The Mirage of Democratic Excesses: Hayek's Law, Legislation, and Liberty.

• Author: Zelmanovitz, Leonidas

In the 1950s, Friedrich Hayek (1899-1992) was already a well-respected intellectual, with important contributions to monetary theory, the theory of business cycles, the methodology of economics, and capital theory. Furthermore, he had already begun his contributions to epistemology, psychology, and moral and political philosophy that went well beyond the narrow confines of political economy.

His intellectual journey and the political circumstances of his time led him from his native Austria to a position at the London School of Economics and in 1950 to a post as professor of social and moral sciences at the University of Chicago, where he remained until 1962. It was there that he started focusing on the topics of political philosophy that would occupy most of his attention for the rest of his life.

At the London School of Economics, Hayek engaged with John Maynard Keynes and others in debates about economic policy with wide sociopolitical consequences and deep philosophical underpinnings. His classical liberal ideas were perceived, rightly so, to be critical of his peers' more constructivist, rationalistic, interventionist views. As a result, some of his interlocutors challenged him to offer a positive statement of what would be the features of this classical liberal order in contrast to their more interventionist prescriptions. What would be the contours of a liberal regime that would be attuned with the times and not simply a nostalgic and impractical return to the liberal-conservative regime destroyed by the Great War, the Great Depression, and World War II? How would his principles of political organization cope with the socioeconomic problems of the post-World War II period?

Hayek answered the challenge of proposing a liberal positive program with The Constitution of Liberty (1960), where the rule of law is highlighted as the main instrument to limit the discretionary powers of government (Caldwell 2005, 289).

The need to use the knowledge dispersed among the individual members of society is an essential feature of any human society because the efficiency of their interactions depends on their ability to harness that dispersed knowledge. Hayek attributes the relative success of any human society in allowing its members to prosper, if compared with other societies, to the extent to which that society is able to establish limits on the state's coercive powers. As the central argument of his article "The Use of Knowledge in Society" (1945) goes, the central economic problem is "how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know" (519). For Hayek, to allow for cooperation among individuals, human societies have just three possible systems, and the answer to the question of "which of these systems (competition, central planning, or monopoly) is likely to be more efficient, depends mainly on the question under which of them we can expect that fuller use will be made of the existing knowledge" (1945, 519). His answer: it is only in a system in which private-property rights are protected that individuals are free to engage in exchanges and that a price system is established that will convey all the information needed for the most efficient coordination possible among the myriad individuals, each one pursuing his own ends in the open society. The progress of civilization is based on the relation between the social institutions of a free society and the market order, between the political and economic freedom and the creation of wealth. Therefore, our well-being depends on the creation of a sphere of individual freedom in which individuals are free to exercise the use of their particular knowledge and to benefit from such exercise. The rule of law, in this context, basically gives the criteria by which government's rule making should be judged and by which good interventions are separated from bad interventions (Caldwell 2005, 290). With the rule of law, the legal institutions on which the market order depends are separated from the privileges and rent-seeking arrangements that in the end simply destroy the conditions and the incentives under which individuals may strive for their advancement in a non-zero-sum game. For instance, "equity" (equality before the law) is part of the rule of law. If one accepts that, all redistribution of income becomes unacceptable (Caldwell 2005, 291). In practical terms, the spontaneous order is mostly upheld by rules, but rules are not commands--a distinction that is crucial in The Constitution of Liberty.

Given the achievements of The Constitution of Liberty, what was Hayek's intention in writing the massive three-volume work Law, Legislation, and Liberty (hereafter LL&L) immediately after finishing that book? Bruce Caldwell explains why Hayek undertook the latter project: "Hayek felt that the constitutional constraints that he praised so highly in the earlier book had failed in practice to limit the...