Economic liberalism refers to the ideological belief in the organization of the economy based on personal interests of certain individuals. This means that most of the economic decisions that are made are constructed by individuals and not collective institutions or organizations. The ideological belief involves a spectrum of various economic policies; however, it is always dependent on strong support for a market economy and private property in the means of production. Those who propose economic liberalism believe that political freedom and social freedom are intertwined with economic freedom.
In this concept, proponents use philosophical arguments for the promotion of liberty to justify economic freedom and the free market. Despite the fact that economic liberalization can be supportive of government regulation to a certain level, it is deemed as opposing government intervention in the free market that inhibits competition and free trade. Economic liberalization can be contrasted with economic planning, mercantilism, socialism and the social market model.
The theories that support economic liberalization were developed and first fully formulated by Adam Smith for the advocacy of minimal interference of government in a market economy. However, the ideology is not necessarily in opposition of government’s provision of certain basic public goods. The application of these theories started in the 18th century with the then sterling claim that if people are left to their own economic devices without being regulated by the state, the result would be a harmonious and more equal society with an ever increasing prosperity.
The introduction of the theories of economic liberalization significantly underpinned the move towards a capitalist economic system in the late 18th century. In fact, it also contributed to the subsequent demise of the mercantilist system.
The basis of economic liberalism is pinned onto private property and individual contracts. The early theory mainly involved the assumption that the economic activities of individuals are mainly based on self-interest, and that giving them the opportunity to undertake those activities without restrictions would offer the best results. However, this would only be so if at least the minimum standards of public information and justice are in existence, for example if no one would not be allowed to steal or coerce.
Even though economic liberalism offers favors to markets that are unfettered by the government, it insists that the state has got the legitimate responsibility of offering public goods. For example, Adam Smith argued that the state has got the mandate of providing roads, schools, bridges and canals that cannot be implemented efficiently through private entities. However, he was of the suggestion that these goods should be paid proportionally to their consumption, for example through levies.
At first, the economic liberalism had to be in contention with the supporters of feudal privileges for the wealthy, the rights of kings to run national economies in their own personal interests and aristocratic traditions. However, these were squarely defeated by the end of the 19th century and early 20th century.
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