The French phrase "Laissez - Faire" given by political economist, Adam Smith, stands for which of the following concepts?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Free Market - No regulations by State
Option (1) Invisible force at work under the market system — Incorrect. This is the ‘invisible hand’, the unseen force that, according to Adam Smith, converts what is good for each individual into what is good for society. Laissez-faire is the policy Smith drew from this idea, not the force itself.
Option (2) Free Market - No regulations by State — Correct. Because society benefits when individuals pursue their own self-interest, Smith supported a ‘free market’, a market free from all kinds of regulation whether by the state or otherwise. This economic philosophy was given the name laissez-faire, a French phrase that means ‘leave alone’ or ‘let it be’.
Option (3) Social embeddedness of Markets — Incorrect. This is the sociologists’ view, which differs from Smith’s: markets are social institutions, controlled by particular social groups and linked to other institutions, so economies are socially ‘embedded’.
Option (4) Increased governmental control — Incorrect. This is the opposite of laissez-faire. Smith’s free market is a market free from all kinds of regulation, whether by the state or otherwise; ‘leave alone’ means the state stays out of the market, so more control by the government goes against the idea.
Note: The lines on Adam Smith’s ‘invisible hand’, the ‘free market’ and laissez-faire, in the section ‘Sociological Perspectives on Markets and the Economy’ of the chapter ‘The Market as a Social Institution’, were there in the pre-rationalised NCERT, which NTA followed in 2023. They have been deleted from the NCERT book (2025-26), though the section, its account of Smith and the chapter are still there.
NCERT (2025-26): “4.1 Sociological Perspectives on Markets and the Economy … To answer this question, we need to go back briefly to eighteenth century England and the beginnings of modern economics, which at that time was called ‘political economy’. The most famous of the early political economists was Adam Smith, who in his book, The Wealth of Nations, attempted to understand the market economy that was just emerging at that time. Smith argued that the market economy is made up of a series of individual exchanges or transactions, which automatically create a functioning and ordered system. This happens even though none of the individuals involved in the millions of transactions had intended to create a system.…” “4.1 Sociological Perspectives on Markets and the Economy … Sociologists view markets as social institutions that are constructed in culturally specific ways. For example, markets are often controlled or organised by particular social groups or classes, and have specific connections to other institutions, social processes and structures. Sociologists often express this idea by saying that economies are socially ‘embedded’. This is illustrated by two examples, one of a weekly tribal haat, and the other of a ‘traditional business community’ and its trading networks in colonial India.” NCERT (Pre-rationalised): “4.1 Sociological Perspectives on Markets and the Economy … In this sense, there seems to be some sort of an unseen force at work that converts what is good for each individual into what is good for society. This unseen force was called ‘the invisible hand’ by Adam Smith. Thus, Smith argued that the capitalist economy is driven by individual self-interest, and works best when individual buyers and sellers make rational decisions that serve their own interests. Smith used the idea of the ‘invisible hand’ to argue that society overall benefits when individuals pursue their own self-interest in the market, because it stimulates the economy and creates more wealth. For this reason, Smith supported the idea of a ‘free market’, that is, a market free from all kinds of regulation whether by the state or otherwise. This economic philosophy was also given the name laissez-faire, a French phrase that means ‘leave alone’ or ‘let it be’.…” |