The Origin
"Laissez-Faire," by each individual word, literally translates from French to English as "let fair." However, it is commonly known to mean "hands-off." The term and the idea originated in late 17th/ early to mid 18th century France, and was popularized by Vincent de Gournay. The philosophy also extended to politics in nations such as Victorian Britain. Adam Smith, a Scottish economist, said that economic action should be governed by supply and demand, with minimal government interference, a popular concept for ambitious business owners. Therefore, it was thought of as a basic conservative policy.
Applications to American Economy
Laissez-Faire was initially an appealing policy, mostly because it allowed businesses to be run freely, without annoying government regulation. However, the philosophy had many significant downsides. The essence of the idea revolved around supply and demand, and for that to fully flourish, competition would be needed. The Pre-Progressive era, though, was riddled with trusts such as Standard Oil and which eliminated almost all competition, rendering much of Laissez-Faire's ideas
Adam Smith
Adam Smith
null and void. When the stock market crashed in 1893, mostly due to unregulated borrowing and construction of railroads, President Cleveland did little to help the quandary. He and other conservatives stuck behind the gold standard for money and simply counted on the economy to figure itself out. This resulted in a very volatile, rising and falling economy. The first major opposition to the Laissez-Faire approach rose from the Populist party. The party itself never developed a major foothold, but their influences carried over to the Progressive Republicans such as Teddy Roosevelt, who favored laws such as antitrust laws (Sherman Antitrust Act) and tariff control (Payne-Aldrich Tariff). While the non-Laissez-Faire policies did not completely stabilize the economy, given that the Great Depression came after the 20s, the idea slowly faded out of the public consciousness as the century progressed.

Works Cited

"BBC - History - Laissez-faire and the Victorians." BBC - Homepage. Web. 17 Mar. 2010. <http://www.bbc.co.uk/history/trail/victorian_britain/education_health/laissez_faire_01.shtml>.
"Laissez-faire -."
Wikipedia, the Free Encyclopedia. Web. 18 Mar. 2010. <http://en.wikipedia.org/wiki/Laissez-faire#cite_note-1>.
Newman, John J., and John M. Schmalbach.
United States History: Preparing for the Advanced Placement Examination. New York, N.Y.: Amsco School Publications, 2006. Print