One Need Not Choose Between the Rule of Law and Constitutional Federalism

I am delighted to have had the opportunity to read Professor Grosby’s Liberty Forum essay and to be invited to comment on it. I am especially happy that Professor Grosby has focused on the rule of law as a legal concept, as opposed to arguing that it’s a political or philosophical concept. For unlike much philosophical theorizing about the rule of law, which tends to get bogged down in interminable semantic nitpicking or debating whether Nazi Germany really had the rule of law, Professor Grosby is seeking to distill the essence of the rule of law as a legal and constitutional concept.

More provocatively, he seeks to identify what he sees as a potential tension between the rule of law and constitutional federalism: namely, that the premises of the rule of law (equality, certainty, and generality) are inherently at odds with the premises of federalism and private ordering. The important question he poses is whether people who reside in different jurisdictions can live under different sets of legal rules. He notes that in a complex modern society, people and the legal regimes under which they live will frequently come into contact and conflict, thereby potentially contradicting the bedrock principles of the rule of law. It may be, he suggests, that one can have the rule of law or constitutional federalism, but not both.

For an enthusiast of both the rule of law and competitive federalism such as myself, this conclusion, if accurate, is quite discomfiting. Fortunately, despite the force of Grosby’s argument, one need not choose between the rule of law and constitutional federalism. Indeed, one need only slightly reframe one’s understanding of the rule of law and it follows that competitive federalism does not undermine but in fact reinforces the rule of law.

The argument of the essay is well-expressed. Embracing the canonical analyses of the rule of law by F.A. Hayek and Lon Fuller, Grosby identifies the rule of law by its formal characteristics: equality, generality, and certainty. Even these formal characteristics of the rule of law, he notes, are sufficient to condemn many of the trends of modern government, most notably the rise of the administrative state and particularly the tendency to govern more and more by executive orders instead of legislation or formal lawmaking. “Consider what had been only a possibility but is now our reality,” he writes. “The executive orders of one President are rescinded by the next President, thereby making a mockery of the certainty of the law.”

Yet anyone with even a passing acquaintance with the eight years of the Obama administration will recognize that even this characterization is too charitable in that it fails to capture the full absurdity of governance by blog post, waiver, and “pen and phone” lawmaking. It appears that the Internal Revenue Service targeted certain non-profit groups for political purposes—it is not immediately clear whether the fact that the President was aware of this activity makes it more or less appalling from the perspective of the rule of law. Taxpayer monies purportedly intended to American auto companies instead were diverted into the pockets of the United Auto Workers—and even to UAW workers in an unrelated company.[1] Bank bailout money appears to have been doled out not according to objective criteria but according to the political clout of the recipient banks, as judged by their campaign expenditures or boards’ connections to the Federal Reserve or Treasury Department.

Grosby is on particularly sound ground in calling attention to the formalist version of the rule of law as especially important in mitigating rent-seeking behavior. This is a point that I have discussed at length elsewhere)[2], but let me summarize with two points.

First, rent-seeking and cronyism depend on the necessary condition of violating the generality norm of the rule of law. Special interests can only open the special interest spigot if politicians are permitted to draw arbitrary distinctions among otherwise similarly situated individuals.

Second, rent-seeking is particularly pernicious where law violates the norm of certainty: when law is in a state of constant flux, well-organized interest groups can exploit this turmoil to try to rearrange property rights and strike political bargains. Ordinary citizens, by contrast, will find it impossible to monitor the government closely enough to prevent interest groups from using each iteration of legal change to gain an advantage.

As written in Federalist 62 regarding the inconstancy of law:

Another effect of public instability is the unreasonable advantage it gives to the sagacious, the enterprising, and the moneyed few over the industrious and uniformed mass of the people. Every new regulation concerning commerce or revenue, or in any way affecting the value of the different species of property, presents a new harvest to those who watch the change, and can trace its consequences; a harvest, reared not by themselves, but by the toils and cares of the great body of their fellow-citizens. This is a state of things in which it may be said with some truth that laws are made for the few, not for the many.

To be sure, there is a sense in which Hayek’s comments can be understood to focus  primarily on the formalistic requirements of the rule of law and indeed Hayek himself often seemed to default to this formalistic sense of the term when he would summarily refer to the essential elements of the rule of law. But closer examination of Hayek’s words and the essential attributes of the rule of law show this reading to be incomplete.

Read in its full context, it is evident that Hayek is not extolling formalism as an end itself. Instead, Hayek identifies the rule of law’s compound nature: It provides rules that limit the government and constrain it to regularized and lawful use of its powers, but it also enables the individual, as he says in The Road to Serfdom (1944), “to plan one’s individual affairs on the basis of this knowledge.” Thus, the value of the rule of law is not merely to submit government to the constraints of publicly announced and prospective rules, but to do so in order to enable individuals to plan their individual affairs on the basis of that knowledge.

