This paper discusses the nature of law as the fifth factor of production, or more fundamentally as the institutional framework within which the production process takes place. Unlike land, labor, capital and entrepreneurship, whose coordination is an outcome of institutional arrangements, the law itself is the institutional embodiment of the voluntary exchange processes evolving from the decisions, but not the design, of judges that form the reliable expectations about who 'plans' the coordination of the other four factors of production. The legal theory of Hayek and Leoni lends itself to this dual nature of spontaneous order analysis and also the basis of the burgeoning literature on analytical anarchism. Although Hayek and Leoni were not legal centralists, their conception of law as part of a larger spontaneous order was open-ended to competition and experimentation on the constitutional level of rules just as that experienced on the post-constitutional level of the market itself.In countries in which growth has taken place, and thus have become "rich", the law provides entrepreneurs reliable expectations of being able to truck, barter, and exchange their ownership of the other factors of production - land, labour and capital - without fear of being expropriated by other individuals or the state. Hayek and Leoni stressed such a view of the law and saw it as the cornerstone of liberty. From the works of Hayek and Leoni flow three fundamental ideas about political economy: (i) The recognition of rules as a product of human action, but not human design; (ii) The extension of exchange and the logic of choice not only to the analysis of the market order, but of the rules as well; and (iii) The analysis of the law as the institutional framework within which the production process takes place, shaped by entrepreneurship and in turn shaping entrepreneurship as well.
Thursday, 6 March 2014
Hayek, Leoni, and law as the fifth factor of production
There is a new interesting looking paper out on law as a "factor of production". It is to appear in a forthcoming issue of the Atlantic Economic Journal. The paper is Hayek, Leoni, and Law as the Fifth Factor of Production by Peter J. Boettke and Rosolino Antonio Candela. The abstract reads,