Liberal theory of economics
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The liberal theory of economics is the theory of economics begun in the Enlightenment, and believed to be first fully formulated by Adam Smith. It is associated with the political ideologies of classical liberalism and neoliberalism. The concept of economic liberalism or market liberalism underpinned the move towards a free market capitalist economic system in the late 18th century, and the subsequent demise of the mercantilist system.
Private property and individual contracts form the basis of the liberal theory of economics. The theory also states that individuals act primarily out of self-interest, and that allowing them to do so without any restrictions will produce the best results, provided that minimum standards of public information and justice exist.
The liberal theory of economics fell 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 It was largely superseded by modern economic theories, such as Keynesian economics, which take into account macro-level phenomena and call for a mixed economy involving significant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 remembered by monetarism and are currently promoted by the World Bank and IMF as part of the process of globalization.he:כלכלה חופשית fr:Libéralisme économique