What Makes Liberty Possible? Lessons from Hayek

The Nobel Prize-winning Austrian-born economist and political philosopher Friedrich von Hayek (1899-1992) left a rich legacy of books and articles brimming with insights and wisdom. He remains one of the most quoted thinkers in the 21st Century, though he lived and died in the 20th.

Ask a Hayek scholar which of the great man’s books ranks as his most important, chances are the answer will be The Constitution of Liberty, which appeared in 1960. It was Hayek’s response to critics who claimed that classical liberalism (individual liberty, free markets, and limited government) lacked a positive agenda and a framework for keeping the State in check.

At the heart of The Constitution of Liberty lies a fundamental premise that every economics course should be teaching. Liberty is the highest ideal and a moral imperative. It is also a precondition for productive coordination in a world of dispersed knowledge.

After that, Hayek was primarily concerned with what works. He explained why ordered liberty is the institutional structure that best allows individuals (each one with limited information about his circumstances) to experiment, adapt, and discover better ways of living for themselves and those personally connected to them.

Liberty and Coercion

“Laws should be perfectly general, name no one person or group, and be nondiscriminatory.”

Hayek saw liberty as the absence of coercion. It is a condition in which individuals are not subject to the arbitrary will of others. Interpersonal aggression, such as acts of domestic abuse, street gangs, or mob violence, is bad enough. He was mainly concerned, however, with systemic coercion institutionalized through state rules and interventions.

By definition, politics is force. It prevents voluntary exchanges, disrupts social harmony, and distorts crucial information revealed through market prices. Where there is compulsion, people act based on fear. As a result, real preferences cannot be revealed, the system loses its capacity to coordinate individual plans, and outcomes become suboptimal at best.

A legal framework based on the non-aggression principle constrains coercion by both individuals and the state. It must do so through general, predictable, and impartially applied rules. Without such limits, a free society collapses under the weight of its own contradictions.

Knowledge, Ignorance, and Planning

“No human mind can comprehend all the knowledge which guides the actions of society.”

Hayek’s main conclusion was devastating for central planners who champion State direction of the economy. It is self-evidently true that no one possesses the knowledge necessary to redesign society from the top down. The impulse of statists to control the future through bureaucratic application of centralized policy is not just inefficient; it is dangerous. It ignores how human knowledge is accumulated and utilized, fragmented and evolving in local contexts. By displacing the plans of individuals in a free marketplace in favor of the plans of those with political power, it sets up a mechanism that ultimately yields corruption and tyranny.

Hayek builds on Hume, Ferguson, and Smith, who embraced the Scottish Enlightenment idea of spontaneous order, which is the remarkable harmonization of the plans of market participants.
For example, many social institutions indispensable for our civilization, such as language, money, and the law, were not invented but evolved. In communication, the economy, and politics, the invisible hand operates through human action, not human design. In the economy, the interests of producers align with the desires of consumers through the interplay of supply and demand, as coordinated by free and fluctuating prices.

Against Social Justice and Constructivism

“From the fact that people are very different, it follows that, if we treat them equally, the result must be inequality in their actual position … Equality before the law and material equality are therefore not only different but are in conflict with each other.”

Hayek firmly rejected the modern leftist obsession with “social justice.” Redistribution schemes based on outcome-focused equality ignore the process by which outcomes arise. Inequality, per se, is not a problem. The focus should not be on the outcome, but on the process. Free people will never produce equal outcomes because our talents differ (as well as how and when we apply them), our work ethics and savings rates vary widely, and a myriad of other factors are involved.

What matters is whether the rules of the game are fair. They must be transparent, predictable, and open to all. Social justice, by contrast, inevitably implies discretionary coercion by state agents. Worse, it is based on the delusion that someone knows what a fair distribution looks like.

There’s no objective way to assess whether one pattern of holdings is “more just” than another without first asking how they came about. Redistribution doesn’t just violate freedom. It undermines the institutional incentives that generate wealth in the first place.

Responsibility and the Individual

“Liberty and responsibility are inseparable.”

Freedom and responsibility are two sides of the same coin. This is in the Northwood bible. If people are to be free to choose, they must also bear the costs of their choices. Subsidizing failure while taxing success corrupts the feedback mechanisms that a free society relies on.

Hayek’s view was not atomistic. He knew that individuals cannot thrive outside a community. However, the social order he defends emerges not from collectivist planning and coercive edicts from above, but from responsible individual action within a rule-based framework.

