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The liberal theory of economics is the theory of economics developed in the Enlightenment, and believed to be first fully formulated by Adam Smith which advocates minimal interference by government in the economy. The case for economic liberalism which began to be argued in the eighteenth century was the then-startling claim that if everyone is left to their own economic devices instead of being controlled by the state, then the result would be a harmonious and more equal society of ever-increasing prosperity^[1] (see spontaneous order and invisible hand). It is the economic component of the political ideology of classical liberalism. 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. Today, the liberal theory of economics is strongly associated with libertarianism, neoliberal economics and some schools of conservatism, particularly liberal conservatism.

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 act 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 were largely defeated.

• Fiscal conservatism