Classical liberalism is a political ideology and a branch of liberalism which advocates civil liberties under the rule of law with an emphasis on economic freedom. Closely related to libertarianism and to economic liberalism, it developed in the early 19th century, building on ideas from the previous century as a response to urbanization and to the Industrial Revolution in Europe and the United States. Notable individuals whose ideas contributed to classical liberalism include John Locke, Jean-Baptiste Say, Thomas Malthus and David Ricardo. It drew on the economics of Adam Smith and on a belief in natural law, utilitarianism and progress.
Meaning of the term
The term classical liberalism was applied in retrospect to distinguish earlier 19th-century liberalism from the newer social liberalism. The phrase "classical liberalism" is also sometimes used to refer to all forms of liberalism before the 20th century and some conservatives and libertarians (especially in the United States) use the term classical liberalism to describe their belief in the primacy of individual freedom and minimal government.  
Evolution of core beliefs
Core beliefs of classical liberals included new ideas—which departed from both the older conservative idea of society as a family and from the later sociological concept of society as complex set of social networks. Classical liberals believe that individuals are "egoistic, coldly calculating, essentially inert and atomistic" and that society is no more than the sum of its individual members.
Classical liberals agreed with Thomas Hobbes that government had been created by individuals to protect themselves from each other and that the purpose of government should be to minimize conflict between individuals that would otherwise arise in a state of nature.
These beliefs were complemented by a belief that laborers could be best motivated by financial incentive. This belief led to the passage of the Poor Law Amendment Act 1834, which limited the provision of social assistance, based on the idea that markets are the mechanism that most efficiently leads to wealth. Adopting Thomas Malthus's population theory, they saw poor urban conditions as inevitable, they believed population growth would outstrip food production and they regarded that consequence desirable, because starvation would help limit population growth. They opposed any income or wealth redistribution, which they believed would be dissipated by the lowest orders.
Drawing on ideas of Adam Smith, classical liberals believed that it is in the common interest that all individuals be able to secure their own economic self-interest. They were critical of what would come to be the idea of the welfare state as interfering in a free market. Despite Smith’s resolute recognition of the importance and value of labor and of laborers, they selectively criticized labour's group rights being pursued at the expense of individual rights while accepting corporations' rights, which led to inequality of bargaining power. 
Classical liberals argued that individuals should be free to obtain work from the highest-paying employers, while the profit motive would ensure that products that people desired were produced at prices they would pay. In a free market, both labor and capital would receive the greatest possible reward, while production would be organized efficiently to meet consumer demand.
Classical liberals argued for what they called a minimal state, limited to the following functions:
- A government to protect individual rights and to provide services that cannot be provided in a free market.
- A common national defense to provide protection against foreign invaders.
- Laws to provide protection for citizens from wrongs committed against them by other citizens, which included protection of private property, enforcement of contracts and common law.
- Building and maintaining public institutions.
- Public works that included a stable currency, standard weights and measures and building and upkeep of roads, canals, harbors, railways, communications and postal services.
They asserted that rights are of a negative nature, which require other individuals (and governments) to refrain from interfering with the free market, opposing social liberals who assert that individuals have positive rights, such as the right to vote, the right to an education, the right to health care and the right to a living wage. For society to guarantee positive rights requires taxation over and above the minimum needed to enforce negative rights.
Core beliefs of classical liberals did not necessarily include democracy or government by a majority vote by citizens, because "there is nothing in the bare idea of majority rule to show that majorities will always respect the rights of property or maintain rule of law". For example, James Madison argued for a constitutional republic with protections for individual liberty over a pure democracy, 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". 
In the late 19th century, classical liberalism developed into neo-classical liberalism, which argued for government to be as small as possible to allow the exercise of individual freedom. In its most extreme form, neo-classical liberalism advocated Social Darwinism. Right-libertarianism is a modern form of neo-classical liberalism.