The Rule of Law

“Nothing distinguishes more clearly conditions in a free country from those in a country under arbitrary government than the observance in the former of the great principle known as the Rule of Law.”

Hayek’s “Rule of Law” is best understood as a means to constrain power and reduce uncertainty. Civil laws should be precise enough to prevent acts of aggression without attempting to prescribe specific actions and accomplish desirable outcomes. They need to be stable, prospective, and binding for all (including the lawmakers).

Add a judiciary that is independent of the other branches of government, and we have a political structure that minimizes rent-seeking and the dangers of special privilege. The Rule of Law is not a remedy for all societal ills, but it provides the necessary guardrails for any society that wants to remain free.

Hayek believed that it is not so much the volume of political action that matters, but its nature. The government should act through objective rules (not political whims) that reinforce spontaneous market forces. It must not be employed through micro-level interventions that substitute centralized knowledge for decentralized signals.

Democracy and Its Limits

“There is no justification for the belief that, so long as power is conferred by democratic procedure, it cannot be arbitrary…it is not the source but the limitation of power which prevents it from being arbitrary.”

Democracy, for Hayek, was merely a means to an end. It is a method for changing public officials in a peaceful way. It is not a source of truth or morality. The majority can be just as tyrannical as a king or a dictator. When democracy becomes a vehicle for the coercion of minorities (through taxes, conscription, or social planning), it becomes a threat to liberty and justice.

Hayek’s failure here, if anything, is in not pushing the point further. If democracy can authorize coercion against law-abiding individuals (as in the military draft), then its legitimacy is always conditional. The Rule of Law must constrain not just kings, but crowds. Sadly, too many people today are misled to view democracy and liberty as synonyms, yet they are often incompatible. The reprehensible Jim Crow laws of the Old South and even in parts of the North, for the most part, were enacted democratically.

Evolution of Legal and Social Institutions

“Social institutions have never been designed and do much more than we know.”

Hayek’s institutional evolutionism is rooted in British common law, not French rationalism. It suggests that good law grows organically, not from blueprints. Statist legal engineering suffers the same knowledge problems as central economic planning.

Rules that endure are typically those tested by practice, not imagined by omniscient theoreticians and imposed by benevolent rulers. Law, in Hayek’s view, is a discovery process that involves all people affected by it, much like market competition.

Political Ambiguity

“Even the most fundamental principles of a free society … may have to be temporarily sacrificed when, but only when, it is a question of preserving liberty in the long run.”

Although Hayek is undoubtedly one of the leading champions of liberty, his nuanced views upset many libertarians because he occasionally permits exceptions that undercut the foundations of a free society. He accepts using coercion to fund government activities (as long as it is not discriminatory against unpopular or disenfranchised groups), the military draft, and emergency suspensions of civil rights.

Hayek’s appeal to “the interest of the community” as a limiting principle is vague and dangerous and would have benefited by deeper elaboration. Such intellectual inconsistency opens the door to the very oppression he seeks to avoid.

This is where we can go beyond Hayek and consider Milton Friedman’s Free to Choose or Robert Nozick’s Anarchy, State and Utopia or David Friedman’s The Machinery of Freedom. If coercion violates our natural human rights, then logically we should consider competitive alternatives–even for the generation of laws, contract enforcement, and the maintenance of order. Hayek stops short of contemplating such market options. To his credit, Hayek elsewhere did advocate the unconventional view that money need not be monopolized by the state and could be provided privately in competitive markets.

Valuable but Incomplete Defense

“Coercion can be reduced to a minimum in a society only by entrusting the state with the monopoly of coercion.”

The Constitution of Liberty is a profound defense of classical liberal ideas and institutions. Hayek showed that liberty is not a moral luxury. It is a functional necessity in a world of ignorance and complexity. Alas, by stopping short of rejecting the state’s monopoly on coercion, perhaps he concedes too much. On that, lovers of liberty can (and will) naturally quibble.

Hayek’s own logic, as well as the never-ending problems of coercive government, would suggest we at least consider pushing the frontiers of liberty beyond the barriers he accepted for it. In “designing” a limited government for the protection of liberty, perhaps we should remember what Hayek himself famously wrote in another of his numerous works: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

Lawrence W. Reed is President Emeritus, Humphreys Family Senior Fellow, and Ron Manners Global Ambassador for Liberty at the Foundation for Economic Education in Atlanta, Georgia. He blogs at www.lawrencewreed.com.