Laissez-faire capitalism has a basic premise. This theory states that the government should have either no role or a very limited role in our economy. This theory holds that market forces will determine what will happen in the economy. It also relies heavily on the actions of business owners.
With a laissez-faire philosophy, the government will have few rules and regulations for businesses. The government often lets business leaders try to figure out how to handle issues regarding our economy. Business owners dislike having a lot of rules and regulations as these often make it more expensive to run a business. They like having the freedom to make decisions with little government interference.
Presidents Harding, Coolidge, and Hoover followed a laissez-faire philosophy. There were fewer rules and regulations on businesses and their owners. This philosophy, while leading to economic prosperity for most of the 1920s, also created an environment that could lead to dangerous policies. For example, banks took the money that investors put into the bank and invested it in the stock market. When the market collapsed, the banks couldn’t meet the demands of their customers. The banks had to close, and the depositors lost their money.
This philosophy also made it difficult for the government to take action when the Great Depression occurred. President Hoover believed that things would work themselves out on their own. He relied on voluntary actions from businesses to deal with the Great Depression. These didn’t work, and the Great Depression got worse. By the time President Hoover reluctantly changed his stance, the Great Depression become much worse and became even more difficult to solve.
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