Hayek's The Constitution of Liberty - Institute of Economic Affairs

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9 ECONOMIC POLICY AND THE RULE OF
LAW (Chapter 15)
Hayek is primarily concerned in Chapter 15 with the problem
of shaping and limiting government’s economic policies. Most
of his examples show how economic life is affected, for better or
worse, by administrative measures. Hayek thus needs criteria
by which to measure and judge economic policies; but to articulate
them, he must look broadly at government’s policy role
and consider what government may and may not do, under the
Rule of Law, in executing its policies. His observations about
economics are framed by these more general reflections on policy.
In discussing these matters, Hayek presupposes or restates much
of what he has said earlier about law and coercion and about
the relation of the executive or administration to the lawmaking
body. This chapter is vital for the rest of his book, since it lays the
foundation for Hayek’s extended treatment, in Part III, of specific
policy areas.
What is policy?
Hayek’s most illuminating definition of policy appears in Chapter
14, in a brief section entitled ‘Legislation and Policy.’ He begins
by dispelling the idea that legislation itself is a policy matter, or
that the law is the chief instrument for carrying out some predetermined
long-term policy. The work of legislation is to establish
general rules of conduct, within which government must act to
achieve its ends. Legislation must not itself specify those ends.
Policy, by contrast, ‘means the pursuit by government of the
concrete, ever changing aims of the day.’ Executing policy in this
sense is largely the work of administration: ‘Its task is the direction
and allocation of resources put at the disposal of government
in the service of the constantly changing needs of the community’
(214–15; cf. Hayek, 1955: 42–3).
These statements bring out two key points about policy.
First, government’s broad objective in policy matters is to serve
the community’s needs. Hayek mentions particular services that
governments provide to citizens, ranging ‘from national defense
to upkeep of roads, from sanitary safeguards to the policing of
the streets,’ but all such policies must serve the needs or interests
of the community. Second, government has ‘resources’ at its
disposal, to be used in pursuing its policies. Faced with urgent
tasks, it must direct and allocate these resources, which include
both its material means and its paid servants. Since professional
administrators inevitably grasp for more, Hayek stresses that
agencies entrusted with special tasks ‘must confine themselves to
the means specially granted to them’ (215). A crucial question, left
unanswered at this point, is how government obtains its material
resources.
Tests of policy
The Rule of Law governs all government’s policy actions, but
does not necessarily limit or restrict them. The essential question
is whether a specific policy involves coercion: ‘It is … important
to remember that the rule of law restricts government only in
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