operation - ie, a few big corporates that effectively ran everything and made it very hard for new companies to enter a market and offer a better service - these oligolopic (means 'few' in Greek) corporates could then act as a cartel - ie, 'sew up' things like prices and suppliers, and act against the consumer interests. This is why the USA passed Anti-trust laws at the turn of the 19/20th century, to stop these cartels (like the big oil companies) fixing prices.
Laissez faire, as you know, means 'to let do' and it basically means 'leave well alone' - business can do what it likes, because competition will always ensure that it's in the interests of the consumer.
However, it also requires the governmetn to stay out of business! The governmetn should not impose indirect taxes (like US sales tax) and should not impose custom's duties (ie, import and export tarrifs.)
All this is still very ,very relevant today - for example, in the US, farmers are protectedcd in that the government does not allow unlimited food imports into the US, which would drive down prices and impoverish US farmers. However, some argue that this 'protectionism' hinders world trade and makes consumers pay more - prices from the third world are lower, and consumers would pay less.
However, consumers are also employeees - and if the businesses they work for are drive out of business because of cheap imports, then they won't have any money to buy the imports!
On the other hand, if third world countries are excluded from selling in the west, then they will stay poor.... (though personally, why they can't all sell to each other, I fail to see!)
Good luck - Eliza. -
Message 3
Posted by chalsealauren145 (U3301564) on Sunday, 26th February 2006
Eliza6Beth
No i dont have any exams coming up but i just like to increase my knowledge of Global History.
U C,I really like History and there is no one in my house who can help me with the questions i have in my head.My dad is a Doctor and he doesn't
even have time to help me wit my School workand since my mom is a Nurse she doesnt seem to have much knowledge or even time to help me with this subject.And Eliza u really dont necessarily hav to help me with my work.Thank you soooo....much for your time with me and i'll try not to post anymore questions if it bothers you sooo... much.
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Message 4
Posted by Eliza6Beth (U2637732) on Sunday, 26th February 2006
You're not bothering at all! I think most of us love answering questions as well as asking them. And since everyone here loves history, you are in the right place.
You are fortunate to have two science-based parents, as I think that is a much harder subject all round, but history is a joy for ever, and it just goes on getting more and more (eg, for me, the Vietnam war was my childhood - for your generation it's already history....)(and one day you'll be explaining to your children about 9/11 etc!)
Good luck with all your subjects in history - it's an impressive breadth.
Eliza. -
Message 5
Posted by PaulRyckier (U1753522) on Monday, 27th February 2006
Re: message 2.
Eliza,
thank you very much for this interesting reply. I learned a lot of this. I have said it already many times I like your style. You would be a good history writer as you explain everything on a readable and intelligible way.
I made already on these boards a thread about the Beveridge Report on British Social Security 1943. I expanded to Bretton Woods and the IMF.
Tas and I constructed a world, where one has to strive for.
I said also once that the only two matters a country needed were brains and energy. And if energy could be produced illimitated as in fusion reactors (experimental one for the US, Japan and Europe in Cadarache France) you would only have different levels of intellect in a country?
But you have till now several countries in the world and different levels of development (of course I am speaking with a western feeling of superiority (laugh)) and you have trade to exchange the goods that are not available in one country or another. And you have to see that the balance of trade of your country is in balance otherwise you become poorer in comparison which those who have a positive one. So in fact with a trade balance in equilibrium, for instance the cost of the space industry is only the cost of the energy supply, which is consumed in it? All the rest flows back to the country in the form of wages? Also the American army in Iraq? (smile) As long as they don't pay for non-American services and energy supply? (second smile)
A difficulty perhaps is that the international companies tend to cheat their homeland bases (the Germans have a word for it that I always used and now I forgot it: "einheimische industrie?) and go to the countries, where there is not such social Beverage security and sometimes dictators or oligarchies make that the workers are nearly kept in modern slavery. And the IMF and the G8 aren't able to regulate it all a bit. And the international world companies are ostensible better equiped than the international unions, which have to counter them?
Eliza, I find economy, a difficult subject to grasp and with all my theories (smile) never came to a conprehensive system for the world to work to (new smile).
Warm regards,
Paul. -
Message 6
Posted by Tas (U1753225) on Monday, 27th February 2006
What was Laissez-fare economics?
I know it limited the role of govt economy but how was it related to Wealth of nation?
.........Do Reply............Μύ
Dear Chelsea,
let me have a go at trying to explain the essential point to you, much as Eliza has done.
1. Laissez Faire economics implies very little or no intervention by governments in economics. The theory is that competition, that is the forces of the market will keep the economy humming in an optimum manner.
2. The problem is that most major Capitalists and Major Corporations do not want to have fair competition if they can some how control the market. You saw this recently when the oil companies maintained a very high price of gas ( you would say petrol in Britain). Big Corporations seek to buy out competitors and have a monopoly so they can set high prices. They may also cut prices so low as to drive a competitor out of business and then raise the prices.
