Hayek on the Law

Friedrich Hayek, a towering figure in 20th-century economic and political thought, remains a foundational figure in the realms of classical liberalism and free-market economics. His life, marked by intellectual rigor and a commitment to individual liberty, greatly influenced economic theory and policy. His legacy and contributions reach far into other disciplines, namely political theory. Despite his excellence being well on display in his most famous work, The Road to Serfdom, many scholars view The Constitution of Liberty to be F. A. Hayek’s greatest work. In a seminal work, Hayek explores the principles of a free society and the role of government in preserving individual freedom. 

Friedrich August von Hayek, born in Vienna to August von Hayek and Felicitas Hayek, came from a lineage marked by scholarly endeavors and intellectual study. His upbringing was surrounded by an academic environment influenced by both his parents' families and their dedication to scholarly pursuits. Hayek's father, a medical doctor and part-time botany lecturer at the University of Vienna inspired his son's early interests in academia. Both grandfathers were scholars. The first was Franz von Juraschek, a prominent economist and close confidant of Eugen von Böhm-Bawerk, a founding figure of the Austrian School of Economics; the other, Gustav Edler von Hayek, was a teacher specializing in natural sciences. Hayek was also second cousin to the philosopher Ludwig Wittgenstein from his mother’s side of the family. 

From an early age, Hayek exhibited a keen intellectual inclination and frequent reading habits, engaging extensively with various subjects before formal schooling. Despite his evident intellectual ability, Hayek struggled academically due to a lack of interest and struggles with his teachers, often performing poorly in several subjects. His interests ranged from biology, where he aided his father's botanical work, to theater and literature. Hayek's formative years were punctuated by his service in the Austro-Hungarian Army during World War I. During his service, he endured personal challenges, including hearing impairment and the devastating 1918 flu pandemic. These experiences profoundly impacted his worldview, instilling in him a determination to contribute to societal improvement. His aspirations for a better world led him to pursue higher education, primarily studying philosophy, psychology, and economics at the University of Vienna. This period exposed him to other influential figures such as Carl Menger and Friedrich von Wieser, guiding his academic trajectory toward economics. His doctoral pursuits culminated in degrees in law and political science. 

Hayek was greatly impacted by the people he met and from whom he learned. During his academic journey, Hayek's interest in brain anatomy, influenced by Ernst Mach's works, spurred his venture into neurological studies and philosophical endeavors, culminating in "The Sensory Order." Additionally, his interactions with prominent economists, including Ludwig von Mises and Wesley Clair Mitchell, steered his economic thinking away from socialism towards the classical liberalism espoused by Mises. Hayek's intellectual pursuits and friendships played a pivotal role in shaping his evolving ideologies. 

His career flourished with the establishment of the Austrian Institute for Business Cycle Research and later his tenure at the London School of Economics. At the London School of Economics, he made significant contributions to economic theory. He engaged in debates with renowned economists like John Maynard Keynes, whose differing viewpoints ignited discussions on monetary and fiscal policies. His scholarly influence extended to many prominent economists who studied under him at the London School of Economics, contributing to the development of modern microeconomics. Refusing to return to Austria after its annexation by Nazi Germany, Hayek became a British subject and remained in Britain until 1950, later relocating to the United States and then Germany. His dedication to scholarly pursuits and his profound impact on economic thought led to his election as a Fellow of the Econometric Society in 1947.  

His debates and letters with John Maynard Keynes would become famous as they debated economics and government intervention in the economy. Keynes’s theory, formed out of the perils of the Great Depression, argued for high levels of government intervention in the economy. Hayek came to a different conclusion. After serving in World War I, he found Vienna “devastated and its people’s confidence broken,” author Nicholas Wapshott writes. In the following decade, the Austrian economy experienced hyperinflation, which devalued the savings of the citizens and Hayek’s family. Mr. Wapshott argues that this hardened Hayek “against those who advocated inflation as a cure for a broken economy.” He continues saying, “that those who advocated large-scale public spending programs to cure unemployment were inviting not just uncontrollable inflation but political tyranny.” Keynes argued that problems that led to the Great Depression in the 1930s were a subsequent result of issues of demand. He believed that government projects and spending would provide employment and encourage and arm employees with the means to spend and grow the economy. Keynes believed the end goal of his demand-led economics would be full employment. Hayek believed that Keynes’s target of full employment would force the government to constantly increase money supply and lead to the same hyperinflation he survived in Austria. 

