The liberal view on the market economy is not guided by economic theory but by ideological commitment. It is therefore necessary to understand at the outset that a liberal would base his economics on the political commitment to maximise individual liberty. This is because, crucially, for liberals the most important political value is a fundamental commitment to individual liberty.

Classical liberals were unequivocal in their belief that it was a minimal degree of state intervention that would optimise individual liberty. It is well known that classical liberals such as David Ricardo, John Locke and Adam Smith were in favour of the laissez-faire economy. Indeed from the seventeenth century onwards, when John Locke wrote his Two Treatises of Government, the advocacy of the market economy and the support of individual liberty have been inextricably linked. This, certainly, is a tendency that continues to the present day.

However, the nineteenth century saw divisions within liberalism on the extent of state intervention required in a liberal society. While even revisionist liberals such as Mill and de Tocqueville were in principle advocates of market economics, others were suspicious of it. In his Lectures on the Principles of Political Obligation, the Oxford philosopher TH Green developed a new, interventionist form of liberalism which he believed could, in fact, enhance the liberty of individuals. He declared categorically that the state could, by appropriate intervention, enable individuals to exercise their liberty successfully, and that the state indeed had a moral obligation to create the conditions in which individual liberty was maximised.