Hayek on Law, Legislation and Liberty (1973-79)

Some Questions and Discussion Topics to Consider

Hayek’s Terminology

FAH used a special set of terms in his theory which can get confusing for the reader. Here is a list of some of them (see the detailed table of contents of the three volume Law , Legislation and Liberty for an overview):

  • Law: “nomos (the law of liberty”) and “thesis” (the law of legislation)
  • Orders: “taxis” (exogenously created or imposed order) and “kosmos” (endogenously evolved or grown/spontaneous order)
  • “Orders” and “Organisations”
  • “The Great Society” and traditional tribal societies
  • the “Open Society” and the “Closed Society”
  • the “Market Order” or “Catallaxy”
  • “Law”, “Legislation,” and “Rules”
  • “Constructivism”, “Constructivist Rationalism” vs. “Evolutionary Rationalism”
  • Democracy and “Demarchy”

The Problem of Definition of “Liberal”

We need to sort out a problem of definition because for Americans the terms “liberal” and “conservative” means something very different to you than it does for FAH who comes from a European and English background

  • liberal – a “liberal” to an American would be a socialist or a social democrat to a Brit or European; FAH means by “liberal” a supporter of limited government, free markets, and toleration of different beliefs and behaviour; this is somewhat like an American “conservative” (although they are weak on the first two and usually opposed to the third)
  • conservative – in the European sense this traditionally meant someone who supported the monarchy, the aristocracy, and the established church; in the modern era someone like Margaret Thatcher could lead the Conservative Party in the late 1970s and 1908s with a program of deregulation, reducing the size of government, and cutting taxes (so again, a bit like an American “Conservative”)
  • note that FAH wrote an appendix to the Constitution of Liberty (1960) entitled “Why I am not a Conservative”; this leaves open the question of what were FAH political views – is he a “classical liberal”, a “liberal conservative”, a “new liberal” (neo-liberal – his membership in the Mont Pelerin Society), or an “Ordo liberal” (Walter Eucken Institut, Freiburg)

Some questions which we should be asking ourselves:

Laws and Rules

  1. what does Hayek mean by “law” (“nomos the law of liberty”) and how is “law” different from “legislation” (thesis the law of legislation)?
  2. what does he mean by “rules” (and “abstract rules”) and how are they “selected” (by whom)?
  3. where do laws, rules, and legislation come from? why does FAH prefer “abstract rules” rather than “principles”? how can “rules” be “improved”? [See quote 1 below LLL1 45-46]
  4. what does he mean by “the rule of law”? where does he think law comes from? how does it change over time?
  5. what role did he think the English common law could play in the evolution of law and legal institutions (LLL1 84)? other “steps in the evolution of law which ultimately made an open society possible” (LLL1, p. 82) were ius gentium the law merchant, practices of the ports and fairs
  6. what does he think the role of “judges” have been historically and should be in a free society?
  7. what should be the role of “legislators”?
  8. important for FAH is the role of judges in preventing harm to the “expectations” of others (LLL1 pp. 101 Fff.) why does he emphasise protecting people’s expectations over protecting the property of individuals, or preventing coercion?

