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Nineteenth-century European liberalism stemmed from two main sources. First, John Locke developed traditional natural law theory in a new direction. In his Second Treatise on Government, he argued that everyone has a property in his own person; this is exactly the self-ownership principle of Murray Rothbard’s libertarianism. On this basis, individuals could acquire property through appropriation.

Given self-ownership and property rights, there is very little scope left in Locke’s system of thought for the state. Though the interpretation of Locke has aroused fierce controversy, A. John Simmons has in On the Edge of Anarchy made a strong argument that a Lockean political order would be close to anarchy.

Of course, the Lockean regime was never fully implemented, but arguments for individual rights of the sort he advanced had great influence on nineteenth-century liberalism. The great French economist Frédéric Bastiat argued in The Law that “Each of us has a natural right — from God — to defend his person, his liberty, and his property.” The state can acquire no new rights that individuals do not possess.

Besides arguments based on natural rights, another source led to nineteenth-century liberalism. The new science of economics conclusively demonstrated that social cooperation through the free market enabled people to achieve peace and prosperity. As Ludwig von Mises explained matters in his great 1927 classic Liberalism: “Liberalism has always had in view the good of the whole, not that of any special group. It was this that the English utilitarians meant to express — although, it is true, not very aptly — in their famous formula, ‘the greatest happiness of the greatest number.’ Historically, liberalism was the first political movement that aimed at promoting the welfare of all, not that of special groups. Liberalism is distinguished from socialism, which likewise professes to strive for the good of all, not by the goal at which it aims, but by the means that it chooses to attain that goal. ... Antiliberal policy is a policy of capital consumption. It recommends that the present be more abundantly provided for at the expense of the future.”

Unfortunately, stress on this second strand of thought led to a problem in English classical liberalism. The classical economists like Smith and Ricardo had no general argument that ruled out altogether government intervention in the economy. Rather, they examined matters on a case-by-case basis, usually concluding that a free market policy was best. But this was not always true; Adam Smith, for example, accepted some restrictions on free trade and supported government provision of public goods. John Stuart Mill’s Principles of Political Economy , the culminating work of the British classical economists, weakened support for a free economy still further.

Even in its weakened state, though, classical political economy still rested on an individualistic basis. A new sort of liberalism challenged individualism head on. The Oxford political philosopher Thomas Hill Green denied that individuals have rights apart from their participation in a collective entity, the State. True enough, individuals did have a right to self-realization; but Green meant by this not real, flesh-and-blood individuals as they actually exist, but the “real” self, governed by correct principles of rationality. In this view, you are not “really” choosing if you act against what Green took to be the dictates of reason. As he said, “[W]e shall see that freedom of contract, freedom in all the forms of doing what one will with one’s own, is valuable only as a means to an end. That end is what I call freedom in the positive sense: in other words, the liberation of the powers of all men equally for contributions to a common good. No one has a right to do what he will with his own in such a way to contravene this end.”

Another philosopher who championed the “new liberalism”, Leonard Hobhouse, did not go as far as Green. He challenged what he termed the “metaphysical theory of the state” found in Green’s idealist successor Bernard Bosanquet, but he did not favor a return to the older tradition of individualism. He rejected the individualist conception of property rights, holding instead that property exists to promote a collective purpose. Social legislation, of a sort the older liberalism would have rejected, was required.

The new liberalism transformed liberalism into its opposite, and “classical liberalism” came into use as a term to designate the position of those, such as Herbert Spencer and his disciple Auberon Herbert, who rejected the welfare state.

Concerning the new liberalism, Mises mordantly observed in Liberalism, “Nor can the programs and actions of those parties that today call themselves liberal provide us with any enlightenment concerning the nature of true liberalism. It has already been mentioned that even in England what is understood as liberalism today bears a much greater resemblance to Toryism and socialism than to the old program of the freetraders. If there are liberals who find it compatible with their liberalism to endorse the nationalization of railroads, of mines, and of other enterprises, and even to support protective tariffs, one can easily see that nowadays nothing is left of liberalism but the name.”