What Is Classical Liberalism? Definition and Examples

Close up of the Back of a New British Twenty Pound Note showing Adam Smith's head.
Close up of the back of a British twenty pound note showing Adam Smith's head.

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Classical liberalism is a political and economic ideology that advocates the protection of civil liberties and Laissez-Faire economic freedom by limiting the power of the central government. Developed in the early 19th century, the term is often used in contrast to the philosophy of modern social liberalism.

Key Takeaways: Classical Liberalism

  • Classical liberalism is a political ideology that favors the protection of individual liberty and economic freedom by limiting government power.
  • Classical liberalism emerged during the 18th and early 19th centuries in response to the sweeping social changes precipitated by the Industrial Revolution.
  • Today, classical liberalism is viewed in contrast to the more politically-progressive philosophy of social liberalism. 

Classical Liberalism Definition and Characteristics

Emphasizing individual economic freedom and the protection of civil liberties under the rule of law, classical liberalism developed in the late 18th and early 19th centuries as a response to the social, economic, and political changes brought on by the Industrial Revolution and urbanization in Europe and the United States. 

Based on a belief that social progress was best achieved through adherence to natural law and individualism, classical liberals drew on the economic ideas of Adam Smith in his classic 1776 book “The Wealth of Nations.” Classical liberals also agreed with Thomas Hobbes’ belief that governments were created by the people for the purpose of minimizing conflict between individuals and that financial incentive was the best way to motivate workers. They feared a welfare state as a danger to a free market economy. 

In essence, classical liberalism favors economic freedom, limited government, and protection of basic human rights, such as those in the U.S. Constitution’s Bill of Rights. These core tenets of classical liberalism can be seen in the areas of economics, government, politics, and sociology. 

Economics

On an equal footing with social and political freedom, classical liberals advocate a level of economic freedom that leaves individuals free to invent and produce new products and processes, create and maintain wealth, and trade freely with others. To the classical liberal, the essential goal of government is to facilitate an economy in which any person is allowed the greatest possible chance to achieve his or her life goals. Indeed, classical liberals view economic freedom as the best, if not the only way to ensure a thriving and prosperous society. 

Critics argue that classical liberalism’s brand of economics is inherently evil, overemphasizing monetary profit through unchecked capitalism and simple greed. However, one of the key beliefs of classical liberalism is that the goals, activities, and behaviors of a healthy economy are ethically praiseworthy. Classical liberals believe that a healthy economy is one that allows a maximum degree of free exchange of goods and services between individuals. In such exchanges, they argue, both parties end up better off—clearly a virtuous rather than evil outcome. 

The last economic tenant of classical liberalism is that individuals should be allowed to decide how to dispose of the profits realized by their own effort free from government or political intervention.  

Government

Based on the ideas of Adam Smith, classical liberals believe that individuals should be free to pursue and protect their own economic self-interest free from undue interference by the central government. To accomplish that, classical liberals advocated a minimal government, limited to only six functions:

  • Protect individual rights and to provide services that cannot be provided in a free market.
  • Defend the nation against foreign invasion.
  • Enact laws to protect citizens from harms committed against them by other citizens, including protection of private property and enforcement of contracts.
  • Create and maintain public institutions, such as government agencies.
  • Provide a stable currency and a standard of weights and measures.
  • Build and maintain public roads, canals, harbors, railways, communications systems, and postal services.

Classical liberalism holds that rather than granting the fundamental rights of the people, governments are formed by the people for the express purpose of protecting those rights. In asserting this, they point to the U.S. Declaration of Independence, which states that people are “endowed by their Creator with certain unalienable Rights…” and that “to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed…” 

Politics

Spawned by 18th-century thinkers like Adam Smith and John Locke, the politics of classical liberalism diverged drastically from older political systems that placed rule over the people in the hands of churches, monarchs, or totalitarian government. In this manner, the politics of classical liberalism values the freedom of individuals over that of central government officials.

Classical liberals rejected the idea of direct democracy—government shaped solely by a majority vote of citizens—because majorities might not always respect personal property rights or economic freedom. As expressed by James Madison in Federalist 21, classical liberalism favored a constitutional republic, reasoning that in a pure democracy a “common passion or interest will, in almost every case, be felt by a majority of the whole [...] and there is nothing to check the inducements to sacrifice the weaker party.” 

Sociology

Classical liberalism embraces a society in which the course of events is determined by the decisions of individuals rather than by the actions of an autonomous, aristocratically-controlled government structure. 

Key to the classical liberal’s approach to sociology is the principle of spontaneous order—the theory that stable social order evolves and is maintained not by human design or government power, but by random events and processes seemingly beyond the control or understanding of humans. Adam Smith, in The Wealth of Nations, referred to this concept as the power of the “invisible hand.”

For example, classical liberalism argues that the long-term trends of market-based economies are the result of the “invisible hand” of spontaneous order due to the volume and complexity of the information required to accurately predict and respond to market fluctuations. 

Classical liberals view spontaneous order as the result of allowing entrepreneurs, rather than governments, to recognize and provide for the needs of the society. 

Classical Liberalism vs. Modern Social Liberalism 

Modern social liberalism evolved from classical liberalism around 1900. Social liberalism differs from classical liberalism in two main areas: individual liberty and the role of government in society. 

Individual Liberty

In his seminal 1969 essay “Two Concepts of Liberty,” British social and political theorist Isaiah Berlin asserts that liberty can be both negative and positive in nature. Positive liberty is simply the freedom to do something. Negative liberty is the absence of restraints or barriers limiting individual freedoms. 

Classical liberals favor negative rights to the extent that governments and other people should not be allowed to interfere with the free market or natural individual freedoms. Modern social liberals, on the other hand, believe that individuals have positive rights, such as the right to vote, the right to a minimum living wage, and—more recently—the right to health care. By necessity, guaranteeing positive rights requires government intervention in the form of protective legislative and higher taxes than those required to ensure negative rights.

Role of Government

While classical liberals favor individual liberty and a largely unregulated free market over the power of the central government, social liberals demand that the government protect individual freedoms, regulate the marketplace, and correct social inequities. According to social liberalism, the government—rather than society itself—should address issues such as poverty, health care, and income inequality while also respecting the rights of individuals. 

Despite their apparent divergence from the tenets of free-market capitalism, socially liberal policies have been adopted by most capitalist countries. In the United States, the term social liberalism is used to describe progressivism as opposed to conservatism. Especially noticeable in the area fiscal policy, social liberals are more likely to advocate higher levels of government spending and taxation than conservatives or more moderate classical liberals. 

Sources and Further Reference