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Thoughts on ‘The Road to Serfdom’: Chapter 6, “Planning and the Rule of Law”

In Arts & Letters, Austrian Economics, Book Reviews, Books, Economics, History, Humane Economy, Humanities, Jurisprudence, Law, Liberalism, Libertarianism, Philosophy, Politics, Western Civilization, Western Philosophy on September 25, 2013 at 7:45 am

Slade Mendenhall

Slade Mendenhall is an M.Sc. candidate in Comparative Politics at the London School of Economics, with specializations in conflict and Middle Eastern affairs. He holds degrees in Economics and Mass Media Arts from the University of Georgia and writes for The Objective Standard and, where he is also editor.

The following is the seventh installment in a series of chapter-by-chapter analyses of Friedrich Hayek’s The Road to Serfdom. Previous entries are available here: Introduction, Chapter 1, 2, 3, 4, and 5.

Hayek’s sixth chapter, “Planning and the Rule of Law” sets out to establish two fundamentally different legal frameworks. The first, characteristic of a free society, is what Hayek refers to as a ‘Rule of Law’ approach. The term itself is inadequate, but not incidental; it arises from Hayek’s more fundamental philosophy, and this analysis will address why the lack of a better term is inevitable for Hayek based on his earlier premises. The second type of law described by Hayek is the sort of arbitrary system of decrees inherent to a planned economy.

In the course of contrasting the two and explaining the superiority of the former, Hayek hits many valid points and makes some worthwhile analyses—he even surprises us with the first mention of rights in the whole book! True: in the process, he again falls victim to the sorts of improper philosophical analyses, badly defined concepts, flawed defenses of freedom, and errant policy endorsements we have come to expect. Nonetheless, the essence and guiding message of Chapter VI introduces a valuable subject for thought and further discussion—even if that thought consists of dispelling Hayek’s arguments in favor of stronger, more objective ones.

Hayek’s characterization of each of the two systems—the ‘Rule of Law’ and what he calls ‘substantive rules’—is valid in a limited sense. He writes,

“The Rule of Law thus implies limits to the scope of legislation: it restricts it to the kind of general rules known as formal law, and excludes legislation either directly aimed at particular people, or at enabling anybody to use the coercive power of the state for the purpose of such discrimination. It means, not that everything is regulated by law, but, on the contrary, that the coercive power of the state can be used only in cases defined in advance by the law and in such a way that it can be foreseen how it will be used” (62).

In this description, Hayek hits many necessary points well: it limits legislation, establishes formal and general rules, and limits the use of coercive power to purposes defined in advance by the law. Likewise, with respect to ‘substantive rules’, his description is accurate: “It cannot tie itself down in advance to general and formal rules which prevent arbitrariness. It must provide for the actual needs of people as they arise and then choose deliberately between them” (55).

With similar acuity, he describes such a system’s coercive restructuring of the plans and long-range thinking of individuals,

“[W]here the precise effects of government policy on particular people are known, where the government aims directly at such particular effects, it cannot help knowing these effects, and therefore it cannot be impartial. It must, of necessity, take sides, impose its valuations upon people and, instead of assisting them in the advancement of their own ends, choose the ends for them” (57).

And, finally, its privileging of some parties over others: “There can be no doubt that planning necessarily involves deliberate discrimination between particular needs of different people, and allowing one man to do what another must be prevented from doing” (58-59).

His characterizations of both systems—‘Rule of Law’ and ‘substantive rules’—are correct on the above points. Where these descriptions lack is not in their truth, but in their completeness. Hayek’s description of both the ‘Rule of Law’ and ‘substantive rule’ approaches neglect the fundamental difference between liberal and statist law: whether the state is vested with the privilege of initiating force against the individual. This point cannot be left obfuscated or marginalized; it is nothing less than the definitive difference between the two systems and must be highlighted as such. Generality, non-discrimination, and established pre-requisites for legal action are important features within this framework, but they are ultimately supporting or consequential features of this more fundamental point.

This definition by essentials—of liberal law as that which forbids the violation of individual rights by government force, and of statist law as that which has no such prohibitions—points to the fundamental crux of liberal law: objectivity.

