In a selection from his book Individualism and Economic Order, Hayek explains there are two traditions of Individualism, and only one of them leads to free markets:
The true individualism which I shall try to defend began its modern development with John Locke, and particularly with Bernard Mandeville and David Hume, and achieved full stature for the first time in the work of Josiah Tucker, Adam Ferguson, and Adam Smith and in that of their great contemporary, Edmund Burke — the man whom Smith described as the only person he ever knew who thought on economic subjects exactly as he did without any previous communication having passed between them.
This second and altogether different strand of thought, also known as individualism, is represented mainly by French and other Continental writers — a fact due, I believe, to the dominant role which Cartesian rationalism plays in its composition. The outstanding representatives of this tradition are the Encyclopedists, Rousseau, and the physiocrats; and, for reasons we shall presently consider, this rationalistic individualism always tends to develop into the opposite of individualism, namely, socialism or collectivism. It is because only the first kind of individualism is consistent that I claim for it the name of true individualism, while the second kind must probably be regarded as a source of modern socialism as important as the properly collectivist theories.