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Classical liberalism is a political ideology that developed in the 19th century in England, Western Europe, and the Americas. It is committed to the ideal of limited government and liberty of individuals including freedom of religion, speech, press, and assembly, and free markets. Notable individuals who have contributed to classical liberalism include Jean-Baptiste Say, Thomas Malthus, and David Ricardo. There was a revival of interest in classical liberalism in the 20th century led by Friedrich Hayek, Milton Friedman and other economists. 
The phrase classical liberalism is also sometimes used to refer to all forms of liberalism before the 20th century. And, after 1970, the phrase began to be used by libertarians to describe their belief in the primacy of economic freedom and minimal government. It is sometimes difficult to tell which meaning is intended in a given source.
The phrase classical liberalism is used in standard academic sources to mean early liberalism, often with particular emphasis on the liberalism of Jacksonian democracy in the 19th Century, which stressed laissez-faire economics and originalism.
Another use of the phrase is by libertarians, who use it to mean a form of liberalism in which the government does not provide social services or regulate industry and banking. Libertarians often claim that this belief was shared by the American Founding Fathers. Libertarian classical liberalism is also called laissez-faire liberalism.
The philosophy of classical liberalism in the libertarian sense of the phrase includes a belief in rational self-interest, property rights, natural rights, civil liberties, individual freedom, equality under the law, limited government, and free markets.
According to Razeen Sally the "normative core" of classical liberalism is the idea that a laissez-faire economic policy will bring about a spontaneous order or invisible hand that benefits the society, though this does not necessarily prevent the state from providing some limited basic public goods.
The qualification classical was applied retroactively to distinguish it from more recent, 20th-century conceptions of liberalism and its related movements, such as modern liberalism and the Civil Rights movement.
Modern day classical liberals are suspicious of all but the most minimal government and object to the welfare state. Ludwig von Mises, Friedrich Hayek, and Milton Friedman, are credited with influencing a revival of classical liberalism in the 20th century after it fell out of favor beginning in the late 19th and early 20th centuries due to major economic depressions. In relation to economic issues, this revival is sometimes referred to, mainly by its opponents, as "neoliberalism".
The German "ordoliberalism" has a somewhat different meaning, since the likes of Alexander Rüstow and Wilhelm Röpke have advocated a more interventionist state, as opposed to laissez-faire liberals. Classical liberalism has some commonalities with modern libertarianism, with the terms being used almost interchangeably by minarchist libertarians.
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 interests. In a nation of farmers, especially farmers whose workers were slaves, little attention was paid to the economic aspects of liberalism. But 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 maximized when the government took a "hands off" attitude toward industrial development and supported the value of the currency by freely exchanging paper money for gold. 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." Despite the common recurrence of depressions, classical liberalism remained the orthodox belief American businessmen until the Great Depression. The Great Depression saw a sea change in liberalism, leading to the development of modern liberalism. 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 labor, to regulate the methods of business competition, and to establish comprehensive patterns of social security.
By the 1970s, however, lagging economic growth and increased levels of taxation and debt spurred new ideas, sometimes called conservatism and sometimes called classical liberalism. Friedrich von Hayek and Milton Friedman argued against government intervention in fiscal policy and their ideas were embraced by conservative political parties in the US and the United Kingdom beginning in the 1980s. In fact, Ronald Reagan credited Bastiat, Ludwig von Mises, and Hayek as influences.
[A]t the heart of classical liberalism", wrote Nancy L. Rosenblum and Robert C. Post, is a prescription: "Nurture voluntary associations. Limit the size, and more importantly, the scope of government. So long as the state provides a basic rule of law that steers people away from destructive or parasitic ways of life and in the direction of productive ways of life, society runs itself. If you want people to flourish, let them run their own lives."
Classical liberalism places a particular emphasis on the sovereignty of the individual, with private property rights being seen as essential to individual liberty. This forms the philosophical basis for laissez-faire public policy. The ideology of the original classical liberals argued against direct democracy "for 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...."
According to Anthony Quinton, classical liberals believe that "an unfettered market" is the most efficient mechanism to satisfy human needs and channel resources to their most productive uses: they "are more suspicious than conservatives of all but the most minimal government." Anarcho-capitalist Walter Block claims, however, that while Adam Smith was an advocate of economic freedom he also allowed for government to intervene in many areas.