3. In the olden days in the U.S. there was one major oil company, Standard Oil, and it was trying to maintain a monopoly. The government intervened and made the oil Company break up into 5 companies. They also passed anti-trust laws to keep companies from doing so.
4. If you can have true competition of prices then the market takes care of itself and runs in the most efficient manner. However the Government needs to ensure that there is fair competition in the market place.
5. There can be international competition also. If you allow free trade then foreign countries that produce certain goods cheaper can enter your market and provide the needs of your people at very low prices. This is what China is doing today. To maintain your own countries position in the face of this competition you have to find something that your country is good at producing cheaply and market that product to the World. For example America buys a lot of cheap clothing from China and sells China passenger planes to keep a balance in trade.
6. In a Socialist economy, there is no competition between companies, all the major industry is owned by the Government. They plan on how much to produce in their factories. Every one has a lifetime job but the pay is small and no one wants to do a great job because he would not benefit from his efforts thus the country gradually becomes poor.
7. Such examples are the former communist countries, who despite 50 yeas of a Socialist economy have remained poor and are now all trying to join the European Union.
I hope all that helps if you have any questions or want to discuss any ideas, it will be a pleasure to discuss with one so young but going in the right direction. I would suggest far more useful than than your Papa's discussion or your Mum's go to a good library and read a good book. That is how I educated my self when I lived in England. I was then young like you and grew up there in London. Now I live in America and in Canada.
Affectionately,
Tas -
Message 7
Posted by chalsealauren145 (U3301564) on Saturday, 4th March 2006
Thank you Tas. That was very helpful information about Laissez-fare economics.
Chalsea -
Message 8
Posted by Tas (U1753225) on Sunday, 5th March 2006
Dear Chelsea,
Always a pleasure to discuss anything with you. Now take good care of yourself!
Tas -
Message 9
Posted by FEC (U2276153) on Sunday, 5th March 2006
Tis a subject that interests me very much, particularly the political side of it.
As people have suggested above, us Europeans pay lip service to the ideal of laissez faire, but the reality is different. I do believe in the principle, and governments rightly prevent monopolies. Yet the biggest danger to laissez faire is not overly powerful companies but an overly powerful state.
You have to seriously question whether we even live in a capitalist state when over 40% of spending is undertaken by the government. As you will learn at A level, public sector spending has the effect of 'crowding out' private enterprise in industries, since it has an unlimited cash reserve, and will always be bailed out from bankruptcy. This is the main problem with public spending, since it removes the incentive for innovation and efficiency.
It's better to describe our economy as a 'mixed economy', yet even this fails to convey the lack of true competition. It is estimated that over 50% of our population is in some way dependent on benefits, again removing any real notion of competitiveness, in the same basic way that communism does.
I know this post is a little beside the point, but it's point is that you should be cautious about believing we live in a laissez faire economy. -
Message 10
Posted by Eliza6Beth (U2637732) on Tuesday, 7th March 2006
Fair point - but on the other hand in Keynsian economics the state plays a vital role of being the 'investor of the last resort' - ie, government spending (either tax revenues or borrowings) injected into a stagnant/depressed economy can kick start it again, and put money into consumer pockets to drive (captialist) production again.
By and large, post-war economics in Europe and the USA have been spectacularly successful, in that for the first time in our history we are NOT a third world economy - ie, we do NOT have a large mass of desperately poor people. This is a ral and absolute FIRST in history (since hunter gatherer societies)
What we DO have, however, is a growing underclass which fails to participate in the private sector (or earn a living in the public sector) and is an increasing drain on tax revenues via the benefits they need to live on.
That said, once again, those on benefit DO purchase goods and services - and if they have l3 children on the state, then they purchase quite a LOT of goods and purchases. Only not with their own money. They are, fundamentally, parasitical on those who work. Someimes through no fault of their own, of course, but sometimes because a free ride is easier for them. Some actually appear to think we WANT their feral children. Sadly, no one wants feral children - not even the children themselves, who are miserable and blighted. The underclass is probably our greatest social problem in the west, apart from immigration (and war...)
Paul - thank you for compliment!
Eliza. -
Message 11
Posted by PaulRyckier (U1753522) on Tuesday, 7th March 2006
Re: Message 10.
Eliza,
I am nearly with you on all this or almost. I wanted to sent a reply about economy to Casur on another thread about world economy. I already referred to this thread to the originator of the other one but he seems to be not interested anymore in his own thread. Nevertheless I want to "revigourate" it, as we can learn even in that field from history.
Warm regards,
Paul. -
Message 12
Posted by FEC (U2276153) on Thursday, 9th March 2006
Eliza,
I agree with the gist of your post, and particularly -
Message 13
Posted by FEC (U2276153) on Thursday, 9th March 2006
Eliza,
I agree with the gist of your post, and particularly on the gravity of our culture of welfare dependency.
On your point about Keynesian economics, however, i have to point out that we have broken the main Keynesian rule- we have run up ever higher deficits during times of economic growth under labour. This will bite hard when the inevitable recession comes, and is surely against the spirit of laissez faire. It seems to me that we will have to pay for labour's outrageous spending through higher taxes, and the Tory consensus on this position makes it all the more depressing.
