Final answer:
Adam Smith's laissez-faire philosophy suggests that the economy flourishes with minimal government intervention, as self-interest and the 'invisible hand' naturally regulate the market, leading to societal benefits and economic growth. However, modern criticism casts doubt on Smith's ideas, pointing out the potential rational and moral failings of an unregulated market.
Step-by-step explanation:
Adam Smith, a key figure in Enlightenment economics, asserted the many benefits of laissez-faire policy. Central to this approach is the belief that the economy operates best without government interference, guided by an 'invisible hand' that naturally steers the market. Smith believed that individuals, seeking their own self-interest, inadvertently perform actions that benefit society, as they contribute to the production of the most needed goods and services while fostering competition and innovation. This self-interest promotes the efficient allocation of resources which, in Smith's view, leads to economic prosperity and growth.
Government intervention, according to Smith, would only hamper this natural process. Hence, he was an advocate for minimal tariffs and regulations. Smith's laissez-faire principles are encapsulated in the concept that entrepreneurs reinvesting their profits in new ventures promote a beneficial economic cycle, enhancing societal wealth without the need for government regulation.
However, modern economists and scholars challenge Smith's assumptions, particularly the notion that individuals always make rational decisions or that the market without any government oversight would result in an equitable distribution of wealth. Critics point to the exploitation of workers and other moral failings that unrestricted capitalism can bring.