Liberal theory of economics
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Private property and individual contracts form the basis of the liberal theory of economics. The early theory was based on the assumption that the economic actions of individuals are largely based on self-interest, and that allowing them to do so without any restrictions will produce the best results, provided that at least minimum standards of public information and justice exist, e.g., no-one should be allowed to coerce or steal.
Initially, the liberal theory of economics had to contend with the supporters of feudal privileges for the wealthy, aristocratic traditions and the rights of kings to run national economies in their own personal interests. By the end of the 19th century and the beginning of the 20th, these had been largely defeated. However, a new challenge arose from the left, and economic liberalism found itself under attack from progressive and socialist schools of thought that favoured redistribution of wealth, greater economic equality, government programs to help the poor and, in some cases, planned economies. These remain the main opponents of economic liberalism to this day.
Famous proponents of the liberal theory of economics include Adam Smith, Anders Chydenius, François Quesnay, Jean-Baptiste Say, Frédéric Bastiat, Ludwig von Mises, Friedrich Hayek, Milton Friedman and James M. Buchanan.
Decline and revival
The liberal theory of economics fell partially out of practice in the late 19th and early 20th century, when many countries followed the protectionism of Germany, which wanted to achieve self-sufficiency in order to be able to survive a long war.The theory fell further out of favor in the first half of the 20th century, following World War I and the Great Depression. It was largely superseded by modern economic theories, such as Keynesian economics, which take into account macro-level phenomena and call for a mixed economy involving significant state intervention. After Keynesianism failed to explain stagflation in the 1970s, many concepts from the traditional liberal theory were revived by monetarism and are currently promoted by the World Bank and IMF as part of the process of globalization, although both organizations were actually founded by Keynes.
Since the 70s, the governments of many countries around the world have adopted economic liberalism to a greater or lesser degree. For example, the theories of Friedrich Hayek (winner of the Bank of Sweden Prize in Economic Sciences in 1976) inspired the market-oriented policies of Ronald Reagan and Margaret Thatcher, although Hayek condemned part of their policies.[[Citing sources citation needed]]
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