F. A. Hayek’s Critique Of Legislation

Cyril Holm

Uppsala University, Faculty of Law, Students

December 5, 2014

Doctoral theses at the Law Faculty, Uppsala University, Sweden


The dissertation concerns F. A. Hayek’s (1899–1992) critique of legislation. The purpose of the investigation is to clarify and assess that critique.

I argue that there is in Hayek’s work a critique of legislation that is distinct from his well-known critique of social planning. Further that the main claim of this critique is what I refer to as Hayek’s legislation tenet, namely that legislation that aims to achieve specific aggregate results in complex orders of society will decrease the welfare level.

The legislation tenet gains support; (i) from the welfare claim – according to which there is a positive correlation between the utilization of knowledge and the welfare level in society; (ii) from the dispersal of knowledge thesis – according to which the total knowledge of society is dispersed and not available to any one agency; and (iii) from the cultural evolution thesis – according to which evolutionary rules are more favorable to the utilization of knowledge in social cooperation than are legislative rules. More specifically, I argue that these form two lines of argument in support of the legislation tenet. One line of argument is based on the conjunction of the welfare claim and the dispersal of knowledge thesis. I argue that this line of argument is true. The other line of argument is based on the conjunction of the welfare claim and the cultural evolution thesis. I argue that this line of argument is false, mainly because the empirical work of political scientist Elinor Ostrom refutes it. Because the two lines of argument support the legislation tenet independently of each other, I argue that Hayek’s critique of legislation is true.

In this dissertation, I further develop a legislative policy tool as based on the welfare claim and Hayek’s conception of coercion. I also consider Hayek’s idea that rules and law are instrumental in forging rational individual action and rational social orders, and turn to review this idea in light of the work of experimental economist Vernon Smith and economic historian Avner Greif. I find that Smith and Greif support this idea of Hayek’s, and I conjecture that it contributes to our understanding of Adam Smith’s notion of the invisible hand: It is rules – not an invisible hand – that prompt subjects to align individual and aggregate rationality in social interaction.

Finally, I argue that Hayek’s critique is essentially utilitarian, as it is concerned with the negative welfare consequences of certain forms of legislation. And although it may appear that the dispersal of knowledge thesis will undermine the possibility of carrying out the utilitarian calculus, due to the lack of knowledge of the consequences of one’s actions – and therefore undermine the legislation tenet itself – I argue that the distinction between utilitarianism conceived as a method of deliberation and utilitarianism conceived as a criterion of correctness may be used to save Hayek’s critique from this objection.

F. A. Hayek’s Critique Of Legislation – Introduction

Hayek, the Welfare State, and Legislation

We have found the whole extent of our laws which has come down from the foundation of the city of Rome […] to be so confused that it extends to an inordinate length and is beyond the comprehension of any human nature. – Justinian

The aftermath of the latest crisis is a fitting time to once again discuss the proposition of rational legislation. And while this is perhaps a time inclined to action rather than reflection, a proper examination of argument is the road all academic work must travel. In this investigation, the work of F. A. Hayek (1899–1992), and in particular his critique of legislation, will serve as the starting-point for such an examination of argument.

That people by ‘accident’ sometimes contribute to benign states of affairs is often illustrated with the famous quote by the Scottish philosopher Adam Ferguson: “Nations stumble upon establishments, which are indeed the result of human action, but not the execution of any human design”. As is clear, however, recent events suggest that there are also less benign, unintended consequences of social cooperation. This seems especially true of finance, the climate and legislation.

As the financial crisis unraveled, it gave rise to a number of questions about how societies are best structured. One of these questions is how regulation may prevent future crises. Another question is to what extent regulation, or the lack of it, contributed to the crisis. Legislative issues, then, have been, and will surely continue to be, hotly debated. Some will argue that regulation is the way forward. Others will argue that society to a large degree is a self-regulating mechanism. Others yet again will argue that it is not the quantity, but the quality of regulation, that needs to be improved. All this raises questions about the efficacy and efficiency of the legislative tool.

Hayek’s well-known critique of the modern welfare state (and his critique of legislation) is part of a long tradition of socialist critique put forward by The Austrian School of Economics, of which Hayek was a member. It was initiated in the 1870’s by the school’s founder, Carl Menger.3 At that time, the differences between Marxism and The Austrian School of Economics concerned theoretical economics, mainly the theory of value. This line of critique continued until the advent of socialism as a political power after World War I, after which time the critique focused on the practical political realization of a socialist society in which the government owns the factors of production.4 With the Great Depression, many socialist movements abandoned the idea of government ownership of the means of production in favor of the idea of the welfare state; that is, roughly, the idea that instead of owning the means of production, the government should steer and tap into the proceeds of capitalist production with the aim of improving the lot of the working class. As we see, the belief that the powers of human reason can determine the means for the realization of desired societal ends – to the extent that institutions, and even society as a whole, are, and should be, the result of human design – is an idea that inspired the abandonment of the passive role of man in scientific socialism.5 As we shall see, this is an idea that Hayek is fiercely critical of, not least because he holds that steering society reduces the material proceeds available for its subjects.

Today, though, there is in the Western world a broad consensus on the basic goals of the welfare state. These goals correspond to a feeling most men share – that the harshness of life should not fall too heavily on some, and that it is the duty of the community to care for those less fortunate. As such, this duty is uncontroversial. The form this duty took in socialism, though, was much more inspiring and controversial. As one of socialism’s main adversaries, Ludwig von Mises, said in 1920:

The idea of socialism is at once grandiose and simple […] we may say, in fact, that it is one of the most ambitious creations of the human spirit […] so magnificent, so

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