Economic Liberalism (Meaning and Explanation)

We explain what economic liberalism is, its advantages, disadvantages and characteristics. Also, its main representatives.

What is economic liberalism?

Economic liberalism is the economic thought typical of the philosophical doctrine of liberalism. It is based on the idea that economic activities should be as free as possible from state interventions and that the market should be allowed to reach a point of self-regulation through free competition.

Emerging in 18th century Europe, liberalism had an immense impact on politics, culture and especially the economy of the time, opposing state intervention in the economy, as was the protectionist norm at the time.

Initially, this doctrine was called free trade, since advocated free exchange of currencies and the reduction of barriers to production and to commerce. The classical economist Adam Smith was one of its greatest representatives.

Liberal economic thought is usually summarized in the French expression laissez faire, laissez passer (“let go, let pass”) actually inherited from previous economic theories (specifically from physiocracy), since it defends the free circulation of goods and the freedom of economic exercise.

Likewise, economic liberalism defends private property and a market economy. To that extent It is the basic thought that fostered the success of capitalism.

Characteristics of economic liberalism

In general terms, economic liberalism is based on:

Defend the economic freedom of private actors of the greatest possible number of interventions by the State: barriers, tariffs, controls, etc.
Defend private property and the free movement of goods as fundamental elements of society.
Defend the need for a free competition between economic actors which would lead them to maximum effort and maximum inventiveness to gain positions within the market.
maintain that the free market will regulate itself if given the opportunity, through the forces of supply and demand, reaching an ideal state of wealth generation.

Advantages and disadvantages of economic liberalism

Economic liberalism brings together great virtues and profound contradictions, depending on the point of view from which you look at it.

Advantages of economic liberalism:

Free capacity for inventiveness and economic entrepreneurship, which motivates innovation and industrial development (especially technological).
Promotion of investment and savings as ways to accumulate wealth and social prestige.
Independence of economic actors of the State, which also translates into political independence.

Disadvantages of economic liberalism

Concentration of wealth in the industrial and financial strata, which creates social and economic inequality.
Ruthless exploitation of the working class especially in the initial stages of capitalism, in which there was no union representation, no labor laws, or labor benefits of any kind.
Possibility of unfair competition unfair practices and absence of minimum regulations necessary to guarantee social peace.

Representatives of economic liberalism

Adam Smith was the father of economic liberalism.

The main representatives of liberal economic thought were:

Adam Smith (1723-1790). Scottish economist known as the father of economic liberalism, addressing economics from a philosophical point of view in his work The wealth of nations of 1776. There he defended natural human tendencies and criticized the institutions of the moment, ensuring that, if human beings were left on their own, they would not only find the best for themselves, but also the best for their fellow human beings.
David Ricardo (1772-1823). English businessman, politician and economist of Jewish origin, he is considered a pioneer of modern macroeconomics, and one of the essential thinkers for the quantitative theory of money. His work, although liberal in nature, is important for both neoclassical and Marxist economists.
Thomas Malthus (1766-1834). Anglican clergyman of British origin and member of the Royal Society, he was a very influential thinker in political economy and demography, especially for his work The population explosion.

Examples of economic liberalism

At the beginning of the 21st century, the entire world embraces economic freedom, although not necessarily as Enlightenment thought formulated it at the time. The struggle between the labor movements and the domination of the industrial bourgeoisie produced new and more moderate forms of economic liberalism and capitalism throughout the 19th and 20th centuries.