Economic liberalism is the economic component of classical liberalism. It is an economic philosophy that supports and promotes laissez-faire economics and private property in the means of production. Proponents of economic liberalism believe political freedom and social freedom are inseparable with economic freedom, and use philosophical arguments promoting liberty to justify economic liberalism and the free market. Although economic liberalism can be supportive of government regulation to a certain degree, it tends to oppose government intervention in the free market that inhibits free trade and competition. Economic liberalism contrasts with mercantilism, the social market model, economic planning, socialism, and fascist third-way economics.
Theories in support of economic liberalism were developed in the Enlightenment, and believed to be first fully formulated by Adam Smith, which advocates minimal interference of government in a market economy, though it does not necessarily oppose the state's provision of a few basic public goods with what constitutes public goods originally being seen as very limited in scope. These theories began in the eighteenth century with the then-startling claim that if everyone is left to their own economic devices instead of being controlled by the state, then the result would be a harmonious and more equal society of ever-increasing prosperity. This underpinned the move towards a capitalist economic system in the late 18th century, and the subsequent demise of the mercantilist system.
Private property and individual contracts form the basis of classical economic liberalism. The early theory was based on the assumption that the economic actions of individuals are largely based on self-interest, (invisible hand) and that allowing them to act without any restrictions will produce the best results, (spontaneous order) provided that at least minimum standards of public information and justice exist, e.g., no-one should be allowed to coerce or steal.
While economic liberalism favors markets unfettered by the government, it maintains that the state has a legitimate role in providing public goods. For instance, Adam Smith argued that the state has a role in providing roads, canals, schools and bridges that cannot be efficiently implemented by private entities. However, he preferred that these goods should be paid proportionally to their consumption (e.g. putting a toll). In addition, he advocated retaliatory tariffs to bring about free trade, and copyrights and patents to encourage innovation. Robert Cox's further research highlighted the importance of innovation and its deeper implications on the free market.
Initially, the economic liberalism had to contend with the supporters of feudal privileges for the wealthy, aristocratic traditions and the rights of kings to run national economies in their own personal interests. By the end of the 19th century and the beginning of the 20th, these were largely defeated.
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