Nobel Laureate Friedrich Hayek profoundly influenced world history, a rare achievement for anyone, let alone an economist. As Thomas Sowell recognized, “Hayek was the central pioneering figure in changing the course of thought in the 20th century.” Hayek’s influence came from his brilliant and courageous critique of collectivism and socialist economies. His reasoning about the inevitable tyranny and impoverishment that comes from socialist programs has been vindicated repeatedly over the past half century.
In a wide array of books ranging from the academic Constitution of Liberty to the more generally accessible The Road to Serfdom and The Fatal Conceit, Hayek analyzed the institutions, incentives and decision-making of socialist and free societies. While his vast writings covered many facets of economics and political philosophy, he was always mindful of the vital role the rule of law plays in making possible and maintaining freedom. He understood that humans are not only imperfect, but that they respond to incentives, meaning that if the incentives are wrong, even good people will do bad things. A constitution and the rule of law must provide a government structure that gets the incentives right for both the public and private sectors.
This is where Hayek’s insights most directly play out in the work of the Institute for Justice. To underscore the urgency of our mission in the speech launching IJ 15 years ago, I quoted Hayek, “We live in such a period of transformation of the law by inner forces . . .that, if the principles which at present guide that process are allowed to work themselves out to their logical consequences, law as we know it as the chief protection of the freedom of the individual is bound to disappear.” Recognizing this, we strive to restore constitutional limits on government authority. Such limits would solidify the institutional arrangements between the three branches of the federal government, the states and the individual that not only restrict the power of government, but also provide incentives for productive competition and peaceful interaction between individuals. Only under such an arrangement is it possible for individuals to control their own destinies as free and responsible members of society.
It’s all too easy for the rule of law to be diminished as Hayek forewarned. Decades ago, the U.S. Supreme Court relegated economic liberty to second-class status under the Constitution. Today in our litigation to secure constitutional protection for economic liberty, we must overcome a court-created legal standard called the “rational basis test.” Under this test, a law regulating economic authority will be upheld if it serves “any conceivable purpose”—even if no such purpose was considered by the legislature when the law was enacted. This leads to government-protected cartels and outrageously burdensome conditions imposed on perfectly legitimate occupations. Hayek foresaw the inevitability of such excess when he wrote, “The chief danger today is that, once an aim of government is accepted as legitimate, it is then assumed that even means contrary to the principles of freedom may be legitimately employed.”
Hayek’s insights on incentives and the law are painfully evident in the practice of eminent domain abuse. When the legal rules allow a private company to take someone else’s private property, soon otherwise decent people in respectable businesses will be found making the case for such takings. And a company will quickly rationalize that it actually has a fiduciary obligation to its shareholders to take advantage of eminent domain, because if it doesn’t, a competitor will. Similarly, as Hayek noted, “The dangers of [city planning] come largely from the desire of many planners [and today one would add many developers] to be released from the necessity of counting all the costs of their schemes.” Without a rule of law respecting private property, such incentives will lead to an ever-increasing number of eminent domain abuses. (See IJ’s recently released report, Opening the Floodgates: Eminent Domain Abuse in the Post-Kelo World, www.CastleCoalition.org/kelo.)
Many liberals today argue that courts should respect democracy and not second-guess legislatures, particularly in property and economic affairs. Likewise, many conservatives pay homage to judicial restraint through which courts defer to legislatures and leave in place even wrongly decided precedents. The Institute for Justice seeks judicial engagement through which courts perform the institutional role that the Founding Fathers envisioned, with courts protecting basic individual rights from legislative and executive abuse. In doing so, we align with Hayek’s admonition that, “By giving government unlimited powers, the most arbitrary rule can be made legal and in this way a democracy may set up the most complete despotism imaginable.”
Friedrich Hayek lived to see many of his predictions come true. Yet he knew that the struggle for liberty requires constant effort and resiliency in the face of adversity. Hayek said, “If in the first attempt to create a world of free men we have failed, we must try again.” At IJ we will remain resilient advocates for liberty, taking heart from Hayek’s courage and wisdom. Chip Mellor is IJ’s president and general counsel.