• A Book Review of Law, Legislation, and Liberty, by Friedrich A. Hayek. Jeremy Shearmur, editor.1

Friedrich Hayek’s trilogy Law, Legislation, and Liberty, published in three separate volumes in 1973, 1976, and 1979, was recently republished in a single book under the careful editorship of Jeremy Shearmur. The last volume of the original trilogy2 covers Chapters 12 to 18 of the Shearmur edition. This last part is what I review here.

Hayek tells us that the book is concerned with “the limits that a free society must place upon the coercive powers of government.” The political order of a free people consists in a system of government limited by law in order to protect a self-regulated (or “spontaneous”) order in which each individual can use his own information to pursue his own purposes or goals. As I indicated in my review of volume 1, Hayek saw the freedom to use one’s information for one’s own purposes as the very definition of individual liberty.

Unlimited Democracy, Totalitarian Democracy

The first broad argument of the book is that democracy has diverged from its original ideal and degenerated into an unlimited and totalitarian democracy. Unlimited democratic power can be traced back to the decline of Athenian democracy at the end of the 5th century BC when, as Aristotle noticed, “the emancipated people became a tyrant.” In a similar way, the British Parliament became sovereign, that is, theoretically omnipotent, in 1766, when it “explicitly rejected the idea that in its particular decisions it was bound to observe any general rules not of its own making.”

Liberal democracy originally referred simply to “a method of procedure for determining government decisions” or, more practically, for getting rid of governments without bloodshed. Democracy was a protection against tyranny. It is an error to view democracy not as “a procedure for arriving at agreement on common action,” but instead “to give it a substantive content prescribing what the aim of those activities ought to be.”

The current, unlimited democracy leads to rent-seeking (competition for government privileges), the triumph of special interest groups, and legal corruption. The cause is that a government with unlimited powers “cannot refuse to exercise them,” so everybody will rush to the public trough.

As we know from Mancur Olson,3 the most concentrated interests, which are more efficient at organizing to lobby governments, will usually win the competition in the tilted political field. Given their own interests in winning elections, political parties become mere “coalitions of organized interests,” horse-trading favors and privileges for their respective electoral clientèles. Any group left behind and powerful enough will, in turn, ask for compensating favors.

An unlimited democratic government is thus constantly blackmailed and corrupted by special interests. The resulting bundle of interventions and privileges will correspond “to nobody’s opinion of what is right, and to no principles.” And no particular voter may find the whole package in his own interests. Interestingly, Hayek’s ideas here are close to anarcho-liberal Anthony de Jasay’s theory of the self-destructive but unavoidable attempts by the democratic state to satisfy conflicting interests, which cannot all be satisfied because everyone is politically trying to get ahead and on top of others.4 (Chronologically, of course, it is de Jasay who may have been influenced by Hayek rather than the other way around.)

Hayek argues that social conflict can be avoided not through many interests vying to capture the majority, but “only by agreement on general rules.” Here, Hayek resembles more Nobel laureate economist James Buchanan, whose contractarian theory is based on unanimous consent to general rules. 5 In Hayek, however, it is not always clear whose consent is required.

Legislating Vs. Governing

The essential division of power in a liberal democracy is between legislation and government (taking the latter term in the narrow sense of deciding and enacting public policy) or, we may say, between legislating and governing. Laws are the general and uniform rules necessary to delimit the boundaries of the equally protected domain of all individuals in an autoregulated order. They equally apply to everybody, including the state and its agents. The only exception is the right of governments to raise uniform taxes under the law. Such is Hayek’s demanding interpretation of rule of law.

The current division of power between the executive and the legislative is ineffectual. The fact is that “our supposedly constitutional democracies” have acquired an arbitrary power not bound by laws. Legislative and executive bodies impose collective goals to individuals, while each should be free to pursue his own purposes limited only by negative laws limiting the means used. The government “ought to be conducted according to principles approved by the majority of the people,” but that does not mean “government by the unrestricted will of the majority.”

Legislating is the adoption or recognition of general laws that constrain everybody including the government. Governing is “the administration of the resources and machinery placed at the disposal of government.” The two functions are so different that they cannot be filled by the same elected assembly.

A distinct Legislative Assembly should represent “pre-existing opinions” of “what is right and wrong.” “A society of free men presupposes that all power is limited by the common beliefs which made them join,” writes Hayek in a contractarian-like manner that the reader may not expect under his pen. Legislation must aim at “helping unknown people for their equally unknown purposes.”

A separate Governmental Assembly would play the current role of parliaments or houses of Congress as we know them. Hayek believed that the tasks of governing “cannot be strictly tied to rules,” which is why its powers “ought always be limited in extent and scope, namely confined to the administration of a sharply circumscribed range of means entrusted to its care.” These limits are established by legislation (and, we must suppose, by court decisions based on the common law6).