Orders and Orders within Orders

  1. what does FAH mean by the term “order”, what kinds of things exhibit “order” and how does he think these “orders” arise and change over time?
  2. what is the difference in his theory between an “imposed order” (“taxis” – exogenously created or imposed order (p. 36) and a “spontaneous order” (“kosmos” – endogenously evolved or grown/spontaneous order) ; what arrangements does FAH think should be allowed to develop “spontaneously” and what ones should not (i.e. that legislators should “plan” or impose an “order”?
  3. what is the difference between an “order” and an “organisation” in FAH’s view?
  4. what does role does FAH believe “reason” should play in the way people “plan” their affairs or structure their society? what role for “custom” and “tradition”? what is the relationship between “reason” and “custom/tradition”?
  5. where does “knowledge” come from and how can people best act upon this knowledge of the world around them? in planning their own lives and/or that of society in general?
  6. what does FAH mean by the term the “Great Society”? how is it structured and ordered? [See Quote 2 “Orders within Orders” (LLL1 46-47)] How does it differ from Karl Popper’s idea of “the Open Society”?
  7. how does this differ from “tribal society”? how does FAH resolve the problem of adapting the beliefs and practices humans developed in a small tribal society to those required to live in a “Great Society”? in his view “socialism” is more suited to human nature than “liberalism”
  8. what is the connection between the transmission of socially useful knowledge and the evolution of traditional beliefs, practices, and institutions?
  9. are all evolved traditions and customs socially useful and do they promote the development of a free society?
  10. what is a “liberal” to do if/when evolved traditions, beliefs, and customs “customs, habits or practices” LLL1, p. 11) harm/retard prosperity and liberty and “need correction by legislation” [See quote 4 on “Why grown law requires correction by legislation” LLL1 pp. 88-89).] ? E.g. slavery of one kind or another seems to be a universal practice (as does the rise to power of a warrior elite, and the gender-based division of labour); did this evolve because it was ”useful” to society (or just slave owners)? how would FAH suggest getting rid of the “injustice” (or economic inefficiency) of slavery?

The Function of Government and the Need to Limit its Powers

  1. where does FAH think “rights” come from? what is his view of “natural rights”?
  2. what does FAH think the proper role of government should be? [See Quote 3 – the Special “organisation” known as the “government” (LLL1 47-48)] what functions should it have in “emergency” situations? how does the government overcome “the problem of knowledge” in these emergency situations? what kind of CL does this make him (radical, moderate, new/neo (Ordo))
  3. how does FAH think the power of government can be limited? and kept limited over time? [See LLL3 for details.]
  4. are the constitutional proposals he puts forward to limit the power of government feasible/workable? ever likely to be be attempted/put into practice
  5. what does FAH mean by “liberty”? what does FAH mean by “coercion”? how much liberty should be people be allowed to have? how is liberty infringed? who should have the power to coerce others? how much coercion is needed to make a society function (properly)?

Some Other Matters of Interest

  1. why does FAH reject the idea of “social justice” (LLL2)? what kind of justice did FAH advocate?
  2. what did FAH think about “democracy” and what dangers did he think it posed for liberty and free institutions? how could these dangers be mitigated or avoided?
  3. why did FAH think CLs needed a “utopian” vision of the society they wanted to live in?
  4. where did FAH get his ideas from? (Smith, Ferguson, Hume) why didn’t he mention Jefferson and the American Constitution as an example? why does he dislike the French liberals so much?
  5. how have other scholars made use of / taken further FAH’s ideas about socialism, money, Keynesian monetary policy, constitutionalism and limited government, the evolution of societies, spontaneous orders? how have these scholars applied FAH’s insights? how have they changed or rejected them?
  6. how “radical” a liberal was FAH? he is frustrating at times because the libertarian or the “anarchist” within him sometimes pops through the conservative veneer [See Quote 5 Chap. 6 “Thesis: The Law of Legislation” (LLL1 131) and Quote 6 Chap. 6 “Thesis: The Law of Legislation” (LLL1 140).]
  7. At other times he seems to be quite naive about the nature of political power, the types of people who are able to rise to the top, and what they do with that power; also the capacity of legislators, and those who work for the government to be disinterested “public servants”

A Concluding Question

  1. in what new directions can FAH’s ideas/theories about spontaneous orders be taken?

Some Key Quotes

Quotation 1: On how rules are “selected” and “altered”

Quote 1 – LLL1 “Kosmos and Taxis” 45-46. Section: Spontaneous orders result from their elements obeying certain rules of conduct (pp. 43 ff.)

The question which is of central importance as much for social theory as for social policy is thus what properties the rules must possess so that the separate actions of the individuals will produce an overall order. Some such rules all individuals of a society will obey because of the similar manner in which their environment represents itself to their minds. Others they wiII foIlow spontaneously because they will be part of their common cultural tradition. But there will be still others which they may have to be made to obey, since, although it would be in the interest of each to disregard them, the overall order on which the success of their actions depends will arise only if these rules are generally followed.