Hayek's typology of beliefs
Friedrich Hayek identified two different traditions within classical liberalism: the "British tradition" and the "French tradition". Hayek saw the British philosophers Bernard Mandeville, David Hume, Adam Smith, Adam Ferguson, Josiah Tucker and William Paley as representative of a tradition that articulated beliefs in empiricism, the common law and in traditions and institutions which had spontaneously evolved but were imperfectly understood. The French tradition included Rousseau, Condorcet, the Encyclopedists and the Physiocrats. This tradition believed in rationalism and sometimes showed hostility to tradition and religion. Hayek conceded that the national labels did not exactly correspond to those belonging to each tradition: Hayek saw the Frenchmen Montesquieu, Constant and Tocqueville as belonging to the "British tradition" and the British Thomas Hobbes, Priestley, Richard Price and Thomas Paine as belonging to the "French tradition". Hayek also rejected the label laissez faire as originating from the French tradition and alien to the beliefs of Hume and Smith.
Guido De Ruggiero also identified differences between "Montesquieu and Rousseau, the English and the democratic types of liberalism" and argued that there was a "profound contrast between the two Liberal systems". He claimed that the spirit of "authentic English Liberalism" had "built up its work piece by piece without ever destroying what had once been built, but basing upon it every new departure". This liberalism had "insensibly adapted ancient institutions to modern needs" and "instinctively recoiled from all abstract proclamations of principles and rights". Ruggiero claimed that this liberalism was challenged by what he called the "new Liberalism of France" that was characterised by egalitarianism and a "rationalistic consciousness".
In 1848 Francis Lieber distinguished between what he called "Anglican and Gallican Liberty". Lieber asserted that "independence in the highest degree, compatible with safety and broad national guarantees of liberty, is the great aim of Anglican liberty, and self-reliance is the chief source from which it draws its strength." Gallican liberty, on the other hand, "is sought in government ...the French look for the highest degree of political civilization in organizational, that is, in the highest degree of interference by public power".
Classical liberalism in Britain developed from Whiggery and radicalism, was also heavily influenced by French physiocracy and represented a new political ideology. Whiggery had become a dominant ideology following the Glorious Revolution of 1688 and was associated with the defence of Parliament, upholding the rule of law and defending landed property. The origins of rights were seen as being in an ancient constitution, which had existed from time immemorial. These rights, which some Whigs considered to include freedom of the press and freedom of speech, were justified by custom rather than by natural rights. They believed that the power of the executive had to be constrained. While they supported limited suffrage, they saw voting as a privilege rather than as a right. However, there was no consistency in Whig ideology and diverse writers including John Locke, David Hume, Adam Smith and Edmund Burke were all influential among Whigs, although none of them was universally accepted.
From the 1790s to the 1820s, British radicals concentrated on parliamentary and electoral reform, emphasising natural rights and popular sovereignty. Richard Price and Joseph Priestley adapted the language of Locke to the ideology of radicalism. The radicals saw parliamentary reform as a first step toward dealing with their many grievances, including the treatment of Protestant Dissenters, the slave trade, high prices and high taxes.
There was greater unity to classical liberalism ideology than there had been with Whiggery. Classical liberals were committed to individualism, liberty and equal rights. They believed that required a free economy with minimal government interference. Writers such as John Bright and Richard Cobden opposed both aristocratic privilege and property, which they saw as an impediment to the development of a class of yeoman farmers. Some elements of Whiggery opposed this new thinking and were uncomfortable with the commercial nature of classical liberalism. These elements became associated with conservatism.
Classical liberalism was the dominant political theory in Britain from the early 19th century until the First World War. Its notable victories were the Catholic Emancipation Act of 1829, the Reform Act of 1832 and the repeal of the Corn Laws in 1846. The Anti-Corn Law League brought together a coalition of liberal and radical groups in support of free trade under the leadership of Richard Cobden and John Bright, who opposed militarism and public expenditure. Their policies of low public expenditure and low taxation were adopted by William Ewart Gladstone when he became chancellor of the exchequer and later prime minister. Classical liberalism was often associated with religious dissent and nonconformism.
