Economic liberalism is an economic system organized on individual lines, which means that the greatest possible number of economic decisions are made by individuals or households rather than by collective institutions or organizations. It includes a spectrum of different economic policies, such as freedom of movement, but it is always based on strong support for a market economy and private property in the means of production. Although economic liberalism can also be supportive of government regulation to a certain degree, it tends to oppose government intervention in the free market when it inhibits free trade and open competition.
Economic liberalism is most often associated with support for free markets and private ownership of capital assets. It contrasts with protectionism because of its support for free trade and open markets. Historically, economic liberalism arose in response to mercantilism and feudalism. Today, economic liberalism is also generally considered to be opposed to non-capitalist economic systems, such as socialism and planned economies.
- Even the Mercantile System cannot be correctly judged by modern economics since the latter is itself one-sided and as yet burdened with that very system’s premises. Only that view which rises above the opposition of the two systems, which criticises the premises common to both and proceeds from a purely human, universal basis, can assign to both their proper position. It will become evident that the protagonists of free trade are more inveterate monopolists than the old Mercantilists themselves. It will become evident that the sham humanity of the modern economists hides a barbarism of which their predecessors knew nothing; that the older economists’ conceptual confusion is simple and consistent compared with the double-tongued logic of their attackers, and that neither of the two factions can reproach the other with anything which would not recoil upon themselves. This is why modern liberal economics cannot comprehend the restoration of the Mercantile System by List, whilst for us the matter is quite simple. The inconsistency and ambiguity of liberal economics must of necessity dissolve again into its basic components. Just as theology must either regress to blind faith or progress towards free philosophy, free trade must produce the restoration of monopolies on the one hand and the abolition of private property on the other.
- The only positive advance which liberal economics has made is the elaboration of the laws of private property. These are contained in it, at any rate, although not yet fully elaborated and clearly expressed. It follows that on all points where it is a question of deciding which is the shortest road to wealth – i. e., in all strictly economic controversies – the protagonists of free trade have right on their side. That is, needless to say, in controversies with the monopolists – not with the opponents of private property, for the English Socialists have long since proved both practically and theoretically that the latter are in a position to settle economic questions more correctly even from an economic point of view.
- The term national wealth has only arisen as a result of the liberal economists’ passion for generalisation. As long as private property exists, this term has no meaning.
- By dissolving nationalities, the liberal economic system had done its best to universalise enmity, to transform mankind into a horde of ravenous beasts (for what else are competitors?) who devour one another just because each has identical interests with all the others – after this preparatory work there remained but one step to take before the goal was reached, the dissolution of the family. To accomplish this, economy’s own beautiful invention, the factory system, came to its aid.
- The opposite of competition is monopoly. Monopoly was the war-cry of the Mercantilists; competition the battle-cry of the liberal economists. It is easy to see that this antithesis is again a quite hollow antithesis. Every competitor cannot but desire to have the monopoly, be he worker, capitalist or landowner. Each smaller group of competitors cannot but desire to have the monopoly for itself against all others. Competition is based on self-interest, and self-interest in turn breeds monopoly. In short, competition passes over into monopoly. On the other hand, monopoly cannot stem the tide of competition – indeed, it itself breeds competition; just as a prohibition of imports, for instance, or high tariffs positively breed the competition of smuggling.
- A liberal is fundamentally fearful of concentrated power. His objective is to preserve the maximum degree of freedom for each individual separately that is compatible with one man's freedom not interfering with other men's freedom. He believes that this objective requires that power be dispersed. He is suspicious of assigning to government any functions that can be performed through the market, both because this substitutes coercion for voluntary co-operation in the area in question and because, by giving government an increased role, it threatens freedom in other areas.
- Milton Friedman, Capitalism and Freedom (1962), Ch. 3 The Control of Money
- Economic theory as derived from Adam Smith assumes first that homo economicus acts with perfect optimality on complete information, and second that when many of the species homo economicus do that, their actions add up to the best possible outcome for everybody. Neither of these assumptions stands up long against the evidence.