Economic liberalism is apolitical andeconomic ideology that supports amarket economy based onindividualism andprivate property in themeans of production.[1]Adam Smith is considered one of the primary initial writers on economic liberalism, and his writing is generally regarded as representing the economic expression of 19th-centuryliberalism up until theGreat Depression and rise ofKeynesianism in the 20th century. Historically, economic liberalism arose in response tofeudalism andmercantilism.
Economic liberalism is associated with markets and private ownership ofcapital assets. Economic liberals tend to opposegovernment intervention andprotectionism in themarket economy when it inhibitsfree trade andcompetition, but tend to support government intervention where it protectsproperty rights, opens new markets or funds market growth, and resolvesmarket failures.[2] They also tend to opposecartels,monopolies,financialization of the economy,rent-seeking behaviour andunproductive classes reliant on rent, assets or state-granted privileges. An economy that is managed according to these precepts may be described as a liberal economy or operating under liberalcapitalism. Economic liberals commonly adhere to apolitical andeconomic philosophy that advocates a restrainedfiscal policy and abalanced budget through measures such as low taxes, reduced government spending, and minimized government debt.[3] Free trade,deregulation,tax cuts,privatization,labour market flexibility, andopposition to trade unions are also common positions.[4]
Economic liberalism can be contrasted withprotectionism because of its support for free trade and anopen economy, and is considered opposed toplanned economies and non-capitalist economic orders, such ascommunism.[5] As such, economic liberalism today is associated withclassical liberalism,neoliberalism,right-libertarianism, and some schools ofconservatism likeliberal conservatism andfiscal conservatism. Economic liberalism follows the same philosophical approach as classical liberalism and fiscal conservatism.[6]
Developed during theAge of Enlightenment, particularly byAdam Smith, 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, opposingfeudalism andmercantilism.[2] It was first proposed byAdam Smith inAn Inquiry into the Nature and Causes of the Wealth of Nations (1776), which advocated minimal interference of government in amarket economy, although it did not necessarily oppose the state's provision of basicpublic goods.[7] 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.[1] This underpinned the move towards acapitalist economic system in the late 18th century and the subsequent demise of the mercantilist system. Private property and individualcontracts form the basis of economic liberalism.[8]
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) and that allowing them to act without any restrictions will produce the best results for everyone (spontaneous order), 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".[9]
Initially, the economic liberals had to contend with arguments from the supporters of feudal privileges for the wealthy, traditions of thearistocracy and the rights ofmonarchs 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.
TheOttoman Empire had liberal free trade policies by the 18th century, with origins incapitulations of the Ottoman Empire, dating back to the first commercial treaties signed with France in 1536 and taken further withcapitulations in 1673, in 1740 which loweredduties to only 3% for imports and exports and in 1790. Ottoman free trade policies were praised by British economists advocating free trade such asJ. R. McCulloch in hisDictionary of Commerce (1834), but criticized by British politicians opposing free trade such asPrime MinisterBenjamin Disraeli, who cited the Ottoman Empire as "an instance of the injury done by unrestrained competition" in the 1846Corn Laws debate, arguing that it destroyed what had been "some of the finest manufactures of the world" in 1812.[10]
Historian Kathleen G. Donohue argues thatclassical liberalism in the United States during the 19th century had distinctive characteristics as opposed to Britain: "[A]t the center of classical liberal theory [in Europe] was the idea oflaissez-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."[11]
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 associal 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, thedivision of labour, 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 is a much broader concept than fiscal liberalism, which is calledfiscal conservatism or economic libertarianism in the United States.[12] The ideology that highlighted the financial aspect of economic liberalism is called fiscal liberalism, which is defined as support forfree trade.[13]
Economic liberals oppose government intervention in the economy when it leads to outcomes they consider to be inefficient.[14] They are supportive of a strong state that protects the right to property and enforces contracts.[2] They may also support government interventions to resolve market failures.[2]Ordoliberalism and various schools ofsocial liberalism based on classical liberalism include a broader role for the state but do not seek to replace private enterprise and the free market withpublic enterprise andeconomic planning.[15][16] Asocial market economy is a largely free-market economy based on afree price system and private property that is supportive of government activity to promotecompetition in markets andsocial welfare programs to addresssocial inequalities that result from market outcomes.[15][16]
Hence the emphasis today on the study of political economy, and the identification of Gladstone with 'fiscal liberalism', defined above all as the liberalism of free trade.
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