Although classical liberals aspired to a minimum of state activity, they accepted the principle of government intervention in the economy from the early 19th century with passage of the Factory Acts. From around 1840 to 1860, laissez-faire advocates of the Manchester School and writers in The Economist were confident that their early victories would lead to a period of expanding economic and personal liberty and world peace, but would face reversals as government intervention and activity continued to expand from the 1850s. Jeremy Bentham and James Mill, although advocates of laissez faire, non-intervention in foreign affairs and individual liberty, believed that social institutions could be rationally redesigned through the principles of utilitarianism. The Conservative prime minister Benjamin Disraeli rejected classical liberalism altogether and advocated Tory democracy. By the 1870s, Herbert Spencer and other classical liberals concluded that historical development was turning against them. By the First World War, the Liberal Party had largely abandoned classical liberal principles.
The changing economic and social conditions of the 19th century led to a division between neo-classical and social (or welfare) liberals, who while agreeing on the importance of individual liberty differed on the role of the state. Neo-classical liberals, who called themselves "true liberals", saw Locke's Second Treatise as the best guide and emphasised "limited government", while social liberals supported government regulation and the welfare state. Herbert Spencer in Britain and William Graham Sumner were the leading neo-classical liberal theorists of the 19th century. Neo-classical liberalism has continued into the contemporary era, with writers such as John Rawls. The evolution from classical to social/welfare liberalism is for example reflected in Britain in the evolution of the thought of John Maynard Keynes. 
In the United States, liberalism took a strong root because it had little opposition to its ideals, whereas in Europe liberalism was opposed by many reactionary or feudal interests such as the nobility, the aristocracy, the landed gentry, the established church and the aristocratic army officers.
Thomas Jefferson adopted many of the ideals of liberalism, but in the Declaration of Independence changed Locke's "life, liberty and property" to the more socially liberal " Life, Liberty and the pursuit of Happiness ". As America grew, industry became a larger and larger part of American life; and during the term of America's first populist president, Andrew Jackson, economic questions came to the forefront. The economic ideas of the Jacksonian era were almost universally the ideas of classical liberalism.  Freedom was maximised when the government took a "hands off" attitude toward the economy. 
Historian Kathleen G. Donohue argues:
- [A]t the center of classical liberal theory [in Europe] was the idea of laissez-faire. To the vast majority of American classical liberals, however, laissez-faire did not mean no government intervention at all. On the contrary, they were more than willing to see government provide tariffs, railroad subsidies, and internal improvements, all of which benefited producers. What they condemned was intervention in behalf of consumers. 
The ideas of classical liberalism remained essentially unchallenged until a series of depressions, thought to be impossible according to the tenets of classical economics, led to economic hardship from which the voters demanded relief. In the words of William Jennings Bryan, " You shall not crucify the American farmer on a cross of gold ". Classical liberalism remained the orthodox belief among American businessmen until the Great Depression. 
The Great Depression of the 1930s saw a sea change in liberalism, with priority shifting from the producers to consumers. Franklin Roosevelt's New Deal represented the dominance of modern liberalism in politics for decades. In the words of Arthur Schlesinger Jr.:
When the growing complexity of industrial conditions required increasing government intervention in order to assure more equal opportunities, the liberal tradition, faithful to the goal rather than to the dogma, altered its view of the state," and "there emerged the conception of a social welfare state, in which the national government had the express obligation to maintain high levels of employment in the economy, to supervise standards of life and labour, to regulate the methods of business competition, and to establish comprehensive patterns of social security. 
The idea that liberalism comes in two forms assumes that the most fundamental question facing mankind is how much government intervenes into the economy.... When instead we discuss human purpose and the meaning of life, Adam Smith and John Maynard Keynes are on the same side. Both of them possessed an expansive sense of what we are put on this earth to accomplish. ... For Smith, mercantilism was the enemy of human liberty. For Keynes, monopolies were. It makes perfect sense for an eighteenth-century thinker to conclude that humanity would flourish under the market. For a twentieth century thinker committed to the same ideal, government was an essential tool to the same end.
The view that modern liberalism is a continuation of classical liberalism is not universally shared.  James Kurth, Robert Lerner, John Micklethwait, Adrian Wooldridge and several other political scholars have argued that classical liberalism still exists today, but in the form of American conservatism.  According to Deepak Lal, only in the United States does classical liberalism—through American conservatives—continue to be a significant political force.