Hayek would go on to write his most famous work The Road to Serfdom detailing his thoughts on the atmosphere in British academia on communism after the rise of the Nazis. Hayek took inspiration from the French classical scholar Alexis de Tocqueville's writings on the "road to servitude." Hayek explains that the movement away from free market capitalism takes away citizens' freedom and economic liberty. He asserts that centralized planning and the concentration of power inevitably also leads to the erosion of individual freedom. His analysis delves into the dangers of a society driven by collective decision-making, emphasizing the inherent limitations of such top-down approaches. Hayek further argues that collectivist ideologies pave the way for authoritarianism, stifling individual autonomy and innovation.  

Moreover, he contends that the pursuit of societal equality through centralized control undermines personal liberty and fosters a culture of conformity, hindering progress and dynamism within a society. Hayek's advocacy for individual freedom is grounded in the belief that a decentralized system, where individuals have the freedom to make choices and engage in voluntary cooperation, not only preserves personal liberties but also fosters economic prosperity and societal well-being. Hayek also explained that there was nothing particularly special about the Germans that led them into the trap of fascism. He rejected the notion that there was a cultural aspect that left the German people more predisposed to Nazism. This was a warning sign to the people that any strong central power, given the chance, could become another fascist dictatorship. 

The book’s influence was far-reaching, challenging prevailing ideas that favored extensive state intervention in economic affairs. Hayek's analysis underscored the inefficiencies and limitations of planned economies in allocating resources and coordinating complex systems, advocating instead for the spontaneous order of free markets. The book's impact contributed significantly to the ideological debates of the time, influencing policymakers and intellectuals across the political spectrum and fostering a deeper appreciation for the role of individual freedom and the market's capacity for effective resource allocation. The Road to Serfdom sparked discussions that continue to shape economic policies and philosophies, emphasizing the vital balance between government intervention and the preservation of individual liberties within economic systems. 

Expanding on his work in The Road to Serfdom, Hayek made a foray into political theory with his 1960 work, The Constitution of Liberty.  Hayek's conceptualization of the rule of law as outlined in the book, emphasizes its fundamental principles rooted in ensuring a just and free society. He defines the rule of law not merely as obedience to specific laws but as a framework where laws are general, predictable, and apply equally to all individuals, including the government. Hayek argues that the essence of the rule of law lies in restraining arbitrary power, promoting fairness, and providing a stable legal order that safeguards individual liberties from encroachments by authorities. His emphasis is on legal certainty, where laws are clear, understandable, and not subject to constant changes or arbitrary interpretations, ensuring consistency and predictability within the legal system. 

Within Hayek's framework, the necessity of general and abstract laws serves as a foundation for protecting individual liberty. He stresses that such laws, applicable universally and without discrimination, act as a safeguard against potential abuses of power by authorities. By advocating for laws that do not target specific groups or individuals but instead uphold general principles applicable to everyone, Hayek asserts that individual freedom flourishes. Emphasizing the universality and abstract nature of laws ensures that they are not tools for arbitrary control but instead provide a framework that fosters individual initiative and allows people to plan and act freely within well-defined legal boundaries. This emphasis on general laws serves as a vital mechanism in preserving the autonomy and rights of individuals within a society governed by the rule of law. 

In Hayek's body of work, a crucial concept emerges concerning the significance of "local knowledge" in economic activities, notably highlighted in "The Fatal Conceit." Hayek describes this knowledge as "essentially dispersed," a phrase that carries considerable philosophical weight. Hayek's concept of the essential dispersion of this local knowledge underscores the inherent nature of knowledge as fundamentally decentralized and widespread among individuals within society. He posits that critical information essential for economic coordination is not centrally located but exists in fragments across countless individuals, each possessing unique insights and experiences. This notion challenges the assumption that knowledge can be concentrated or effectively controlled by a centralized authority which reflects on his point of view about central planning in government. Essential dispersion highlights the organic, spontaneous nature of knowledge, emphasizing that it emerges from the diverse, localized experiences and interactions of individuals, making it inherently resistant to centralized planning or management within any socio-economic system. Hayek defines liberty as “a policy which deliberately adopts competition, the market, and prices as its ordering principle.” This further reflects his views on the information of the free market being a necessity for personal freedoms. 

Hayek felt the things limiting personal liberty were structures and decisions we make in our interpersonal relations. The focus was placed on individual efforts to build what Hayek calls the ‘Great Society.’ This ‘Great Society’ was drawn from the spontaneous order model and made up of multiple cornerstone parts. The first of the pillars was liberty as discussed previously. Author A.I. Ogus explains further, “It [liberty] means freedom from coercion by others but does not extend to freedom in the political sense of people participating in the choice of government. It insists that individuals have some private sphere protected against interference by others, but this does not imply that society is to guarantee that each individual has access to a minimum amount of resources.” This of course further reinforces Hayek’s opposition to central planning, socialism, and communism. Secondly, Hayek underpins the importance of the rule of law. The Rule of Law protects and preserves the liberty not guaranteed, yet of vital importance. In The Road to Serfdom, Hayek again asserts that laws should be “universal, known, and certain, and should apply equally to all.” 