Still a Lot of Government

The second broad argument of the book is that the public sector must not be restricted to certain functions but must be seen as covering anything that the government is asked to do, provided again that it remains subject to the same general laws that apply to ordinary individuals. The only special power of the government is to levy taxes approved by voters. Hayek seems to favor an equal proportional burden for all citizens, all taxes being considered. The taxpayer will know in advance his share in the cost of any new expenditure and will not be able to get something at somebody else’s expense.

“Hayek warns us that he is ‘far from advocating’ a minimal state.”

Hayek warns us that he is “far from advocating” a minimal state. Government activities can be categorized as (1) the enforcement of laws; (2) national security; and (3) the provision of “a number of services which for various reasons cannot be provided, or cannot be provided adequately, by the market.” That covers a wide domain of intervention.

Hayek believes that national security activities “cannot be strictly bound by general rules” and that “the executive must be given far-reaching discretionary powers.” Worryingly, Hayek includes in security “possibly internal insurrection” and such things as “natural disasters” and “epidemics.” During the recent epidemic, we have seen how elastic is that sort of mission. Hayek even suggests that a “national service,” that is, temporary conscription in peacetime, could be imposed. Doesn’t it seem that even a strictly conceived rule of law could be bent to serve Leviathan?

Like other classical liberals including Milton Friedman and James Buchanan, Hayek favored “a certain minimum income for everyone, or a sort of floor below which nobody need fall.” He sees such a measure as compensating a common risk in the Great Society, where ” the individual no longer has specific claims on the members of the particular small group into which he was born.”

This sort of program cannot realistically be offered to everyone on earth and implies a limit on immigration. Some “facts of the present world,” Hayek argues, constrain the liberal ideal of non-discrimination. He does not see this as a failure of liberal principles, but part of a more general exception: “like tolerance in particular, liberal principles can be consistently applied only to those who themselves obey liberal principles, and cannot always be extended to those who do not.” James Buchanan argued along the same lines, perhaps more forcefully.7 I might add that the problem is not simple.

Government services cover the provision, or at least the financing, of “collective goods” (public goods) and the control of externalities. Collective goods, Hayek tells us, must be “wanted by all or at least by a considerable majority” or perhaps “a large majority” or just a local majority, or “a section of the population sufficiently numerous to make its weight felt politically.” One may wonder if this majoritarian fuzziness, especially in the last characterization, would not reproduce the illiberal attributes of the current democracy.

Hayek tells us that the provision of public goods can be considered “a sort of exchange” in which some individuals finance the public goods that others want in exchange for having their preferred ones financed by the others. He recognizes that each individual must feel that the whole package is worth to him more than his total tax contributions. Another question: Don’t we risk falling again in the democratic horse-trading blamed before?

A strong requirement of Hayek’s theory is that a government may not claim a monopoly on any of its services, whether it be postal services or the issuance of money. Hayek was especially interested in the latter topic, arguing for the individual freedom to use any currency he prefers, including private moneys.8 This is the only way to prevent one’s own government from devaluating the money people rely on. A government may intervene in any other field, subject to general laws and to never claiming a monopoly.

Hayek’s theory allows for much potential regulation. He does not object to “certain requirements of safety and health” and “restrictions on the sale of certain dangerous goods (such as arms, explosives, poisons and drugs).” I suspect that Hayek did not seriously reflect on the old “right of the Englishman to keep arms for his own defence” 9 and the benefits, practical and symbolic, of the Second Amendment. Hayek also suggests that eminent domain is acceptable if defined by “general rules of law,” but he recognizes there a conflict with the “the basic principles of a libertarian order”: “[W]e still lack adequate theoretical principles for a satisfactory solution of some of the problems in this field.” All that seems to leave much leeway to Leviathan.

The Case of Competition and Antitrust

A whole chapter of The Political Order of a Free People is devoted to the nature of competition and to a critique of antitrust regulation. “Competition,” Hayek argues, “is a discovery procedure”—for finding how to produce goods and services at the lowest possible cost. If we could predict the outcome of competition, we would not need it. Competition does need to be “perfect,” that is, to produce a situation where no producer can affect the market price. An omniscient and perfectly benevolent dictator could not do better than ordinary market competition even if not perfect.

On a free market, the size of businesses, the degree of concentration of an industry, and even a monopoly do not matter. Forcing businesses to behave as if they were perfectly competitive is impossible because nobody has the information necessary to determine the lowest cost. Moreover, curbing the size of larger business organizations “cannot be achieved without conferring a discretionary and arbitrary power on some authority.” Unchallengeable monopolies are usually those established or protected by government. The solution is of course to deprive government of the power to claim or grant such privileges.

