Generally speaking, laissez-faire capitalism is the name given to the economic system that prevailed in the United States and Western Europe in the mid nineteenth century, though certain of its features lingered on until the early twentieth century.
Under this system, the government intervened in the running of the economy as little as possible, allowing decisions concerning the production and allocation of goods to be determined by firms operating in a largely unfettered market economy. To be sure, governments still had an important role to play, albeit a very limited one. They established the legal framework in which companies operated and protected private property rights.
The main advantage of laissez-faire capitalism was that it was generally a very efficient method of producing and allocating resources. Primarily, this was because firms were in a position to respond quickly to price changes in the market, which acted as a signal to what goods should be produced and in what quantities. With government not involved in the day-to-day running of the economy, firms could concentrate on what the market was telling them instead of having to pay attention to bureaucratic controls.
Laissez-faire capitalism was not without its downsides, however. Without effective government regulation in place, firms were free to engage in all manner of unscrupulous behavior, whether it was forming cartels, polluting the environment with impunity, or driving down wages and conditions for their workers.
Over time, it became abundantly clear that these drawbacks greatly outweighed any benefits that laissez-faire capitalism might bring. That being the case, governments gradually began to become more involved in regulating capitalism. Among other things, this involved ensuring fair competition between companies and imposing a legal requirement on firms to adhere to clean air standards and minimum working conditions for their employees.