Hayek’s final two foundational building blocks for the ‘Great Society’ were restrictions or directions for government. The third pillar is constitutional governmental constraints. As Ogus explains again, “it is a consequence also of the weaknesses of traditional democratic structures. If, as we have seen, power must be conferred on representatives of the community in order to avoid the Hobbesian dilemma created by conflicts of self-interest, it does not follow that the existence of democratic institutions representing majority opinion is able to solve that dilemma.” Further Hayek wrote that “in the course of this century an enormous and exceedingly wasteful apparatus of para-government has grown up, consisting of trade associations, trades unions, and professional organizations, designed primarily to divert as much as possible of the stream of governmental favour to their members.” The importance of checks, balances, and limitations on the whole government was vital to securing citizens' individual success. Finally, Hayek lists justice as his final critical point to this ‘Great Society.’ Hayek’s view of law created from “universal rules of just conduct,” leads to an equally abstract definition of justice. In volume 2 of Law, Legislation and Liberty, titled “The Mirage of Social Justice,” Hayek focuses on how just rules should be 'discovered' and what is not 'justice'. “The rules of just conduct are abstract guides to behavior in a world in which most of the particulars are unknown.” Ogus also writes concerning Hayek’s view of justice, “[o]nly human conduct, and that which affects others, can be considered just or unjust. The actions of governments and other organizations can be so qualified but not the order (or situation) of society as a whole since, in terms of Hayek's theory, a state of affairs, the particulars of a spontaneous order, cannot be the intended aim of individual actions.” Justice, perhaps not in the typical definition, was Hayek’s establishment of limits of the individual liberty offered to citizens of his ‘Great Society.’ 

Hayek’s dedication to the discipline landed him the 1974 Nobel Prize in Economics. Awarded in recognition of his seminal contributions to economic theory, his highlighted achievements revolved around his advocating for free-market principles and highlighting the limitations of central planning. Hayek's work profoundly impacted economic thought by emphasizing the role of spontaneous order and decentralized decision-making in fostering economic prosperity. The Nobel Prize specifically acknowledged his groundbreaking insights into the intricacies of money, the business cycle, and the significance of information dispersal among individuals within markets. Hayek's recognition underscored the enduring relevance of his ideas, which continue to shape economic policies and debates, cementing his legacy as a luminary in the field of economics. 

Hayek would become a very important voice in the 1980s governments of Margaret Thatcher’s Britain and Ronald Reagan’s United States. In 1984, Hayek was appointed a Member of the Order of the Companions of Honour by Elizabeth II in her Birthday Honours on the recommendation of British Prime Minister Margaret Thatcher for his "services to the study of economics." In 1991, President George H. W. Bush awarded Hayek the Presidential Medal of Freedom for a "lifetime of looking beyond the horizon." As the conservative governments and the “Reaganomics” era of the times began to take over, Hayek was a prominent voice despite not considering himself a conservative. In the appendix of The Constitution of Liberty, Hayek published an essay entitled, "Why I Am Not a Conservative" where he criticized parts of conservatism from a more liberal viewpoint. Edmund Fawcett summarized the essay, saying “[c]onservatives, on Hayek’s account, suffered from the following weaknesses. They feared change unduly. They were unreasonably frightened of uncontrolled social forces. They were too fond of authority. They had no grasp of economics. They lacked the feel for ‘abstraction’ needed for engaging with people of different outlooks. They were too cozy with elites and establishments. They gave in to jingoism and chauvinism. They tended to think mystically, much as socialists tended to overrationalize. They were, last, too suspicious of democracy.” 

Hayek died on March 23, 1992, aged 92, in Freiburg, Germany, after a lifetime of interdisciplinary study and was buried on April 4 in the Neustift am Walde cemetery in Vienna. Friedrich Hayek's ideas continue to exert a substantial influence and maintain contemporary relevance in modern economic discourse. His emphasis on the importance of individual freedom, limited government intervention, and the spontaneous order of free markets remains pertinent in analyzing today's complex economic challenges. Hayek's insights into the limitations of centralized planning and the significance of dispersed knowledge have led discussions on issues such as economic regulation, innovation, and societal organization. Moreover, his theories serve as a foundation for understanding the intricate dynamics of global markets, the impact of information technology on economies, and the role of individual agency in fostering innovation and progress. The principles and structures he championed are cornerstones of a post-Reagan conservative movement. In a world where socialism has become a mainstream economic theory, Hayek's principles, shaped by lessons from his youth around World War I, continue their relevance in the 21st century by shaping policy discussions and emphasizing the indispensable role of individual liberty and decentralized decision-making in creating thriving and adaptable societies.     

References: