Lissez-Faire Economy and Functions of Government Coursework

Lissez-Faire Economy and Functions of Government - Coursework Example Laissez-faire economy holds the characteristics of a free market economy which supports the idea of working for private interests. This creates a ground for innovation and creativity to blend into an economy and work in the most efficient manner. In a laissez-faire economy, since there is no government intervention, price determination is done by the market forces of demand and supply and there are no regulations to be followed which are set by the government in a command economy. In such an economy, the producers are profit motivated which boosts up entrepreneurial mindset (Sloman, 2007). The following diagram shows the market forces of demand and supply: Adam Smith, who is regarded as â€Å"the father of modern day economics†, supported the idea of a laissez-faire economy and boosted its importance and significance into the course of history. He referred to ‘the invisible hand’ that regulates the well being of an economy, and consequently, since everybody works for self interest, it benefits the economy as a whole. However, Adam Smith himself supported the idea of government intervention up to a certain extent. The United States of America is a good example where a â€Å"laissez-faire† economy was under practice for a certain period of time. â€Å"Laissez-faire† gained popularity in America because of Adam Smith’s opinions that the government should not indulge too much in the running of economic activities. There existed a greater quantity of conservatives who thought that when government intervened, it was imposing too many regulations. Except the help of government in establishing the railroad system in the 19th century, the state did not intervene much into the decision making of the country. There was existence of private ownership of businesses until the economic system of USA started altering after the Great Depression. There was a great incentive of innovation and people constantly worked in their self interest . The state started intervening to reduce the concentration of businesses and to eradicate monopolies. Before that the state did not interfere in resource allocation of the country and the matters did start deteriorating. Private businesses which were on a large scale started victimizing the small firms and created monopolies. There was a need for government regulation and thus government started stepping in the matters of decision making. Today’s economies have evolved from historical economies and differ in nature and characteristics. In earlier times, government intervened a little too less into how an economic system was supposed to be established. Today’s economies support government intervention and mixed economies have come into existence. A government has vital roles to play and has proved to be beneficial at certain times. A government aims to provide the basic necessities that people or a country require. Its primary aim is to provide security and defense to guard the country against external threat. This enables the people to live in peace and carry out economic activities in the most efficient manner. Also, the government is there to serve justice to people and prevent any illegal activities to take place. But sometimes it pays too much attention on providing security and defense which results in suppression of creativity or innovation that could have resulted in entrepreneurial activities. A government