Classical liberalism center around individual liberty. Government interference in the economy threatens this liberty. That’s why governments should always be limited by the rule of law.

1. La Liberté guidant le peuple

The Constitution of Liberty (1960) embodies the values of individual freedom, limited government, and universal principles of law. Published in 1960, it contends that social progress depends on the free market rather than on socialist planning. This work remains relevant in this age where socialist ideas are gaining new popularity. 

Arguments for classical liberalism.

Social planning, was not so long ago, billed by politicians, economists, and philosophers as a surefire way to solve humanity’s problems. This idea peaked with communist regimes. 

Eventually, of course, history proved that centrally planned economies rarely turn out well. But even today, many Western democracies adopt socialist policies in areas such as health care, housing, and education.

But Friedrich Hayek disagrees. He believed this philosophy presented an existential threat to the very idea of a free society. This essay reviews his book.

Individual liberty is the cornerstone of a free society.

Freedom has always been a guiding principle of Western civilization. It’s a philosophy that was outlined by the ancient Greeks and refined centuries later by enlightenment philosophers such as Rousseau, Locke, and Hume. 

The value of freedom still guides our thinking today. But are we doing enough to protect it? No. The Western politics are moving away from this fundamental value. 

What does the idea of “freedom” even mean? It refers to individual liberty. Free people are those who make their own decisions without any external coercion. 

Individual liberty, then, is more of a “freedom from” than a “freedom to.” In other words, nobody can tell us which of life’s many paths to choose. But this doesn’t mean that we can follow any path we like. 

Our choices will always remain limited. For example, our physical, intellectual, or economic abilities may prevent us from pursuing certain careers. 

But that’s different from coercion – outside pressure that happens when other people control our minds, bodies, or even environments in order to make us act in a certain way. Coercion robs us of alternatives and devalues us as thinking individuals. 

There will probably never be a world without coercion. Our social, economic, and political relations to other people are too complex for that. Just think about how we have to submit to others’ demands or expectations if we depend on their services. 

This means that liberty is, ultimately, just an ideal. But we should strive for it and work to achieve the highest degree of liberty possible.

In a free society, only the government has the explicit power of coercion. And it only uses that power to shield us from people who are encroaching on our freedom – for instance, by punishing lawbreakers. 

Liberty, equality, and democracy are connected – but they’re not the same.

Like all good things in life, liberty comes at a cost. And that cost is responsibility. If we’re free to choose, we should be held accountable for our choices. This is what responsibility is all about. It reminds people that their actions have consequences. 

But there’s a flip side to the idea of responsibility. It makes some of us afraid of liberty. That’s why many people choose a nine-to-five job over the risk of building their own business – they give up some of their freedom in exchange for greater security. Societies as a whole fall into this trap, too. They choose policies that place social and economic security over individual liberty.

These policies are, essentially, socialist – and, in the 1950s, the author felt that they were undermining the very idea of liberty. 

His answer was to redefine classical liberalism, a political philosophy that sought to maximize freedom. To better understand classical liberalism, we need to look at how it fits in with other core values of Western society, such as equality and democracy. 

Let’s start with equality. A key concept of liberalism is freedom before the law – the idea that all people should be treated the same despite their differences. But in a free society, some people will always fare better than others. For instance, people’s income is determined by the economic value they create – and this value isn’t necessarily connected to merit or effort. For instance, a savvy inventor isn’t necessarily smarter or harder-working than a college professor. But if that invention proves extremely useful, their earnings may be many times greater. 

You can level out this economic inequality – that’s what socialism does. But, in classical liberalism, this is an unacceptable restriction of freedom. 

So liberalism is tied to the concept of legal equality, but not to the concept of economic equality. And what about democracy? 

Well, the link here is also quite tenuous. Democracy is merely a process; it describes how we choose our governments. Democratically elected governments can – and sometimes do – become totalitarian. What’s more, a totalitarian regime can easily espouse liberal values. And even in democratic regimes, people routinely vote to give up parts of their freedom. 

Despite these limitations, democracy is probably the political system that’s most conducive to individual liberty. But for a democracy to function, it must be guided by certain values – and these need to be shared by the society as a whole. 

Social progress depends on individual liberty.

Why should societies as a whole care about the liberties of individuals?

There are two schools of thought. The French tradition goes back to Enlightenment thinkers like Jean-Jacques Rousseau. He argued that it should be possible to construct a free society from scratch; we could use reason to design perfect institutions. His idea of liberty operates at the state level – a strong government can, and should, make wise decisions. 

The British tradition is different. British thinkers in the sixteenth and seventeenth centuries, like John Locke and David Hume, thought that societies evolved organically through trial and error. The British idea of liberty operates on an individual level – it gives people the freedom to figure things out. 

Which approach is best? Well, a look back at history suggests that the British ideal of individual liberty is probably more conducive to progress.

Societies are built on a foundation of shared knowledge. But the accumulation of this knowledge doesn’t necessarily happen consciously; it’s not like we regularly write down everything we know about our societies. And explicit ideas, which can be recorded, are only part of the picture. Our values, habits, and customs also matter, but writing them down is all but impossible. 

