Legal Innovation. Liberalism and Europe: Beyond the Clichés. Follow up post 10

If these bits of Hayek are going to be trotted out, again, it would be instructive to at least have some consideration of how compatible his very traditionalist views about law are with his views about economic and social innovation


Number 10 in a series of 13 posts, expanding on points I made in a post of 1st June, which was a reaction to the thoughtless use of bits of Hayek, without much consideration for context, in order to dismiss the European Union.

Part of that argument I am criticising is the appeal to Hayek’s understanding of law.  When Hayek discusses law in Constitution of Liberty, and Law, Legislation and Liberty, he advocates that law be understood as very continuous and traditional building on widely shared assumptions in a given society about what is right and what is wrong, refining them through the work of judges in applying laws to particular cases.  This element of Hayek, sometimes goes in the direction of ‘nomocracy’, which could be taken to mean simply rule of law, but what we are really talking about is the idea that judicial institutions should take over some significant part of what governments and legislative bodies do.  So Hayek’s vision of law does not welcome rapid innovation, or the value of conflicting views. 

WE might think there is some tension with the way that Hayek understands the economy, which is that there is constant change through the interaction of the different and variable preferences that individuals have.  Famously, Hayek argues that the price mechanism, which reflects those constant changes and variations, is the best way in which producers can understand what to produce and consumers can understand the scarcity of products, and information can circulate about supply and demand.  Criticisms of Hayek which suggest that he is only thinning of the price mechanism as the source of information in the economy are missing the point.  The price mechanism is just the most obvious way in which tacit knowledge, knowledge that is not formulated as fully conscious statements, that şs based on experience, learned behaviours, and shared patterns of action can be brought about and coordinated.  A Hayekian approach does not exclude other ways in which knowledge is created from the incomprehensibility of masses of changing preferences.  Law is one example, because rules gradually adopted by society about behaviour are made clear to everyone through the existence of laws, and the punishment of those who break laws.  

If law is backward looking and changes slowly, while prices change quickly and are concerned with anticipating the future, because they refer to expectations about demand and future use, we could ask how far the two views are compatible.  One part of what Hayek is saying is that institutional frameworks are necessary for there to be economic exchange.  In that sense, laws and other aspects of institutional rules and design, are not going to change as quickly as market prices.  Nevertheless, innovation and changing conditions in the economy has an effect on institutions and rules, which must have some feedback processes, or they will be become a drag on new patterns of coordination.  Some tension is necessary, but if we emphasise too strongly the traditionalist nomocratic aspects of Hayek’s view of law then we will not understand now law law should change.  The anachronistic look of intellectual property law, which  is currently leading to endless legal cases between companies, particularly tech countries, and is slowing down legal ways of making music, TV, cinema, books act available as files to download online is one example of hıw law may have difficulty keeping up with change, and therefore stifles innovation.

The case I am criticising tends to favour the European Union unfavourably with the United States and European nations with regard to traditionalist law.  However, law has changed a lot in the United States. The Constitution has remained in place almost intact since the 1780s, but its interpretation  has changed radically, is constantly debated in quite far reaching ways, and even ‘Originalists’ who think we should stick to the ‘Original’ meaning allow for a şlot of constructions which are not in the Constitution, such as abortion based on a way of thinking about privacy not present in the text of constitution.  The rapidly innovating natures of capitalist economies itself demands legal innovation, while still requiring some stability of framework.  The European nations had been through all manner of changes in law, constitution, borders, social realities and so on before the European Union was instituted.  The European Union itself, and other aspects of the European order, such as the Council of Europe’s Convention on Human Rights, are themselves developed from earlier European laws, and the institutional arrangements within which they have been embedded. The changes involved are no more radical than those of the American Revolution, despite bizarre attempts to make the European Union the equivalent of the Jacobin Terror in the French Revolution, by way of comparison with the violence of the American War of Independence (violence generally not mentioned in those kinds of discussion, weakening their basis even further). 

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