Hayek believes that all agreements in restraint of trade should simply be legally unenforceable. But he also thought that monopoly becomes harmful when it is allowed to price discriminate in order to maintain its market power. The only example he gives is a monopoly “offering specially favorable terms to customers only in that limited region in which a newcomer at first will be able to compete.” This sort of behavior would be prohibited, preferably through allowing harmed competitors to sue for multiple damages. But wouldn’t the fear of being sued prevent a monopoly from charging differential prices, which is often efficient?

A Model Constitution?

The penultimate chapter of the book suggests what a model constitution would look like. Perhaps to avoid the charge of constructivism, Hayek explained that he did not want his model to replace any “established constitutional tradition,” but thought it could be of use to newly democratic countries and to international organizations—even if “it is doubtful whether we can, or even whether we should, create a supra-national government beyond some pure service agencies.” Moreover, the government being an organization, not a spontaneous order, the government is “of necessity the product of intellectual design.” Is this so obvious? For Hayek, anyway, a constitution is chiefly concerned with the internal organization of the state.

The basic clause of the constitution would state that government coercion can be used “only in accordance with the recognized rules of just conduct designed to define and protect the individual domain of each” and “intended to be applied to an unknown number of future instances.” The constitution would also contain a definition of law along these lines. Hayek also favored a “special clause” to forbid a government monopoly on the issuance of money.

The rest of the constitution would deal with the internal structure of the state. As we already saw, Hayek believes that the problem of effectively limiting the powers of government can be solved “only by dividing the supreme power between two distinct democratically elected assemblies.” Adding a semi-permanent body for drawing the constitution and amending it when needed, we have “a three-tiered system of elected bodies.” Finally, an independent constitutional court would resolve jurisdictional disputes. Where does sovereignty resides? “[N]owhere,” Hayek answers, “unless it temporally resides in the hands of the constitutional-making or constitution-amending body.”

Hayek goes into much detail about how the two assemblies would be constituted and elected. We don’t need to get into this here, except to note that the Legislative Assembly would be composed of mature men and women between 45 and 60 years of age and elected for terms of 15 years. Legislation is a serious matter.

For more on these topics, see

Hayek’s constitution would incorporate vast emergency powers—even if he admits that emergencies have always been a good excuse to erode individual liberty! The constitution could be “temporarily suspended” by the Legislative Assembly when the long-run preservation of the free society is threatened.

Liberalism is a worthy ideal. “The only moral principle which has ever made the growth of an advanced civilization possible,” Hayek reminds us, “was the principle of individual freedom, which means that the individual is guided in his decisions by rules of just conduct and not by specific commands.” The question is whether Hayek’s proposed implementation of the rule of law is sufficient to protect the individuals against tyranny. But one cannot seriously ponder this question without reading him.


[1] F.A. Hayek, Law, Legislation, and Liberty: A New Statement of the Liberal Principles of Justice and Political Economy, edited by Jeremy Shearmur (Chicago: University of Chicago Press, 2022).

[2] The Political Order of a Free People (University of Chicago Press, 1979).

[3] Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups (Harvard University Press, 1965, 1971).

[4] Anthony de Jasay, The State (1985) (Liberty Fund, 1997). Printed copy available through the Liberty Fund book catalog. See also my review “An Unavoidable Theory of the State,” Library of Economics and Liberty, June 4, 2018.

[5] See James M. Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy (Liberty Fund, 1999; University of Michigan Press, 1962), and my review, “The State Is Us (Perhaps), But Beware of It!” Econlib, January 3, 2022; James M. Buchanan, The Limits of Liberty: Between Anarchy and Leviathan (University of Chicago Press, 1975; Liberty Fund, 2000), and my review, “Lessons and Challenges in The Limits of Liberty,” Library of Economics and Liberty, November 5, 2018; and Geoffrey Brennan and James Buchanan, The Reason of Rules: Constitutional Political Economy (Cambridge University Press, 1985; Liberty Fund, 2000), and my review, “Constitutional Democracy: Is Democracy Limited by Constitutional Rules?” Econlib, January 2, 2023.

[6] On the common law, see the first Volume 1 of the trilogy, that is, the first part of the Shearmur edition.

[7] James M. Buchanan, Why I, Too, Am Not a Conservative: The Normative Vision of Classical Liberalism (Edward Elgar Publishers, 2006).

[8] See also Hayek’s Denationalization of Money, 2nd Edition (Institute of Economic Affairs, 1978).

[9] Colin Greenwood, Firearms Control: A Study of Armed Crime and Firearms Control in England and Wales (Routledge & Kegan Paul, 1972). Joyce Malcolm, To Keep and Bear Arms: The Origins of an Anglo-American Right (Harvard University Press, 1994).

*Pierre Lemieux is an economist affiliated with the Department of Management Sciences of the Université du Québec en Outaouais. He blogs on EconLog. He lives in Maine. E-mail: PL@pierrelemieux.com.

For more articles by Pierre Lemieux, see the Archive.

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