You can’t plan the advancement of this knowledge. It’s less like factory production, and more like evolution: good ideas and useful habits survive, while ineffective ones get weeded out.

This evolutionary process can’t happen without individual freedom. If we tried to consciously “design” it – as the French thinkers suggested – we could only ever replicate what we already know; we’d never get anywhere new. We need to leave some room for the unpredictable, the irrational, the accidental. And that means promoting individual freedoms. 

Of course, there’s a cost to this. Only a few people will end up using their freedom to benefit society; many will waste it. But such is the price of freedom – and, therefore, progress.

The world’s population is rapidly increasing. Without progress, we will never meet the demands of the future. Progress is all about evolution, and evolution needs to rely on individual liberty. 

A free society should be guided by the rule of law.

In a free society, only the government has the right to coerce people. It uses this power of coercion to make the society work – forcing people to pay taxes, for instance, or making sure that criminals get punished. 

This coercion operates through laws. But what laws should the government enforce? As we already know, societies evolve over time. Laws, too, are never set in stone. We shouldn’t expect to design perfect laws on the first try. Instead, we should agree on some general principles that guide the people who write new legislation – and then let the laws evolve over time, through trial and error. 

For instance, laws themselves should not explicitly tell people how to behave. Instead, they should set the conditions under which people can participate in society as well as outline the consequences of transgressions. 

In their best form, laws are general, abstract, and designed in the negative. They don’t tell people what to do; they tell them what not to do. 

It’s crucial that laws apply to everyone equally. And laws should have greater power than the individuals who make them – this includes the lawmakers themselves. 

The idea of a “government of laws and not by men” goes back to Aristotle. The British Parliament refined this concept in the late seventeenth century. Members of Parliament came up with the idea of a constitution that guides the creation of new laws. They also suggested separating the powers of lawmakers and law enforcers. 

But the British made one critical mistake: their constitution didn’t set any limits on the power of the legislative branch. As a result, Parliament felt it could pass any law it wanted – especially in the new American colonies. 

It was this attitude that American revolutionaries rebelled against. When they won their independence, they decided to “fix” the mistakes of the British system – and came up with their own, American constitution. 

It protects the liberty of each citizen by laying down some ground rules, like the provision for a representative government limited by law. This idea is part of an overarching framework of long-term principles. It creates a benchmark against which you can measure all future legislation. This, in fact, is the job of the US Supreme Court.

In the nineteenth century, this idea saw further development in Prussia. Under its Rechtstaat, independent courts could adjudicate between private citizens and government. 

Britain, America, and Prussia laid the groundwork for the modern political system – one that limits governmental power while protecting individual freedom.

The socialist doctrine threatens individual liberty.

European countries like France, Britain, and Germany were built on a foundation of liberty and protected by the rule of law. But this approach turned out to be short-lived. 

In eighteenth-century France, revolutionaries first demanded equality before the law. But this quickly turned into a desire for equality in all aspects of life. And immediately after the revolution, France’s new ruler, Napoleon, turned himself into a dictator. 

In Britain, too, Parliament became so intoxicated with its power that its decisions provoked the American Revolution. 

The Prussian Rechtstaat didn’t survive, either; its ideal was washed away by a tide of socialist theories. These ideas came to have a massive impact on the shape of history, and we continue to experience their effects today. 

But what are these ideas all about? And, ultimately, what is socialism? Well, socialism seeks to shape social, economic, and political relations according to an ideal of social justice. In a socialist society, for instance, the government proactively attempts to correct economic inequality. It may decide to distribute things like housing, health care, and employment, for example. 

Its agents can also try to set the prices of various products, so that everyone can get what he or she deserves. Sounds good in theory, doesn’t it?

But there’s a catch: Who gets to decide what each individual deserves? And how do you even make this decision? Rulings on something like this are inherently arbitrary – and that means discriminatory. On top of that, you need to somehow enforce these decisions. 

Imagine, for example, that the government needs to roll out a new technology. Who gets to use it first? What criteria do bureaucrats use to answer this question? Is it based on people’s needs? But, if so, how do you actively assess those needs? There are no clear answers. Any decision a government makes will always be arbitrary. 

Socialism may strive for a noble cause. But its policies require a degree of discrimination and coercion that’s simply incompatible with liberty. Still, socialism came to dominate countries across Europe in the twentieth century. The Soviet Union was, perhaps, the best-known attempt to create a functioning socialist economy. 

The author wrote in the 1960s, long before the collapse of the Soviet Union, but he was convinced the experiment was bound to fail. But even after its collapse, Western politicians continued to nurse socialist dreams. 

One example of a modern policy inspired by socialist ideas is progressive taxation. In the next blink, we’ll find out what that is – and why it doesn’t work.

The government should steer clear of progressive taxation.

Even a free society can’t function without some governmental intervention. You can’t have basic services without some taxation, and it’s the government’s job to create a stable monetary system. A free market, with no government involvement, would also struggle to provide things like roads and sanitation.