And in the news at the moment, there can be no greater proof of the fact that throwing money at the NHS is a total waste than the revelations that, despite the MASSIVE increase in spending in the NHS, it still can't control itself, and has quite miraculously managed to run up a deficit itself.
I sense, though, that we have more to unite than divide us on such issues.
FEC -
Message 14
Posted by Mike Alexander (U1706714) on Thursday, 9th March 2006
Has no-one yet mentioned the relevance of environmental issues in this debate?
A true laissez-faire policy would allow business to just do what they wanted, even to the point of rendering the earth uninhabitable for future generations. We are only just beginning to realise the need for putting on the brakes - in many areas, fish stocks are about to collapse due to overfishing; if China continues expanding its economy at the current rate, within 30 years or so the world will have run out of oil.
Combining environmental management (which seems to need global restriction) with capitalism (which is inherently against regulation) is likely to be the biggest challenge of this century. -
Message 15
Posted by Mike Alexander (U1706714) on Thursday, 9th March 2006
And in the news at the moment, there can be no greater proof of the fact that throwing money at the NHS is a total waste than the revelations that, despite the MASSIVE increase in spending in the NHS, it still can't control itself, and has quite miraculously managed to run up a deficit itself.
Μύ
Health is always a difficult area, particularly as each year there are always new and more expensive treatments and techniques available. And the 'consumers' will always demand the best treatment, irrespective of relative expense/likely efficacy. But with our determination to keep an ageing population alive ever longer (no matter how poor their quality of life) it's only going to get worse.
The big problem is, we stick with an ideal of refusing to put a price on human health, whilst the bottom line is that there's only so much money in the pot.
However, looking at the health performance of country's with privatised health systems, I think the NHS is one hell of a lot better than people give it credit for.
That said, it needs modernizing desperately, and personally I think the sacred cow of 'free at the point of delivery' needs to be sacrificed. -
Message 16
Posted by Eliza6Beth (U2637732) on Thursday, 9th March 2006
The environmental dimension is fascinating - because of course that is the failure point of capitalist economics, that it only assumes a perpetual 'now' - it fails to take the long term into account (as Keynes said, in the long term we're all dead - sooner than you know, mate, thanks to our destruction of our biosphere)
So we need to factor in sustainability, so that the 'rational' decision is also the sustainable one. But that won't happen by 'free will' of capitalists, it has to be legislated in. Just like social welfare had to be legistlated in - even the likes of Engels etc said that capitalists HAD to be nasty to their workers - the ones that were nice and paid them decently were driven out of busienss by the ones who didn't. We see this now in our globacl economy - if third world workers are not legally protected by their governments they can be forced to work for peannuts so of course their products will undercut ours. The only legitaimte undercutting is when third world prices are as low as wages, so that' relative to their local prices, third world workers get good wages for them.
However, over the years, this current labour arbitrage (unequal wages) will inevitably even out - we can see this happenign in places like India, which are now less cheap than places like China etc. eventually, all discontinuities will erode, and we will truly have a global village where prices and wages are the same all over.
BUT, the envrionmental issue won't go away. I read a really sad thing recently in a National Trust magazine about woodland econmics - the price of wood has plummeted. You know why? The 'new EU countries' of Easter Europe are busy cutting down their forests to sell to us. HEARTBREAKING.
ONLY legislation can stop the world become a wasteland. Capitalists HAVE to obey the ruthless rules, actually, THEY need government protection - they cannot afford to be environmentally protective otherwise.
So, in modern laissez faire economies, we need a government to legislate for minimum wages etc etc etc, AND for environmental protection.
Eliza. -
Message 17
Posted by Eliza6Beth (U2637732) on Thursday, 9th March 2006
Health economics is a huge issue. There are several factors off the top of my head, and probably loads more.
There is the cost of medical treatment as in, what's the cheapest way to deliver treatemtn (eg, small local clinics, large central hospitals, etc. Plus, as in the USA, fear of litigation means that doctors overproscribe tests so that they won't be 'caught out' when a 100:1 chance of a rare condition doesn't end up with tehm being sued.)
There is the bigger economic cost of poor health. Health may be expensive, but sickness and death is even more expensive to the economy - if people are off sick they don't work etc, if 'useful employees' die, the cost of their training is wasted etc etc.
Finally, there is the cost of curative vs preventative medicine. It's 'obvious' that preventative medicine is by far the better investment of cash, but, at the moment, we need to run a dual system, which is twice as expensive. Evenaully, if we bring preventitive medicine onstream now, within a geneation the need, and therefore hte cost, of curative medicine will be much, much reduced.
Finally finally, there is the 'waste' of resources on things like computer systems, where vast amounts are being spent, to little purpose except to enrich IT consultants etc.
And finally finally finally, there is the overhead cost ofthe administration of the health system - are chief executives of hospitals worth a penny????
But I agree that there is no natural 'ceiling' on what consumers want from a health service. Eventually we will want eternal life (and health) (and youth!) .....
Eliza.
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