Economic liberalism is a

political Politics (from , ) is the set of activities that are associated with making decisions in groups, or other forms of power relations among individuals, such as the distribution of resources or status. The branch of social science that studies ...

and

economic ideology An economic ideology is a set of views forming the basis of an ideology on how the economy should run. It differentiates itself from economic theory in being normative rather than just explanatory in its approach, whereas the aim of economic the ...

that supports a

market economy A market economy is an economic system in which the decisions regarding investment, production and distribution to the consumers are guided by the price signals created by the forces of supply and demand, where all suppliers and consumers ...

based on

individualism Individualism is the moral stance, political philosophy, ideology and social outlook that emphasizes the intrinsic worth of the individual. Individualists promote the exercise of one's goals and desires and to value independence and self-reli ...

and

private property Private property is a legal designation for the ownership of property by non-governmental legal entities. Private property is distinguishable from public property and personal property, which is owned by a state entity, and from collective or ...

in the

means of production The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as an ...

Adam Smith Adam Smith (baptized 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the thinking of political economy and key figure during the Scottish Enlightenment. Seen by some as "The Father of Economics"——— ...

is considered one of the primary initial writers on economic liberalism, and his writing is generally regarded as representing the economic expression of 19th-century

liberalism Liberalism is a political and moral philosophy based on the rights of the individual, liberty, consent of the governed, political equality and equality before the law."political rationalism, hostility to autocracy, cultural distaste for c ...

up until the

Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...

and rise of

Keynesianism Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output and ...

in the 20th century. Historically, economic liberalism arose in response to

feudalism Feudalism, also known as the feudal system, was the combination of the legal, economic, military, cultural and political customs that flourished in medieval Europe between the 9th and 15th centuries. Broadly defined, it was a way of structur ...

and

mercantilism Mercantilism is an economic policy that is designed to maximize the exports and minimize the imports for an economy. It promotes imperialism, colonialism, tariffs and subsidies on traded goods to achieve that goal. The policy aims to reduce a ...

. Economic liberalism is associated with markets and private ownership of capital assets. Economic liberals tend to oppose

government intervention Economic interventionism, sometimes also called state interventionism, is an economic policy position favouring government intervention in the market process with the intention of correcting market failures and promoting the general welfare of ...

and

protectionism Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. ...

in the

when it inhibits

free trade Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econo ...

and

competition Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, indivi ...

, but tend to support government intervention where it protects property rights, opens new markets or funds market growth, and resolves

market failure In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value. Market failures can be viewed as scenarios where indiv ...

s. An economy that is managed according to these precepts may be described as a liberal economy or operating under liberal

capitalism Capitalism is an economic system based on the private ownership of the means of production and their operation for Profit (economics), profit. Central characteristics of capitalism include capital accumulation, competitive markets, pric ...

. Economic liberals commonly adhere to a

and economic philosophy that advocates a restrained

fiscal policy In economics and political science, fiscal policy is the use of government revenue collection (taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variables ...

and a

balanced budget A balanced budget (particularly that of a government) is a budget in which revenues are equal to expenditures. Thus, neither a budget deficit nor a budget surplus exists (the accounts "balance"). More generally, it is a budget that has no budge ...

through measures such as low taxes, reduced government spending, and minimized government debt. Free trade,

deregulation Deregulation is the process of removing or reducing state regulations, typically in the economic sphere. It is the repeal of governmental regulation of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a ...

tax cut A tax cut represents a decrease in the amount of money taken from taxpayers to go towards government revenue. Tax cuts decrease the revenue of the government and increase the disposable income of taxpayers. Tax cuts usually refer to reductions in ...

privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...

, labour market flexibility, and opposition to trade unions are also common positions. Economic liberalism can be contrasted with

because of its support for free trade and an open economy, and is considered opposed to planned economies and non-capitalist economic orders, such as

socialism Socialism is a left-wing economic philosophy and movement encompassing a range of economic systems characterized by the dominance of social ownership of the means of production as opposed to private ownership. As a term, it describes the e ...

. As such, economic liberalism today is associated with

classical liberalism Classical liberalism is a political tradition Political culture describes how culture impacts politics. Every political system is embedded in a particular political culture. Definition Gabriel Almond defines it as "the particular patt ...

neoliberalism Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent fa ...

, right-libertarianism, and some schools of

conservatism Conservatism is a cultural, social, and political philosophy that seeks to promote and to preserve traditional institutions, practices, and values. The central tenets of conservatism may vary in relation to the culture and civilizati ...

liberal conservatism Liberal conservatism is a political ideology combining conservative policies with liberal stances, especially on economic issues but also on social and ethical matters, representing a brand of political conservatism strongly influenced by libe ...

and

fiscal conservatism Fiscal conservatism is a political and economic philosophy regarding fiscal policy and fiscal responsibility with an ideological basis in capitalism, individualism, limited government, and ''laissez-faire'' economics.M. O. Dickerson et al., ''An ...

. Economic liberalism follows the same philosophical approach as classical liberalism and fiscal conservatism.

Origin and early history

Developed during the

Age of Enlightenment The Age of Enlightenment or the Enlightenment; german: Aufklärung, "Enlightenment"; it, L'Illuminismo, "Enlightenment"; pl, Oświecenie, "Enlightenment"; pt, Iluminismo, "Enlightenment"; es, La Ilustración, "Enlightenment" was an intel ...

