The liberal theory of economics is the theory of economics described by classical liberal authors such as Adam Smith or the French Physiocrats. It is concerned with "natural liberty" understood by these authors. Though Smith never used the term, today it is commonly known as laissez-faire. The concept of economic liberalism underpinned the move towards a free market economic system, and the subsequent demise of the mercantilist system.
Private property and individual contracts form the basis of the liberal theory of economics. The theory also states that individuals act primarily out of self-interest, and that allowing them to do so without any restrictions would produce the best results ceteris paribus, or in other words, provided minimum standards of public information and justice.
The liberal line in Economics has been retaken by the Austrian School, and its combination with the open society and democracy is what is understood by liberalism in most of the world outside the US, where liberalism is identified with mild, estabilished leftism.