As Harry Binswanger describes it,

“An objectively derived law is one stemming not from the whim of legislators or bureaucrats but from a rational application of the principle of individual rights. Rights tie law to reality, because they are a recognition of a basic, unalterable fact [–the requirements of man’s life]… As the law must be objective in its source, so it must be objective in its form: objective laws are clearly defined, consistent, unambiguous, stable, and as straightforward and simple as possible… The ideal is to make the laws of man like the laws of nature: firm, stable impersonal absolutes.”

Thus, what Hayek describes as the ‘Rule of Law’ is better conceptualized as objective law—law that is based on a clearly defined, rationally derived standard. Conversely, the ‘substantive rule’ approach can be thought of as simply non-objective law.* That Hayek has not properly defined the two is consistent with his argument thus far, which in previous analyses has been shown to be largely based on a subjectivist-skepticist epistemology. This does not make his endorsement of the ‘Rule of Law’ any less genuine, but it does explain his admitted discomfort with his own descriptions in this chapter and why he was unable to correct them.

(For a fuller description of objective law, see Binswanger’s full article on the subject here.)

Hayek impressively illustrates the dangers of ‘substantive rules’ (we shall continue to use his term for accuracy, despite its inadequacy) with a discussion of policies that use the force of government to achieve egalitarian ends. He decries the increasing frequency under socialism of legal discussions as to what is ‘fair’ or ‘reasonable’, with ultimate discretion in such matters left to the subjective whim of a judge or regulator.

“Formal equality before the law [Hayek writes] is in conflict, and in fact incompatible, with any activity of the government deliberately aiming at material or substantive equality of different people, and that any policy directly aiming at a substantive ideal of distributive justice must lead to the destruction of the Rule of Law.” (59)

Tangential to this discussion of the displacement of justice in the law by distorted notions of ‘fairness’ and ‘reasonability’ is a short but powerful challenge to the concept of ‘privilege’ that Hayek observes to be animating such cases. ‘Privilege’, he writes, is a valid description of those instances in which “landed property [was] reserved to members of the nobility” and property was understood to be held not by right but at the discretion of the monarch and its state (60). It is likewise privilege where “the right to produce or sell particular things is reserved to particular people designated by authority.” It is an inaccurate and unjust characterization, however, that treats the possession of property by right as ‘privilege.’ To do so “depriv[es] the word privilege of its meaning” (60).

In a landmark moment, Hayek even mentions the concept of rights for the first time. “[R]ecognised limitations of the powers of legislation,” he writes, “imply the recognition of the inalienable right of the individual, inviolable rights of man.” He goes on to write “How a formal recognition of individual rights, or of the equal rights of minorities, loses all significance in a state [sic] which embarks on a complete control of economic life, has been amply demonstrated by the experience of the various Central European countries” (64). Both instances are valid discussions of the concept. Whether this signals the introduction of a more enduring concept throughout the remainder of the work, or whether it is simply a passing mention not to be invoked again, time and further chapters will reveal.

Amidst these positive points, however, the chapter is not without severely detrimental flaws, beginning with Hayek’s further elaborations upon the ‘Rule of Law.’ Hayek unduly and inexplicably concedes ground to capitalism’s detractors, writing, “It cannot be denied that the Rule of Law produces economic inequality—all that can be claimed for it is that this inequality is not designed to affect particular people in a particular way” (59). That such a grave error should be committed on the very topic—economics—in which he has thus far been relatively solid and which is, in fact, his stock-in-trade is exasperating.

The ‘Rule of Law’, even in Hayek’s loose and non-essential definition of it, does not produce inequality—neither in means nor in outcomes. He has devoted much of the chapter to explaining its superiority to ‘substantive rules’, largely on the grounds that it does not privilege one party over another. Thus, he cannot be thought to be saying it produces an inequality of means. He can only be understood as saying that it produces an inequality of outcomes. This, however, is patently false.

Inequality in a laissez-faire society is simply a reflection of the differing achievements of individual men. It arises from man’s nature—the fact that he is rational and capable of immeasurable creativity, but that his consciousness is volitional. In such a society, man is left free—restricted only by the limits of his own faculties.

A limited government honoring individual rights, refusing to intervene in an economy or in any way initiate force against its citizens, does not produce anything except a system of justice and a circumstance in which force is prohibited from human relationships. Where inequality of achievement results between different men—whether competing in the same field or pursuing unrelated economic ventures—it is neither produced by the law nor prevented by it. It is a fact of nature.