, particularly by

, economic liberalism was born as the theory of economics of liberalism, which advocates minimal interference by government in the economy. Arguments in favor of economic liberalism were advanced by Smith and others during the age of enlightenment, opposing

and

. It was first analyzed by

in ''

An Inquiry into the Nature and Causes of the Wealth of Nations ''An Inquiry into the Nature and Causes of the Wealth of Nations'', generally referred to by its shortened title ''The Wealth of Nations'', is the ''Masterpiece, magnum opus'' of the Scottish people, Scottish economist and moral philosopher Ada ...

'' (1776), which advocated minimal interference of government in a

, although it did not necessarily oppose the state's provision of basic public goods. In Smith's view, if everyone is left to his own economic devices instead of being controlled by the state, the result would be a harmonious and more equal society of ever-increasing prosperity. This underpinned the move towards a

capitalist Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, priva ...

economic system in the late 18th century and the subsequent demise of the mercantilist system. Private property and individual

contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...

s form the basis of economic liberalism. The early theory of economic liberalism was based on the assumption that the economic actions of individuals are largely based on self-interest (

invisible hand The invisible hand is a metaphor used by the British moral philosopher Adam Smith that describes the unintended greater social benefits and public good brought about by individuals acting in their own self-interests. Smith originally mention ...

) and that allowing them to act without any restrictions will produce the best results for everyone (

spontaneous order Spontaneous order, also named self-organization in the hard sciences, is the spontaneous emergence of order out of seeming chaos. The term "self-organization" is more often used for physical changes and biological processes, while "spontaneous o ...

), provided that at least minimum standards of public information and justice exist, so that no one is allowed to coerce, steal, or commit fraud, and there should be freedom of speech and press. This ideology was well reflected in English law; Lord Ackner, denying the existence of a duty of good faith in English contract law, emphasised the "adversarial position of the parties when involved in negotiations".

Initial opposition

Initially, the economic liberals had to contend with arguments from the supporters of feudal privileges for the wealthy, traditions of the

aristocracy Aristocracy (, ) is a form of government that places strength in the hands of a small, privileged ruling class, the aristocracy (class), aristocrats. The term derives from the el, αριστοκρατία (), meaning 'rule of the best'. At t ...

and the rights of

monarch A monarch is a head of stateWebster's II New College DictionarMonarch Houghton Mifflin. Boston. 2001. p. 707. Life tenure, for life or until abdication, and therefore the head of state of a monarchy. A monarch may exercise the highest authority ...

s to run national economies in their own personal interests. By the end of the 19th century and the beginning of the 20th century, this opposition was largely defeated in the primary capital markets of Western countries.

Contrast with other economic philosophies

Contrast between British and American views

Historian Kathleen G. Donohue argues that

classical liberalism in the United States Liberalism in the United States is a political and moral philosophy based on concepts of unalienable rights of the individual. The fundamental liberal ideals of freedom of speech, freedom of the press, freedom of religion, the separation of c ...

during the 19th century had distinctive characteristics as opposed to Britain: " the center of classical liberal theory

n Europe N, or n, is the fourteenth letter in the Latin alphabet, used in the modern English alphabet, the alphabets of other western European languages and others worldwide. Its name in English is ''en'' (pronounced ), plural ''ens''. History ...

was the idea of ''laissez-faire''. To the vast majority of American classical liberals, however, ''laissez-faire'' did not mean no government intervention at all. On the contrary, they were more than willing to see government provide tariffs, railroad subsidies, and internal improvements, all of which benefited producers. What they condemned was intervention in behalf of consumers."

Limits of influence and influence on other perspectives

In its initial formation, economic liberalism was focused on promoting the idea of private ownership and trade; however, due to a growing awareness of concerns regarding policy, the rise of economic liberalism paved the way for a new form of liberalism, known as

social liberalism Social liberalism (german: Sozialliberalismus, es, socioliberalismo, nl, Sociaalliberalisme), also known as new liberalism in the United Kingdom, modern liberalism, or simply liberalism in the contemporary United States, left-liberalism ...

. This promoted an accommodation for government intervention in order to help the poor. As subsequent authors picked up and promoted widespread appeal of a subset of Smith's economic theories to support their own work — of free trade, the

division of labour The division of labour is the separation of the tasks in any economic system or organisation so that participants may specialise (specialisation). Individuals, organizations, and nations are endowed with, or acquire specialised capabilities, and ...

, and the principle of individual initiative — this contributed to obscuring other aspects of the rich body of political liberalism to be found in Smith's work. For example, his work promoted the ideal that the everyday man could hold ownership of his own property and trade, which Smith felt would slowly allow for individuals to take control of their places within society.

Economic liberalism and fiscal liberalism (conservatism)

Economic liberalism is a much broader concept than fiscal liberalism, which is called

or economic libertarianism in the United States. The ideology that highlighted the financial aspect of economic liberalism is called fiscal liberalism, which is defined as support for

Position on state interventionism

Economic liberalism opposes government intervention in the economy when it leads to inefficient outcomes. They are supportive of a strong state that protects the right to property and enforces contracts. They may also support government interventions to resolve market failures. Ordoliberalism and various schools of

based on classical liberalism include a broader role for the state but do not seek to replace private enterprise and the free market with public enterprise and

economic planning Economic planning is a resource allocation mechanism based on a computational procedure for solving a constrained maximization problem with an iterative process for obtaining its solution. Planning is a mechanism for the allocation of resources b ...

. A social market economy is a largely free-market economy based on a free price system and private property that is supportive of government activity to promote

in markets and social welfare programs to address social inequalities that result from market outcomes.

References

Bibliography

* * * *

External links

* {{neoliberalism Classical liberalism Conservative liberalism Economic globalization Economic ideologies Free market Ideologies of capitalism Liberalism Political ideologies