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

h ay e k ’ s t h e c o n s t i t u t i o n o f l i b e r t y
e c o n o m i c p o l i c y a n d t h e r u l e o f l aw
its coercive activities’ (206; cf. 1955: 22). If a government policy
is coercive, it must conform to the principles of the Rule of Law.
Hayek distinguishes between coercive measures and ‘those pure
service activities where coercion does not enter or does so only
because of the need of financing them by taxation’ (222). The
taxation issue aside, these ‘pure service activities’ would not be
restricted by the Rule of Law, unless they were to become coercive.
Assuming that a specific policy is compatible with the Rule of
Law, it must then be judged according to its expediency or efficiency.
The question here is whether the policy will succeed or fail
and whether its advantages will outweigh its costs (221).
Hayek introduces the expediency test to judge how administrative
discretion is used. In order to pursue policy objectives in
concrete situations, amid ever-changing circumstances, administrators
must act according to their judgement of what is best:
‘Nobody disputes the fact that, in order to make efficient use of the
means at its disposal, the government must exercise a great deal
of discretion’ (213). Expediency is a test of whether discretionary
actions are efficient in reaching their objectives; and economic
analysis, especially the weighing of costs and benefits, is crucial
in making such judgements. Having discretion allows administrators
to choose from a range of legitimate options in deciding on
the best course of action. A policy measure can be inexpedient but
still in conformity with the Rule of Law. Moreover, an expedient
action that harms many is permissible, if the outcome is beneficial
overall (224–5).
The ultimate objective of policy – that it must serve the needs
or interests of the community – is vital for determining both a
policy’s compatibility with the Rule of Law and its expediency, as
we shall see.
Excluded policies
Some policies are excluded in principle from a free society because
they cannot possibly be reconciled with the Rule of Law. These
are ones that ‘cannot be achieved by merely enforcing general
rules but, of necessity, involve arbitrary discrimination between
persons’ (227; cf. 231). Hayek considers three types of excluded
policies, the first of which is giving specific individuals the right to
engage in different occupations or to provide services or commodities.
Forbidding favouritism of this kind does not, in Hayek’s
view, preclude setting job qualifications or requiring a licence to
practise certain trades, so long as these measures follow a general
rule that applies to any qualified person and gives each one the
right, if passed over, to ‘have his claim examined and enforced by
an independent court’ (227).
Price controls, whether imposed directly by authority or
indirectly by specifying the quantities that particular persons or
firms can buy or sell, are incompatible with a free system for two
reasons. First, such controls have to be administered arbitrarily
and not according to a rule. More broadly, free markets will work
only if individual decisions are guided by price movements. In the
absence of prices, governments will try unsuccessfully to achieve
similar results by direct orders (227–9).
Finally, a government bound by the Rule of Law cannot undertake
to reward people according to their supposed merit. Hayek
repeats here his oft-stated objection to government pursuing
distributive justice: it requires ‘an allocation of all resources by
a central authority’ and also ‘that people be told what to do and
what ends to serve.’ The administrative pursuit of distributive
justice is incompatible with treating individuals according to
general rules (231–3).
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