In a modern society based on exchange, one of the chief regularities in individual behaviour will result from the similarity of situations in which most individuals find themselves in working to earn an income; which means that they will normally prefer a larger return from their efforts to a smaller one, and often that they will increase their efforts in a particular direction if the prospects of return improve. This is a rule that will be followed at least with sufficient frequency to impress upon such a society an order of a certain kind. But the fact that most people will follow this rule will still leave the character of the resulting order very indeterminate, and by itself certainly would not be sufficient to give it a beneficial character. For the resulting order to be beneficial people must also observe some conventional rules, that is, rules which do not simply follow from their desires and their insight into relations of cause and effect, but which are normative and tell them what they ought to or ought not to do.

We shall later have to consider more fully the precise relation between the various kinds of rules which the people in fact obey and the resulting order of actions. Our main interest will then be those rules which, because we can deliberately alter them, become the chief instrument whereby we can affect the resulting order, namely the rules of law. At the moment our concern must be to make clear that **while the rules on which a spontaneous order rests, may also be of spontaneous origin, this need not always be the case**. Although undoubtedly an order originally formed itself spontaneously because the individuals followed rules which had not been deliberately made but had arisen spontaneously, **people gradually learned to improve those rules**; and it is at least conceivable that the formation of a spontaneous order relies entirely on rules that were deliberately made. **The spontaneous character of the resulting order** [46] must therefore be distinguished from **the spontaneous origin of the rules on which it rests**, and it is possible that an order which would still have to be described as spontaneous rests on **rules which are entirely the result of deliberate design**. In the kind of society with which we are familiar, of course, only some of the rules which people in fact observe, namely some of the rules of law (but never all, even of these) will be the product of deliberate design, while most of the rules of morals and custom will be spontaneous growths.

That even an order which rests on **made rules** may be spontaneous in character is shown by the fact that its particular manifestation will always depend on many circumstances which the designer of these rules did not and could not know. The particular content of the order will depend on the concrete circumstances known only to the individuals who obey the rules and apply them to facts known only to them. It will be through the knowledge of these individuals both of the rules and of the particular facts that both will determine the resulting order.

Quotation 2: Orders within Orders

LLL1, Kosmos and Taxis pp. 46-47. Section: The spontaneous order of society is made up of individuals and organizations

In any group of men of more than the smallest size, collaboration will always rest both on spontaneous order as well as on deliberate organization. There is no doubt that for many limited tasks organization is the most powerful method of effective co-ordination because it enables us to adapt the resulting order much more fully to our wishes, while where, because of the complexity of the circumstances to be taken into account, we must rely on the forces making for a spontaneous order, our power over the particular contents of this order is necessarily restricted.

That the two kinds of order will regularly coexist in every society of any degree of complexity does not mean, however, that we can combine them in any manner we like. What in fact we find in all free societies is that, although groups of men will join in organizations for the achievement of some particular ends, the co-ordination of the activities of all these separate organizations, as well as of the separate individuals, is brought about by the forces making for a spontaneous order. The family, the farm, the plant, the firm, the corporation and the various associations, and all the public institutions including government, are organizations which in turn are integrated into **a more comprehensive spontaneous order**. It is [47] advisable to reserve the term ‘society’ for **this spontaneous overall order** so that we may distinguish it from all the organized smaller groups which will exist within it, as well as from such smaller and more or less isolated groups as the horde, the tribe, or the clan, whose members will at least in some respects act under a central direction for common purposes. In some instances it will be the same group which at times, as when engaged in most of its daily routine, will operate as a spontaneous order maintained by the observation of conventional rules without the necessity of commands, while at other times, as when hunting, migrating, or fighting, it will be acting as an organization under the directing will of a chief.

The spontaneous order which we call a society also need not have such sharp boundaries as an organization will usually possess. There will often be a nucleus, or several nuclei, of more closely related individuals occupying a central position in a more loosely connected but more extensive order. Such **particular societies within the Great Society** may arise as the result of spatial proximity, or of some other special circumstances which produce closer relations among their members. And different **partial societies** of this sort will often overlap and every individual may, in addition to being a member of the Great Society, be a member of **numerous other spontaneous sub-orders or partial societies** of this sort as weIl as of **various organizations existing within the comprehensive Great Society**.