Hayek’s emphasis on the rule of law’s advantages for the individual suggests that at a minimum there must be some core purpose or substance to the rule of law—those rules are compatible with the rule of law that promote interpersonal coordination. Rules that fail to promote coordination and the dovetailing of individual plans, on the other hand, are inconsistent with the rule of law, regardless of whether they hold the formal characteristics of the rule of law. The obligation of the government to abide by rules prospectively announced and regularly applied is a necessary but not sufficient condition for the rule of law to prevail in society.

Once it is recognized that the purpose of the rule of law is to provide a framework for the coordination of individual plans, the value of the rule of law can be seen: it allows a person to predict how other people are likely to behave. As Hayek says (again in The Road to Serfdom), rules can “almost be described as a kind of instrument of production, helping people to predict the behavior of those with whom they must collaborate, rather than as efforts toward the satisfaction of particular needs.” According to Hayek, therefore, the purpose of legal rules within a rule of law framework is to create purpose-independent rules that will enable people to pursue their diverse individual ends in life, rather than being subjected to being instruments toward the facilitation of some social planner’s overall plan.

Hayek compares a legal and social system predicated on the rule of law to traffic laws—a set of purpose-independent rules that enable drivers to predict how both the state and other drivers are likely to behave and thus to be able to reach their destination without mishap. He describes it as the difference between providing signposts so that travelers know how to get to where they want to go and “commanding people which road to take.” In the former situation, individuals are left free to pursue their own ends and legal rules serve as the inputs that enable them to maximize the likelihood that their individual plans will dovetail with those of others. In the latter, the individual is the input into the plans of the central authority, who instructs the individual as to how to fit into those plans.

Yet involuntarily subjecting one’s will to the authority of another is inconsistent with enabling that individual to maximize the attainment of their individual goals, thus rules that give one individual arbitrary authority over another cannot be consistent with the rule of law. Fundamentally, law can only be a means for individuals to accomplish their individual goals, not a means for society or the state to accomplish their goals, because those abstract entities can have no ends of their own independent of the individuals who comprise them.[3]

As a result, rather than speaking of the rule of law as some conceptual framework, it might be more accurate to speak of something resembling a “rule-of-law society,” as suggested by Michael Oakeshott.[4] For Oakeshott, the value of the rule of law is not in constraining arbitrary government or some other normative purpose. Instead it is the defining characteristic of a certain type of social order: a liberal order designed to promote private ordering and the opportunity of individuals to pursue their own disparate purposes. For Oakeshott, the rule of law is useful only in an order predicated on the fundamental assumption that the purpose of law is to make it possible for individuals to pursue their disparate ends and to engage in interpersonal coordination, that is, a “liberal” order that takes individual autonomy and integrity as its founding principle. The presence of law that is prospectively announced and equally applied serves to enable people to pursue their disparate ends with minimal arbitrary interference from others.

As Oakeshott writes:

These rules certainly do not themselves prescribe purposes to be pursued or actions to be performed. They do not concern the motives of conduct, and this mode of association is in terms of the recognition of obligations, not their uninterrupted observance; and all his may be said to denote a certain kind of “freedom” which excludes only the freedom to choose one’s obligations. But this “freedom” does not follow as a consequence of this mode of association; it is inherent in its character.[5] (Emphasis added.)

By contrast, in a non-liberal order organized toward the attainment of some end state, there would be little purpose to the rule of law. Instead, the central planner—such as a military general or corporate CEO—should have the authority to arbitrarily allocate individual efforts to those purposes most needed to advance the goals of the social unit, regardless of the degree of disruption that may cause to a particular individual’s plans. In a centrally directed order, once the individual submits to direction by another’s will, the individual’s desired purposes are essentially no longer relevant (within the scope of the relationship) and it is meaningless to suggest that the rule of law should be interposed to protect the individual army private from having his preferred objectives disrupted by the orders of his sergeant.

Conceiving of the rule of law as a coordination device for private individuals rather than a device for formal restraint on the government has profound implications for Grosby’s final puzzle—whether the rule of law is compatible with associational freedom and federalism. Moreover, recognizing this important distinction helps to clarify and address some of Grosby’s criticisms of Hayek.

Grosby challenges Hayek, claiming that if associational freedom is permitted (an essential element of a free society), “then those who are members of different associations will conduct their affairs under a different set of laws than will those who are not members of that association. What then of the generality and equality of the law? Hayek ignored this problem.”