But many Western states today, inspired by socialist ideas, go a whole lot further than that – and they do so to the detriment of liberty. Let’s look at one prominent example of this: progressive taxation. 

In simple terms, progressive taxation means that the richer you are, the more taxes you pay. In Prussia in 1891, for instance, taxes ranged from 0.67 to 4 percent. In the US in the 1930s, they could go all the way up to 91 percent. 

Progressive taxation rests on the idea that everyone should sacrifice equally. A small tax rate hurts a poor person more than a higher tax rate hurts a wealthy person – or so the logic goes. But there’s a problem. This idea, like many socialist causes, rests on a rather arbitrary evaluation of “sacrifice.”

And this isn’t the only reason progressive taxation is bad. It also ruins the concept of “equal pay for equal work.” 

Imagine two barbers. One is lazy and only does the bare minimum. Another toils for many more hours and dedicates herself to her work. But if you impose progressive taxation, the industrious barber will end up no richer than her lazy colleague. Why? Because all her extra income has done is move her into a higher tax bracket. And if that’s the case, well, then why work hard in the first place? 

Finally, progressive taxation also tends to ramp up inflation. The government is always going to have the temptation to print money – that’s the easiest way to lighten the financial burden of welfare services. But this approach spells disaster. The devaluation of money erodes people’s savings – the money they’ve put away for old age, for example – and this, in turn, increases the demand for welfare. Before too long, you have a vicious circle.

The government can offer a certain level of social security; ultimately, though, people should provide for themselves.

Arguing against the welfare state doesn’t mean arguing against welfare as such. A wealthy society should still provide for its least fortunate citizens. And there’s also a good argument for the idea that people should be required to pay into insurance for sickness and old age. 

German politicians pioneered the concept of “social insurance” in the 1880s. But by the time it reached the US in 1935, the social security scheme had become completely detached from the idea of “insurance.” 

It has morphed into a system that guarantees a high level of social security even for people who’ve made no provision for themselves whatsoever. Their benefits are, essentially, funded by each and every worker. In other words, income is redistributed from those who contribute to society to those who don’t. 

The basic flaw of socialist-style welfare policies is that they guarantee people a level of security and comfort regardless of effort.

What’s more, once a government has rolled out these welfare measures, it’s not long before it begins to monopolize all health and retirement services. But this would be disastrous, for two reasons.

We’re already familiar with one of them: the arbitrary nature of decision-making. Who will decide what sort of medical care people “deserve,” and how will they make that decision? 

The other disadvantage is that governments are, invariably, too slow. If bureaucrats are the ones making all the decisions, technological progress will eventually grind to a halt. In a free market, it’s competition that breeds innovation. 

So while health insurance and maybe even retirement support should be compulsory, the government should not be the one providing them. Instead, there should be free-market competition, in which consumers make their own decisions about which product suits them best.

Take Germany in the 1960s. At that time, around 20 percent of the total national income was going into the vast, bureaucratic system of the social security program. Don’t you think most people would have preferred to have the extra 20 percent of their income to themselves, to save up as they saw fit? 

Let’s recap. In a wealthy society, the government can – and perhaps even should – make provisions for social security. But it shouldn’t try to guarantee a uniform standard of life or equal access to specific services. This just opens the floodgates for arbitrary discrimination and unfounded coercion. 

Government interference should be kept to a minimum.

The modern welfare state has a tendency to meddle in lots of things that would be best regulated by free markets. 

We already know how this harms health care and retirement support – but governments unnecessarily intervene in plenty of other areas, too. These include housing, education, and union rights. 

Let’s start with the unions. In 1960s America, labor unions were very powerful. Some of them actually forced workers into membership; activists intimidated colleagues at picket lines or threatened to keep nonunionized staff out of employment. 

This is, clearly, coercion – but the government tolerated it and even created pro-union legislation. In the long term, this has actually harmed workers. The labor unions’ bid for higher salaries just depressed wages for nonmembers. This led to income inequality and, ultimately, higher inflation. 

Another area where government interference brings about unwelcome results is housing. 

Let’s look at one of the tools wielded by officials: rent control. It’s supposed to help people who struggle to pay inflated housing prices. But its actual effects are far from what’s intended. As rents decline, landlords lose interest in maintaining their buildings. Properties, or even entire neighborhoods, become devalued. 

Extended city planning has similar effects. As soon as an authority gets to decide who lives where and at what cost, competition and innovation grind to a halt. Governments will always be ineffective at regulating housing prices; free markets can do a much better job. 

Last, let’s look at education. There’s no doubt that all of society benefits if its children are well educated. Education can instill common values that hold us all together. But because education is so powerful, it’s unwise to place it solely in the hands of the government. Here, too, competition between private and public institutions can create a favorable atmosphere in which freedom will flourish. 

Everyone’s life will always start off differently. Talents, environment, and wealth will inevitably give some people an advantage. The government’s job should be to make sure everyone has access to some form of education – not to guarantee an equal start for everyone. Because, as we’ve already learned, trying to correct these inequalities only leads to policy chaos, which ends up harming individual liberty.