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Originally a term used to refer to a philosophical position defending the idea of free will over and against determinism, libertarian, much like the word freedom, has had a complex and contentious history. The term begins its political odyssey as a synonym for anarchism after the fall of the Paris Commune in 1871. From there it has sometimes been attached to virtually all political positions interested in emphasizing anti-authoritarianism. Hence, we find claims to libertarian socialism, libertarian capitalism, and left and right versions of libertarianism of varied sorts. The term libertarianism has increasingly been associated with advocacy of the kind of individual rights that limit state intervention into the lives of individuals and warrant the functioning of a largely unhindered free market. It is in this last sense that the U.S. Libertarian Party founded in 1971 stands for libertarianism.

Though self-avowed libertarians sometimes trace their roots back as far as Lao-tzu in the 6th century BC, a more direct lineage is to be found in the legacy of classical liberalism, itself a diverse tradition emphasizing individual freedom and egalitarianism that comes into focus in the 17th and 18th centuries, especially through the writings of such philosophical giants as Thomas Hobbes, John Locke, Benedict de Spinoza, and Immanuel Kant. Contemporary libertarianism generally reflects a particular interpretation of this tradition, including the key concepts of liberty and equality and of the rights that ground these notions. Conceptually, frequent attempts have been made to base these rights in variants of John Locke's state of nature, where prior to the organization of society individuals equally possess natural rights to life, liberty, and property. Limited government then is commonly defended by appeal to contract theory. In addition, libertarian ideas are also sometimes defended on utilitarian grounds.

Contemporary libertarianism's 20th-century roots can be found in both economics and political philosophy. The so-called Austrian school of economics, especially as it came to fruition in the works of Ludwig von Mises and F. A. Hayek, defined itself over and against various vigorous forms of state intervention and socialism, the former relying upon utilitarian justifications, the latter on something more like traditional conservatism, anti-utopianism, and the idea that social institutions as they evolve through time involve vast amounts of “tacit knowledge” undermined by central economic planning. Hayek won the Nobel Prize in economics in 1974. More recently, fellow Nobel Prize winners in economics Milton Friedman and James Buchanan have advocated libertarian ideas, the former on utilitarian grounds, the latter employing public-choice and contract theory.

Probably the most influential philosophical defense of libertarianism is found in Robert Nozick's Anarchy, State, and Utopia. Explicitly crafted as a response to John Rawls's groundbreaking Theory of Justice, which at one and the same time was perceived as revitalizing Anglo-American political philosophy as well as defending the welfare state, Nozick attempts to meet Rawls on his own ground, by employing, as does Rawls, versions of contract theory and Kantianism. In contrast to Rawls, Nozick defends a minimal state where state functions are limited to police, judicial, and military tasks insofar as these protect an individual's life and property. The state, for Nozick, ought not attempt to regulate any other behavior. Regarding distributive justice, Nozick argues that any distribution of goods is just, regardless of the end result, if the goods were originally acquired through just means and subsequent exchanges have been made fairly; that is, they have been free mutual exchanges. Any distribution of goods that contravenes these principles violates Kantian standards of respect for free, rational agency. Taxes, for example, because they are imposed without consent, are essentially unjust and equivalent to theft. Thus, Nozick defends the free market, not on the basis of efficiency as do some utilitarians, but rather on the basis of justice. The positions put forward by Rawls and Nozick have structured much of the debate in Anglo-American political philosophy for the last quarter of the 20th century. Nozick's account, however, has been challenged in a variety of ways. Included among these are the charges that it relies upon a weak and controversial theoretical foundation (Locke's natural rights), consequentalist objections that it has the potential to lead to vast amounts of unhappiness, and further that it is utopian insofar as it could apply only to an abstract state of affairs bearing no relation to real-world property, which turns out to be a product of a history involving theft, coercion, and force.

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