Equality before the Law and Its Role for Transition to Capitalism: Thoughts from Hayekian Epistemology and Social Theory

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Abstract

With respect to the work of Friedrich August von Hayek, this article points out the importance of the principle of equality of law for economic performance. The systematic place of equality before the law in Hayek's work is to be found in his differentiation between two fundamental principles of order in society. The theoretical relation between the order of a society and its economic performance is expressed empirically. Countries with a higher realization of the rule of law regularly have a higher income per capita. With respect to transitional countries, it therefore could be stated that the success of transition depends also on the grade of the realization of the principle of equality before the law and of the rule of law in those countries.

JEL Codes: P20, B52, D83

Keywords: Transitional economics, Institutions, Knowledge, Austrian economics

I. Introduction

1. Outline of the Problem

This essay examines the role of the traditional liberal value of equality before the law for the transformation of former socialistic economies from the perspective of Hayekian social theory with reference to the Hayekian epistemology.

First, we will look at the idea of equality before the law. In Section II an outline of the Hayekian epistemology and an explanation of the relation of his epistemology to his social theory will then make clear the role of knowledge in Hayekian thinking, and with such an understanding we can understand the role of order in society. Then we will be able to examine the role of order in society in general as well as the differences between kinds of order in society with respect to the principle of equality before the law in Section III. From the Hayekian and knowledge-oriented point of view, we can show that the specific kind of order that follows the principle of equality before the law possesses economically superior qualities against orders of inequality before the law. In Section IV we can then apply these findings to the transformation of economic systems. Section V tries to support the economic relevance of the theoretical considerations empirically, while the conclusion in Section VI offers a recommendation concerning the success of transitional countries.

2. The Basic Idea of Equality Before the Law

The idea of equality before the law is often associated with the late political philosophers of the enlightenment era. Like the ideas of democracy, science, critical rationalism and private property, so the ideas of equality before the law and of the rule of law embody an important part of the intellectual and cultural foundation of the west. As the historian PhiUippe Nemo explains, all these ideas are a product of the "morphogenesis of the west," which consisted of cultural inventions of the old Greeks, the humanism of the old Romans, and the eschatological revolutions of the Bible (Nemo, 2004). The Greeks have realized that man is not only dependent on the physical order of nature, the physis, but that man is also dependent on the order of human conventions, to the nomos (Hayek, 1973, p.20, 94ff).

Aristotle stated in the third part of his Politics (paragraph 16): And the rule of law is preferable to that of any individual. On the same principle, even if it be better for certain individuals to govern, they should be made only guardians and ministers for the law. ... He who bids the law rule, may be deemed to bid god and reason alone rule, but he who bids man rule adds an element of the beast; for desire is a wild beast, and passion perverts the minds of rulers, even when they are the best of men.

The ideas that arose in ancient Greek society were discussed and formulated more precisely later by the later English philosophers in the 18th century. Most notably, representatives of the Scottish moral philosophy, such as David Hume, John Locke, Adam Smith, or Adam Ferguson, referred again to basic liberal ideas like equality before the law. …