The Road to Serfdom, Session 4: The Rule of Law

The road to freedom is unnoticed by many.

My teaching career has been filled with numerous memorable moments. The lasting impression a moment leaves is not determined by my words but by how it affects the audience. Without making an impression, my words fade into insignificance.

I remember a Saturday morning MBA class during the fall of 2002. I was discussing Hayek's ideas about the Rule of Law. After we considered Hayek's theories, I conveyed that the foundation for respecting the Rule of Law needs to be safeguarded in times of abundance. The metaphorical phrase "eating our seed corn" applies to more than just physical assets and money—it includes ideas too. During economic downturns, fear increases; demands for exceptions to rules put pressure on the Rule of Law.  

Fearful individuals demand what they believe they are entitled to, and certain politicians eagerly cater to those demands. Of course, it doesn’t take too long until the Faustian bargain—trading the cultivation of long-term principles for short-term expediency—backfires.

I gave the housing market as an example. I explained why I thought housing was overpriced and why we could expect to enter a manic phase of the market. This was in 2002; I was naïve and had no idea how overpriced the housing market was yet to become. I explained that because we were not storing the seed corn of respect for the Rule of Law, many would demand to be bailed out for their mistakes when the housing market crumbled. To be sure, I don’t remember if I anticipated that the banks would demand to be made whole for their costly errors. I was thinking of homeowners demanding government bailouts, claiming they’d been tricked into buying overpriced homes.

There was a bright and energetic woman in the class. My version of what was to come resonated with her; she was outraged. “I’m going to be bailing out those who bought more housing than they can afford,” she emphatically exclaimed.

On that day, both the student and I were innocent. Neither of us anticipated how dire things would become.

Hayek gives us a lens to see the way out. Yet, the road to freedom is unnoticed by many.