Quotation 3: the Special “organisation” known as the “government

LLL1 47-48

Of the **organizations existing within the Great Society** one which regularly occupies a very special position will be that which we call government. Although it is conceivable that the spontaneous order which we call **society may exist without government**, if the minimum of rules required for the formation of such an order is observed without an organized apparatus for their enforcement, in most circumstances the organization which we call government becomes indispensable in order to assure that those rules are obeyed.

This particular function of government is somewhat like that of a maintenance squad of a factory, its object being not to produce any particular services or products to be consumed by the citizens, but rather to see that the mechanism which regulates the production of those goods and services is kept in working order. The purposes for which this machinery is currently being used will be determined by those who operate its parts and in the last resort by **those who buy its products**.

The same organization that is charged with keeping in order an operating structure which the individuals will use for their own purposes, will, however, in addition to the task of enforcing the rules on which that order rests, usually be expected also to **render other services** which the spontaneous order cannot produce adequately.

These two distinct functions of government are usually not clearly separated; yet, as we shall see, the distinction between the **coercive functions** in which government enforces rules of conduct, and its **service functions** in which it need merely administer resources placed at its disposal, is of fundamental importance. In the second it is one organization among many and like the others part of a spontaneous overall order, while in the first it provides an **essential condition for the preservation of that overall order**.

In English it is possible, and has long been usual, to discuss these two types of order in terms of the distinction between ‘society’ and ‘government’. There is no need in the discussion of these problems, so long as only one country is concerned, to bring in the metaphysically charged term ‘state’. It is largely under the influence of continental and particularly Hegelian thought that in the course of the last hundred years the practice of speaking of the ‘state’ (preferably with a capital ’S’), where ‘government’ is more appropriate and precise, has come to be widely adopted. That which acts, or pursues a policy, is however always the organization of government; and it does not make for clarity to drag in the term ‘state’ where ‘government’ is quite sufficient. It becomes particularly misleading when ‘the state’ rather than ‘government’ is contrasted with ‘society’ to indicate that **the first is an organization and the second a spontaneous order**.

Quotation 4: Why grown law requires correction by legislation

Chap. IV The Changing Concept of Law. Section “Why grown law requires correction by legislation” LLL1 pp. 88-89.

*Why grown law requires correction by legislation*

The fact that all law arising out of the endeavour to articulate rules of conduct will of necessity possess some desirable properties not necessarily possessed by the commands of a legislator does not mean that in other respects such **law may not develop in very undesirable directions**, and that when this happens correction by deliberate legislation may not be the only practicable way out. For a variety of reasons the spontaneous process of growth may lead into **an impasse from which it cannot extricate itself by its own forces** or which it will at least not correct quickly enough. The development of case-law is in some respects a sort of one-way street: when it has already moved a considerable distance in one direction, it often cannot retrace its steps when some implications of earlier decisions are seen to be clearly undesirable. The fact that law that has evolved in this way has certain desirable properties does not prove that it will always be good law or even that some of its rules may not be very bad. It therefore does not mean that we can altogether dispense with legislation. 35

There are several other reasons for this. One is that the process of judicial development of law is of necessity gradual and may prove too slow to bring about the desirable rapid adaptation of the law to wholly new circumstances. Perhaps the most important, however, is that it is not only difficult but also undesirable for judicial decisions to reverse a development, which has already taken place and is then seen to have undesirable consequences or to be downright wrong. The judge is not performing his function if he disappoints reasonable expectations created by earlier decisions. Although the judge can develop the law by deciding issues which are genuinely doubtful, he cannot really alter it, or can do so at most only very gradually where a rule has become firmly established; although he may clearly recognize that another rule would be better, or more [88] just, it would evidently be unjust to apply it to transactions which had taken place when a different rule was regarded as valid. In such situations it is desirable that the new rule should become known before it is enforced; and this can be effected only by promulgating a new rule which is to be applied only in the future. Where a real change in the law is required, the new law can properly fulfil the proper function of all law, namely that of guiding expectations, only if it becomes known before it is applied.