Classical liberalism holds that individual rights are natural, inherent, or inalienable, and exist independently of government. Thomas Jefferson called these inalienable rights: "...rightful liberty is unobstructed action according to our will within limits drawn around us by the equal rights of others. I do not add 'within the limits of the law', because law is often but the tyrant’s will, and always so when it violates the rights of the individual." For classical liberalism, rights are of a negative nature—rights that require that other individuals (and governments) refrain from interfering with individual liberty, whereas social liberalism (also called modern liberalism or welfare liberalism) holds that individuals have a right to be provided with certain benefits or services by others. Unlike social liberals, classical liberals are "hostile to the welfare state." They do not have an interest in material equality but only in "equality before the law." Classical liberalism is critical of social liberalism and takes offense at group rights being pursued at the expense of individual rights.
Friedrich Hayek identified two different traditions within classical liberalism: the "British tradition" and the "French tradition". Hayek saw the British philosophers David Hume, Adam Smith, Adam Ferguson, Josiah Tucker, Edmund Burke 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 the unlimited powers of reason, 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, Godwin, 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, Smith and Burke.
Classical liberals advocate a gold standard to place fiscal constraints on government Adam Smith was concerned with the government manipulation of the money supply. To prevent this he favored a monetary system based on gold and silver, and also supported free banking. Other classical economists that formulated the tenets of a gold standard include Cantillon, Hume, Ricardo, Thornton, Mill, Cairnes, Goschen, and Bagehot.
Modern classical liberals trace their ideology to ancient Greece, the Roman republic and the Renaissance. They cite the 16th century School of Salamanca in Spain as a precursor, with its emphasis on human rights and popular sovereignty, its belief that morality need not be grounded in religion, and its moral defense of commerce. Other Renaissance thinkers such as Erasmus and Niccolò Machiavelli represent the rise of humanism in place of the religious tradition of the Middle Ages. Rationalist philosophers of the 17th Century, such as Thomas Hobbes and Baruch Spinoza developed further ideas that would become important to liberalism, such as the social contract. However, liberalism's classic formulation came in The Age of Enlightenment. John Locke's Two Treatises of Government argued that legitimate authority depended on the consent of the governed, while Adam Smith's The Wealth of Nations rejected mercantilism, which advocated state interventionism in the economy and protectionism, and developed modern free-market economics. These early liberals saw mercantilism as enriching privileged elites at the expense of well being of the populace. Another early expression is the tradition of a Nordic school of liberalism set in motion by a Swedish parliamentarian Anders Chydenius.
Several liberals, including Adam Smith and Richard Cobden, argued that the free exchange of goods between nations could lead to world peace, a view recognized by such modern American political scientists as Dahl, Doyle, Russet, and O'Neil. Dr. Gartzke, of Columbia University states, "Scholars like Montesquieu, Adam Smith, Richard Cobden, Norman Angell, and Richard Rosecrance have long speculated that free markets have the potential to free states from the looming prospect of recurrent warfare". American political scientists John R. Oneal and Bruce M. Russett, well known for their work on the democratic peace theory, state:
The classical liberals advocated policies to increase liberty and prosperity. They sought to empower the commercial class politically and to abolish royal charters, monopolies, and the protectionist policies of mercantilism so as to encourage entrepreneurship and increase productive efficiency. They also expected democracy and laissez-faire economics to diminish the frequency of war.
Adam Smith argued in the Wealth of Nations that as societies progressed from hunter gatherers to industrial societies the spoils of war would rise, but the costs of war would rise further, making war difficult and costly for industrialized nations.
...the honours, the fame, the emoluments of war, belong not to [the middle and industrial classes]; the battle-plain is the harvest field of the aristocracy, watered with the blood of the people...Whilst our trade rested upon our foreign dependencies, as was the case in the middle of the last century...force and violence, were necessary to command our customers for our manufacturers...But war, although the greatest of consumers, not only produces nothing in return, but, by abstracting labour from productive employment and interrupting the course of trade, it impedes, in a variety of indirect ways, the creation of wealth; and, should hostilities be continued for a series of years, each successive war-loan will be felt in our commercial and manufacturing districts with an augmented pressure. Richard Cobden
When goods cannot cross borders, armies will. Frederic Bastiat
By virtue of their mutual interest does nature unite people against violence and war…the spirit of trade cannot coexist with war, and sooner or later this spirit dominates every people. For among all those powers…that belong to a nation, financial power may be the most reliable in forcing nations to pursue the noble cause of peace…and wherever in the world war threatens to break out, they will try to head it off through mediation, just as if they were permanently leagued for this purpose - Immanuel Kant, the Perpetual Peace.
