What economic theory suggests that government should not interfere with the economy?

The concept of laissez-faire economics is rooted in the belief that minimal governmental intervention in the markets leads to the most efficient economic outcomes. This theory argues that when the government imposes regulations, it often disrupts the natural balance of supply and demand, which can lead to inefficiencies and a misallocation of resources. Laissez-faire advocates assert that individuals and businesses should operate freely within the market, guided by their self-interest, which in turn benefits society as a whole through innovation, competition, and improved products and services.

In contrast, Keynesian economics emphasizes the role of government intervention to stabilize the economy, especially in times of recession, while monetarism focuses on the importance of controlling the money supply to manage economic activity. Socialism encourages extensive government involvement in economic planning and the distribution of resources. These differing viewpoints highlight why laissez-faire is distinct, as it fundamentally opposes the notion of government actively engaging in economic management.