The rule of law, freedom, and prosperity Chapter 4

The conception of freedom under the law ... rests on the contention that when we obey laws, in the sense of general abstract rules laid down irrespective of their application to us, we are not subject to another man’s will and are therefore free.

Friedrich Hayek (1960). The Constitution of Liberty.
In Ronald Hamowy (ed.), The Constitution of Liberty, XVI
(Liberty Fund Library, 2011): 221.

As we saw earlier, our modern prosperity springs from the use of the knowledge of millions of diverse individuals spread across the globe. This knowledge is typically very detailed, local, and quickly changing. No government can ever collect such knowledge and then properly digest and productively act upon it. The only practical way we know to ensure that as much of this knowledge as possible is discovered, properly digested, and productively acted upon is to rely upon millions of people each to discover a few “bits” of this knowledge and then, individually, to put each of those bits to use. By dividing among millions of people the task of discovering and acting upon knowledge, no one person is overwhelmed with having to absorb and use more knowledge than is humanly possible.

It is important to understand that without freedom, individuals are confined to behave only in ways permitted by government authorities. Unfree people, therefore, have less scope and ability than do free people to search for and to act upon such detailed and local knowledge.

One important reason for dividing among millions of people the tasks of discovering and acting upon small bits of knowledge is that no central authority can know how to order these people about and know what they will discover. But how to ensure that free people—without being directed by some wise and all-knowing central authority—will actually find this knowledge and put it to productive use? How can we be sure that free people will not act selfishly in ways that further their own individual interests at the expense of the general welfare?

One part of the answer is that in fact we do expect people to behave in their own self-interest, but that self-interested behaviour ends up working to everyone’s benefit. In a market economy, producers want to become as wealthy as possible, but to do so they must compete against each other for consumers’ patronage. This system rewards success at pleasing others (consumers) and punishes, with economic losses, the failure to do so. Another part of the answer, though, is the rule of law. The rule of law is a system of rules that are impartial and applied equally to everyone—even to government officials. If everyone is bound by the same rules, no one gets to bend those rules to his or her own advantage.

A rule is impartial if it is not formulated to achieve particular outcomes. An impartial rule only constrains people from acting in ways that are widely regarded as harmful. These are mostly “thou shalt not” rules rather than “you are hereby commanded” rules.

Rules of the highway are a good example. The rules of driving, such as speed limits and traffic lights, do not aim at directing drivers to particular locations. Specific destinations, as well as the particular routes that drivers use to travel to different destinations, are for each driver to decide. The rules of the road are not meant to determine where drivers go or how they get there. Instead, these rules are meant simply to give each driver maximum possible scope for getting to his destination, by whatever route he chooses, as safely and as reliably as possible while also ensuring the safety of all other drivers.

Essential Hayek Chapter 4 | The rule of law, freedom, and prosperity