In terms of the extent to which intervention is allowed to come into play, McKinlay and Little divide classic liberalism into two broad categories, pure liberalism and compensatory liberalism. Pure liberalism aims at the promotion and protection of negative freedom, which is defined as the absence of human interference. Compensatory liberalism, on the other hand, sees a need for intervention so as to achieve equality to some degree.
Pure liberalism, as espoused by Hayek, emphasizes the individual’s right and freedom within a known domain to pursue his/her own aims utilizing his/her own knowledge. Pure liberalism distinguishes itself from laissez-fair, arguing that negative freedom would allow for necessary constraints which need to be minimized to the point at which negative freedom can be enjoyed equally for all. In this sense, the preservation of a maximum of freedom may call for government measures to be enacted. For pure liberals, it is necessary to have a free market in which perfect competition can take place on the basis of comparative advantage.
The organizing goal of compensatory liberalism is to enlarge and equalize to some degree the range of choice. In other words, compensatory liberals are willing to cede some partial loss for what they perceive to be a greater gain and that gain lies in the area of equality. Deviating from the pure liberalist idea of free market, they see the need of a mixed market in which there is an increase in the salience of government and a concomitant diminution in the salience of the market. In the mixed market, there should be a massive array of government monetary and fiscal measures using budgets as a macro management device.
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McKinlay, R. D., & Little, R. (1986). Global problems and world order. London: Printer.