Cobden believed that military expenditures worsened the welfare of the state and benefited a small but concentrated elite minority. Summing up British imperialism, which he believed was the result the economic restrictions of mercantilist policies. To Cobden, and many classical liberals, those who advocated peace must also advocate free markets.
According to William J. Novak, liberalism in the United States shifted, "between 1877 and 1937...from laissez-faire constitutionalism to New Deal statism, from classical liberalism to democratic social-welfarism".
Some attribute this shift to retrospective voting by the newly enfranchised working class in 19th century democracies. Rising literacy rates and the spread of knowledge led to social activism in a variety of forms. Social liberals called for laws against child labor, laws requiring minimum standards of worker safety, laws establishing a minimum wage, and old age pensions. Laissez faire economic liberals considered such measures to be an unjust imposition upon liberty, as well as a hindrance to economic development.
Others see the rise of social liberalism as due to the extreme poverty of the working class, frequent unemployment caused by cyclic depressions, and the growing power of the rich to establish monopolies (called at the time cartels), and to the influence on legislation of "campaign contributions" or outright bribes.
According to Hobhouse's book Liberalism, written in 1911, these changes in the latter part of the 19th Century caused classical liberalism to be replaced by social liberalism, which includes qualified acceptance of government intervention in the economy and the collective right to equality in dealings, which Hobhouse called "just consent". F. A. Hayek wrote that Hobhouse's book would have been more accurately titled Socialism. (Hobhouse called his beliefs "liberal socialism".)
A form of liberalism that arose in the second half of the 20th Century, calling itself "conservatism", professes to echo the views of the classical liberals, and rejects the ideas of the social liberals.
Raimondo Cubeddu of the Department of Political Science of the University of Pisa says "It is often difficult to distinguish between 'libertarianism' and 'classical liberalism'. Those two labels are used almost interchangeably by those we may call libertarians of a 'minarchist' persuasion—scholars who, following Locke and Nozick, believe a state is needed in order to achieve effective protection of property rights". Libertarians see themselves as sharing many philosophical, political, and economic undertones with classical liberalism, such as the ideas of laissez-faire government, free markets, and individual freedom. Nevertheless, Samuel Freeman, a staunch advocate of 'welfare liberalism' (that he argues should be called 'High liberalism') rejects this as a mere "superficial" resemblance:
Libertarianism's resemblance to liberalism is superficial; in the end, libertarians reject essential liberal institutions. Correctly understood, libertarianism resembles a view that liberalism historically defined itself against, the doctrine of private political power that underlies feudalism. Like feudalism, libertarianism conceives of justified political power as based in a network of private contracts. It rejects the idea, essential to liberalism, that political power is a public power to be impartially exercised for the common good.
Those who emphasize the distinction between classical liberalism and libertarianism point out that some of the key thinkers of classical liberalism were far from libertarian:
Adam Smith should be seen as a moderate free enterpriser who appreciated markets but made many, many exceptions. He allowed government all over the place.
For example, Adam Smith supports public roads, canals and bridges, though he favored the use of a toll to pay for these public works, so that they would be paid for proportionally to their consumption (e.g., putting a toll).
Adam Smith also supported government regulation of the economy in particular when it benefits the poor or working-class, and was opposed to income inequality which he believed stemmed from concentrations of private property ownership.
Many notable classical liberals, such as the ideas of John Stuart Mill and John Dewey, evolved into democratic socialism, a political philosophy which most modern libertarians are opposed to for its anti-property stance.
In the mid-1800s, Abraham Lincoln followed the Whig version of economic liberalism which included state provision and regulation of railroads. The Pacific Railway Acts of 1862 provided the development of the First Transcontinental Railroad. Thomas Jefferson, a classical liberal, was opposed to wage-labor.
Alan Haworth argues that libertarianism and liberalism are fundamentally incompatible because the checks and balances provided by liberal institutions conflict with the support for complete economic deregulation offered by most libertarians.
These kinds of disputes continue in the present day, and are compounded by factions that argue among themselves.