Liberty
Liberty is the condition of a person who is free from coercion by others. In the classical liberal and libertarian traditions it is defined negatively, as the absence of aggression against a person or his property, rather than positively as the possession of the means to do what one wishes.
The negative conception
On the negative conception, a person's liberty is diminished only by the actions of other people, and specifically by the initiation of force or its threat. Poverty, ignorance, illness and bad luck may all narrow what a person can accomplish, but they do not make him unfree, because no one is compelling him. The point of the distinction is not to deny that hardship matters but to keep a claim about rights separate from a claim about resources: if liberty meant the ability to do things, then one person's liberty could require another's labour, and liberties so defined would routinely conflict.
This is what allows classical liberals to hold that everyone's liberty can be secured simultaneously. Rights understood as claims against interference can be held by all at once; rights understood as claims to goods cannot.
Liberty and the state
Classical liberalism popularised the view that liberty is best secured by strictly limiting the role of the state, on the ground that the state is itself the most capable aggressor. Ludwig von Mises argued the case on consequentialist grounds, holding that a society of free labour and private ownership of the means of production produces general prosperity and that the alternatives destroy it.[1]
The concept proved popular enough that movements hostile to it began claiming the word, which is why nineteenth-century "liberal" and twentieth-century "liberal" name nearly opposite positions in the United States, and why writers in this tradition often qualify the term as classical liberalism.
Disagreement about how far the argument goes
How much state a commitment to liberty permits is disputed within the tradition, and the dispute does not track membership of the Austrian School. The Austrian School is a school of economics rather than a political programme, and its members have held a wide range of political positions: Ludwig von Mises, Friedrich Hayek, Israel Kirzner and Fritz Machlup were classical liberals who accepted a limited state, while the anarcho-capitalist position, which holds that the state's protective functions can and should be supplied on the market, derives principally from Murray N. Rothbard and those who followed him.
The two camps agree on the definition of liberty above and disagree about an empirical and institutional question: whether an agency with a territorial monopoly on defence and adjudication protects liberty on net, or violates it while claiming to protect it. Minarchists take the first view and anarcho-capitalists the second.