Hayek makes similarly baffling assertions as to what the ultimate aim of law should be, and it is here that we come to see the difference between Hayek’s ‘Rule of Law’ and objective law as we defined it above. Where objective law references a particular standard—the requirements of man’s life—as the ultimate value to be gained and kept, Hayek’s looser ‘Rule of Law’ seeks to preserve not a concrete value, but a state of randomness.

“[T]hat we do not know their concrete effect, that we do not know what particular ends these rules will further, or which particular people they will assist, that they are merely given the form most likely on the whole to benefit all the people affected by them, is the most important criterion of formal rules in the sense in which we here use the term” (56). [Emphasis mine.]

Thus, the unpredictability of outcomes is treated as an intrinsic value. True: Hayek is correct that an objective legal system in no way predicts or influences which parties in a society will be successful and which might fail. However, lest one remain adamant that Hayek is simply describing what will happen in such a system, rather than arguing why such a system should be instituted, a subsequent passage leaves no room for doubt:

“[I]t may appear paradoxical to claim as a virtue that under one system we shall know less about the particular effect of the measures the state takes than would be true under most other systems and that a method of social control should be deemed superior because of our ignorance of its precise results. Yet this consideration is in fact the rationale of the great liberal principle of the Rule of Law” (56). [Emphasis mine.]

Should this passage not suffice to bring back memories of Hayek’s abhorrent defense of liberty in Chapter IV, Hayek further abuses the concept and paves the road for anarchist libertarians to come by suggesting that law itself is a violation of liberty. He writes that, “While every law restricts individual freedom to some extent by altering the means [sic] which people may use in the pursuit of their aims, under the Rule of Law the government is prevented from stultifying individual efforts by ad hoc action” (54).

To suggest that every law—even objectively derived and defined laws that prohibit the initiation of force between individuals—constitutes a restriction of individual freedom is to suggest, conversely, that there exists a freedom to initiate force—that is: a freedom to restrict freedoms. Implicit in it is the suggestion that freedoms clash, and that the pursuit of ever-greater freedoms requires a conflict of interest between men. For a succinct refutation of this idea, an entry from Ayn Rand’s column, “Textbook of Americanism” puts it best:

“Do not be misled . . . by an old collectivist trick which goes like this: there is no absolute freedom anyway, since you are not free to murder; society limits your freedom when it does not permit you to kill; therefore, society holds the right to limit your freedom in any manner it sees fit; therefore, drop the delusion of freedom—freedom is whatever society decides it is. It is not society, nor any social right, that forbids you to kill—but the inalienable individual right of another man to live. This is not a “compromise” between two rights—but a line of division that preserves both rights untouched. The division is not derived from an edict of society—but from your own inalienable individual right. The definition of this limit is not set arbitrarily by society—but is implicit in the definition of your own right. Within the sphere of your own rights, your freedom is absolute.”**

Other passing errors punctuate the chapter—a collectivist invocation of “society as a whole” as the good to be considered, an acceptance of there being no negligible difference between an explicit and codified Bill of Rights versus a tradition-based common law, and a parting endorsement of “factory laws” (the destructive effects of which have been thoroughly argued by historian Robert Hessen).

There are again passages that sound hauntingly familiar in today’s world. His description of the bureaucratization of government—“[b]y giving the government unlimited powers the most arbitrary rule can be made legal: and in this way a democracy may set up the most complete despotism imaginable”—sounds much like a description of today’s regulatory state. A description of The Economist as a half-hearted defender of capitalism with an inflated liberal reputation completes the picture and demonstrates that many things have not changed since Hayek’s time.

The subject of Chapter VI, the abuses perpetrated by socialism on the legal system and the ways in which law is transformed by it from a shield into a weapon, is an important one for capitalism’s defenders to understand. Certainly the ongoing antitrust abuses being carried out at the time of this writing make its continued relevance vividly clear. But the fact that the subject demands greater understanding does not mean that Hayek’s argument against it can or should be incorporated as part of that understanding—and certainly not as part of capitalism’s defense. It—and we—deserve better.

* I specifically use the term “non-objective” here, as opposed to the more conventional “subjective”, as in this context it includes law based both in subjectivism and intrinsicism.

** “Textbook of Americanism”, The Ayn Rand Column, pg. 85


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