It's (1), laissez-faire is a French term for "let it be" and the general idea of laissez-faire economics is that the government shouldn't really mess with the economy, so it would be against minimum wage, child labor laws, safety regulations, that sort. During the late 1800s there was an industrial revolution going around in America and Europe, and factories popped up in many major cities. At first these workers had long hours and did dangerous jobs for very low wages that barely supported their families. This system made the country richer but the working class suffered.