**The necessity of such radical changes of particular rules** may be due to various causes. It may be due simply to the recognition that some past development was based on error or that it produced consequences later recognized as unjust. But the most frequent cause is probably that the development of the **law has lain in the hands of members of a particular class** whose traditional views made them regard as just what could not meet the more general requirements of justice. There can be do doubt that in such fields as the law on the relations between master and servant,36 landlord and tenant, creditor and debtor, and in modern times between organized business and its customers, **the rules have been shaped largely by the views of one of the parties and their particular interests**-especially where, as used to be true in the first two of the instances given, it was one of the groups concerned which almost exclusively supplied the judges. This, as we shall see, does not mean that, as has been asserted, ‘justice is an irrational ideal’ and that ‘from the point of rational cognition there are only interests of human beings and hence conflicts of interests’, 37 at least when by interests we do not mean only particular aims but long-term chances which different rules offer to the different members of society. It is even less true that, as would follow from those assertions, a recognized bias of some rule in favour of a particular group can be corrected only by biasing it instead in favour of another. But such occasions when it is recognized that some hereto accepted rules are unjust in the light of **more general principles of justice** may well require the revision not only of single rules but of whole sections of the established system of case law. This is more than can be accomplished by decisions of particular cases in the light of existing precedents.

Quotation 5: The “Radical” Hayek I

Chap. 6 “Thesis: The Law of Legislation” (LLL1 131)

It will be useful at this point briefly to interrupt our main argument to consider a certain ambiguity of the concept of ‘government’. Although the term covers a wide range of activities which in any orderly society are necessary or desirable, it also carries **certain overtones that are inimical to the ideal of freedom under the law**. There are, as we have seen, two distinct tasks included under it which must be distinguished: the enforcement of the universal rules of just conduct on the one hand, and, on the other, the direction of the organization built up to provide various services for the citizens at large.

It is in connection with the second group of activities that the term ‘government’ (and still more the verb ‘governing’) carries misleading connotations. The unquestioned need for a government that enforces the law and directs **an organization providing many other services** does not mean, in ordinary times, that the private citizen need be governed in the sense in which the government directs the personal and material resources entrusted to it for rendering services. It is usual today to speak of a government ‘running a country’ as if the whole society were an organization managed by it. Yet what really depends on it are chiefly certain conditions for the smooth running of those services that the countless individuals and organizations render to each other. **These spontaneously ordered activities of the members of society certainly could and would go on even if all the activities peculiar to government temporarily ceased**. Of course, in modern times government has in many countries taken over the direction of so many essential services, especially in the field of transport and communication, that the economic life would soon be paralysed if all government- directed services ceased. **But this is so not because these services can be provided only by government, but because government has assumed the exclusive right to provide them**.

Quotation 6: The “Radical” Hayek II

Chap. 6 “Thesis: The Law of Legislation” (LLL1 140)

When we speak of administrative measures, we generally mean the direction of particular resources towards the rendering of certain services to determinable groups of people. The establishment of a system of schools or health services, financial or other assistance to particular trades or professions, or the use of such instruments as government possesses through its monopoly of the issue of money, are in this sense measures of policy. It is evident that in connection with such measures the distinction between providing facilities to be used by unknown persons for unknown purposes, and providing facilities in the expectation that they will help particular groups, becomes a matter of degree, with many intermediate positions between the two extreme types. **No doubt if government became the exclusive provider of many essential services, it could, by determining the character of these services and the conditions on which they are rendered, exercise great influence on the material content of the order of the market**. For this reason it is important that the size of this ‘public sector’ be limited and the government do not so co-ordinate its various services that their effects on particular people become predictable. We shall later see that **it is also important for this reason that government have no exclusive right to the rendering of any service other than the enforcement of rules of just conduct, and thus should not be in a position to prevent other agencies from offering services of the same kind when possibilities appear of providing through the market what perhaps in the past has been impossible thus to provide**.