The citizens of a free society keep political power to a minimum and 
jealously protect individual rights. As a result a free society 
undermines legal privilege by removing the threat of aggression against 
upstarts of all kinds and preserves their autonomy. It offers the only 
lasting path to social progress and personal improvement for all people 
including those who, perhaps owing to accident of birth, may be the 
least well-off in society.  The desire to understand how individual 
actions can promote the general welfare led Adam Smith to develop a 
theory of the free society based on the complementary forces of sympathy
 and self-interest.
Adam Smith on Selfishness and Sympathy
In his 1759 book, 
The Theory of Moral Sentiments, Smith wrote:
"How selfish soever man may be supposed, there are 
evidently some principles in his nature, which interest him in the 
fortune of others, and render their happiness necessary to him, though 
he derives nothing from it except the pleasure of seeing it. Of this 
kind is pity or compassion, the emotion which we feel for the misery of 
others, when we either see it, or are made to conceive it in a very 
lively manner."
For Smith, our ability to imagine ourselves in the place of 
others–sympathy–is the key to understanding why we morally approve and 
wish to reward or morally disapprove and wish to punish others, as well 
as ourselves, for particular actions.
"And hence it is, that to feel much for others and little 
for ourselves, that to restrain our selfish, and to indulge our 
benevolent affections, constitutes the perfection of human nature; and 
can alone produce among mankind that harmony of sentiments and passions 
in which consists their whole grace and propriety. As to love our 
neighbour as we love ourselves is the great law of Christianity, so it 
is the great precept of nature to love ourselves only as we love our 
neighbour, or what comes to the same thing, as our neighbour is capable 
of loving us."
So in a sense, while self-interest is like an accelerator for social 
progress in a free society, sympathy is the brake that helps us drive 
even faster.
True Individualism Is Not Narrow Selfishness
Trying to preserve our individual rights to life, liberty, and 
property–the essentials of individualism–need not imply selfishness in 
the narrow sense. We can use the fruits of our freedom to help others as
 well as ourselves–and we do. (And evidently it 
makes us happier.)
But the equating of individualism with narrow selfishness persists in
 no small part because libertarians themselves sometimes profess an 
overly narrow form of individualism–one that has a “rugged, me-first 
attitude” at its core. (I’ve 
written and 
spoken
 about this before.) While I don’t think there’s anything inherently 
wrong with that view or the lifestyle it implies as far as it goes, the 
problem is that it doesn’t really get very far. Social, economic, and 
cultural development depends on the evolution of complex social networks
 among vast numbers of people, and they have a hard time forming under 
an atomistic kind of individualism.
F.A. Hayek writes in his important essay 
“Individualism: True and False”
 (pdf): “. . . the belief that individualism approves and encourages 
human selfishness is one of the main reasons why so many people dislike 
it. . . .”
Thus, in an article published in the 
New York Times just before Independence Day, called 
“The Downside of Liberty,” Kurt Anderson laments:
"What has happened politically, economically, culturally 
and socially since the sea change of the late ’60s isn’t contradictory 
or incongruous. It’s all of a piece. For hippies and bohemians as for 
businesspeople and investors, extreme individualism has been triumphant.
 Selfishness won."
The author raises points that may be worth pursuing another time. But
 what is relevant here is the equation, again, of individualism with 
narrow selfishness. He’s wrong, of course. But I can understand why he 
and others might think that way, given what people on “our side” 
sometimes say. A cramped individualism lends itself to the notion that 
libertarians, insofar as we prize individualism, must indeed be 
antisocial.
(Now I also think that nothing is more effective in displacing 
Smithian sympathy with narrow selfishness than threats against our 
freedoms, or when, in the words of the Declaration of Independence, “a 
long Train of Abuses and Usurpations . . . evinces a Design to reduce 
[the people] under absolute Despotism. . . .” So trying to use political
 power to make us less selfish–though, say, takings and income 
redistribution–may have the opposite effect.)
True Individualism Is Pro-Social
What does individualism in the tradition of Adam Smith mean? Here is F.A. Hayek again in the same essay:
"What, then, are the essential characteristics of true 
individualism? The first thing that should be said is that it is 
primarily a theory of society, an attempt to understand the 
forces which determine the social life of man, and only in the second 
instance a set of political maxims derived from this view of society."
In other words, individualism is a way of seeing and understanding 
how we live together. Individualism is about how best to promote 
social cooperation. That is,
". . . there is no other way toward an understanding of 
social phenomena but through our understanding of individual actions 
directed toward other people and guided by their expected behavior."
What then is the correct meaning of selfishness in the context of individualism?
"If we put it concisely by saying that people are and ought to be guided in their actions by their
 interests and desires, this will at once be misunderstood or distorted 
into the false contention that they are or ought to be exclusively 
guided by their personal needs or selfish interests, while what we mean 
is that they ought to be allowed to strive for whatever they think desirable."
(All emphases are in the original.)
True individualism, then, is the opposite of paternalism in that it 
respects
 each and every person’s ability to make and evaluate her own decisions.
 That includes decisions on whether and under what circumstances to ask 
for or to give help, and what kind of help to ask for or to give, as 
well as whether that help was effective or not.
As a result in the history of mankind there has been no greater 
engine than liberty and individualism (rightly understood) for lifting 
the material lives of even the very poorest, as 
this popular video by Hans Rosling, professor of international health, brilliantly illustrates.
Now, there is a kind of broad selfishness which is indeed an 
essential part of individualism that, as Hayek says, is often 
misunderstood. He explains:
"The true basis of his [the individualist’s] argument is that nobody can know who
 knows best and that the only way by which we can find out is through a 
social process in which everybody is allowed to try and see what he can 
do."
That social process is competition in markets free from political 
privilege and legal barriers. Competition of this kind is a discovery 
procedure in which people look for ways, via sympathy, to mutually 
benefit one another.  It doesn’t lead to utopian perfection, but to 
consistent improvement in the general welfare and in individual 
self-actualization.
Individualism is a tried-and-true way of promoting social cooperation, not a call to shun it.