Socialism and the Rule of Law

In chapter 6 of The Road to Serfdom, Hayek shows why central economic planning is incompatible with the Rule of Law. The argument goes as follows.

"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 principles known as the Rule of Law. Stipped of all technicalities, this means that government in all its actions is bound by rules fixed and announced beforehand - rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances and to plan one'e individual affairs on the basis of this knowledge." (p. 112)

Such rules allow individuals freedom to shape their own life projects and choose their own goals without having those imposed by the state. While every law restricts the individual's freedom in some way, the Rule of Law prevents the government from restricting individual freedom in an ad hoc, case by case basis.

"Economic planning of the collectivist kind necessarily involves the very opposite of this. . . 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. . . When the government has to decide how many pigs are to be raised or how many busses are to be run, which coal mines are to operate . . . these decisions cannot be deduced from formal principles or settled for long periods in advance. They depend inevitably on the circumstances of the moment, and, in making such decisions, it will always be necessary to balance one against the other the interests of various persons and groups." (p. 113)

Government then is in the position of choosing means because it has decided to choose the ends. Individual freedom is thus constricted to the disappearing point, the more central planning is introduced.

"In our age, with its passion for conscious control of everything, it 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." (p. 114)

The superiority of the liberal model is that it leaves room for individuals to choose for themselves how hard they will work, what work they will do and whether they will change occupations. The problem with the state doing the economic planning is that the only way the state can ensure the desired outcomes, (i.e. substantial equality), is for it to leave individuals no choice at all. (p. 115) The more individual choice remains in the system, the less effective the state will be in achieving its goals (eg. the ideals of socialism). So two notions of equality are in conflict: formal equality before the law versus substantial equality as a result of social engineering. As Hayek puts it: "to produce the same result for different people, it is necessary to treat them differently." (p. 117)

Hayek admits that the Rule of Law produces economic inequality; but he notes that "this inequality is not designed to affect particular people in a particular way." (p. 117) It is noteworthy that Nazis and other collectivists always attack "merely" formal justice and consider the Rule of Law to be incompatible with their version of justice.

Hayek does not argue for total state inaction, which would be absurd. The issue is what kind of action should the state take? When the state acts to, for example, control weights and measures in order to prevent fraud, or to set rules regarding working conditions or to make laws protecting the environment, it is certainly active and not passive. But this kind of action is entirely different from acting so as to ensure that one group gets richer at the expense of another group. As long as the laws are formal and applicable to all, rather than being directed specifically at one group or another, they are perfectly compatible with competition and freedom.

Finally, Hayek points out that the Rule of Law cannot be reduced to mere legality; nor is democracy necessarily in accordance with the Rule of Law.

"The idea that there is no limit to the powers of the legislator is in part a result of popular sovereignty and democratic government. It has been strengthened by the belief that, so long as all actions of the state are duly authorized by legislation, the Rule of Law will be preserved. But this is completely to misconceive the meaning of the Rule of Law. this rule has little to do with the question of whether all actions of government are legal in the juridical sense. They may well be and yet not conform to the Rule of Law. . . It may well be that Hitler obtained his unlimited powers in a strictly constitutional manner and that whatever he does is therefore legal in the juridical sense. But who would suggest for that reason that the Rule of Law prevails in Germany?" (p. 119)

Hayek was writing during World War II and his point is that the Rule of Law is destroyed when a law is passed that gives the government the power to act arbitrarily according to critieria it determines as just at the moment. Such power is by definition necessary for central economic planning and this produces despotism even if the whole thing is legal and democratic in the technical sense. The conflict is not between licence and law, but between two different kinds of law: one formal and the other arbitrary.