The challenge to Hayek is not a trivial one. But I believe that it rests on a subtle misinterpretation of the Austrian thinker. In particular, although Hayek did indeed extol the rule of law in The Road to Serfdom and The Constitution of Liberty (1960), by the time he wrote the first volume of Law, Legislation, and Liberty in 1973—tellingly subtitled “Rules and Order” and not “Law and Order,” even though most of the book is about legal rule-making—he came to argue that what mattered was the governance of conduct according to rules, of which law was just one type of rule. Law is just one of multiple different sources of rules, including tradition, custom, manners, and other norms.

Indeed, Hayek suggests that for law to be effective in achieving its central purpose—serving as an input to enable individuals to accurately predict how others are likely to act—judge-made law should by and large reflect prevailing norms and expectations that arise from pre-existing private ordering. To be sure, law can provide an additional coordinating device, but judge-made law should seek to go with the grain of spontaneous order, not against it. Law can formalize, clarify, and generalize these existing norms and expectations, but law does its best work when it reflects those expectations.

So it is not the case that Hayek failed to address this point. I believe that the key to understand his later, more developed view of the rule of law is that the rules made by associations (whether formal organizations or simply the “association” created when two parties enter into a contract) are merged into law. Yet it is those underlying customs, norms, and expectations that provide much of the content of that law and which the law generally should seek to reflect, in that in doing so law will accomplish its intended purpose of furthering coordination.

The same argument follows for federalism as with associational freedom. To the extent that federalism enables parties to select the law that best suits their preferences and thereby permits them to accomplish their goals most effectively and to coordinate their various plans, federalism is consistent with the goals of the rule-of-law society, even if it appears to be inconsistent with the formal attributes of the rule of law.

I also take issue with Grosby’s characterization of the lessons of Harold Berman’s magisterial work of legal history, Law and Revolution. Grosby interprets Berman’s work to say that equality before the law became ascendant through “the sweeping away of multiple systems of law” and that the modern sense of the rule of law “rests upon the existence of a centralized state that has over time increasingly succeeded in establishing the generality of the law and equality before the law throughout its territorial jurisdiction, but at the expense of the special laws of different associations.”

On the contrary, I take Berman to be saying that the existence of the polycentric legal order of medieval Europe was in fact the necessary condition for the development of the rule of law.[6] Berman’s task was to address the question of why concepts such as the rule of law and individually liberty emerged as uniquely Western ideas during the Middle Ages, while such ideas were absent in the rest of the world.

Berman’s answer was precisely that the explanation rests in the polycentric legal order of the period. In particular, he identified two concepts that tie the peculiar polycentric legal order to the emergence of the rule of law and individual liberty in medieval Europe.

The first was the intellectual revolution of Christianity that developed the concept of natural law. The doctrine of natural law held that all men were equal in God’s eyes—including, most important, the king. Under this view, the king derived his power from God, but because his power was derived from God it was also subservient to and constrained by God’s law. The idea that the sovereign derives his power from and is constrained by God provides the foundation for the later emergence of constitutionalism as an essential attribute of the rule of law.

The second was the institutional revolution occasioned by the rise of the powerful transnational institution of the Church that could not only articulate the natural law but effectively enforce it against kings. This prototype of separation of powers and federalism provided the vehicle by which ordinary citizens could gain their freedom and autonomy. As Berman noted: “A serf might run to the town court for protection against his master. A vassal might run to the king’s court for protection against his lord. A cleric might run to the ecclesiastical court for protection against the king.” Indeed, he suggested  that it was the universalist nature of ecclesiastical law as applied by the Church that was a great source of generality and equality, in contrast to the parochial nature of state-based law.

Freedom and the rule of law did not emerge because the people took to the barricades; they emerged in the interstices between the conflicts between these powerful institutional actors—the church versus the state, the barons versus the king. Each of these institutions competed for the loyalty of subjects and had the institutional might to not only articulate their principles (such as natural law for the Church or lex mercatoria for merchants) but also possessed the countervailing strength and authority to check one another. In this sense, Berman’s story of the linkage between legal pluralism and the rule of law dovetails with Nathan Rosenberg and L.E. Birdzell’s identification of political pluralism as providing an important catalyst for the emergence of economic and political liberty.[7]

By contrast, in areas of the world that did effectively have centralized states with sole sources of authority, freedom and the rule of law remained nonexistent. This historical experience suggests that, far from being inconsistent with the rule of law, the polycentric legal order of the Middle Ages was the essential condition for freedom and the rule of law, just as the rule of law is inherently intertwined with federalism today, not inconsistent with it.

[1] See my Law and Liberty post for January 13, 2014, “The Corporatist Legacy of the Auto Bailouts.”

[2] See Todd J. Zywicki, “Rent-Seeking, Crony Capitalism, and the Crony Constitution,” Supreme Court Economic Review 23 (2016), 77, working paper available in https://papers.ssrn.com/sol3/papers2.cfm?abstract_id=2651587.

[3] See James M. Buchanan, “The Constitutional Way of Thinking,” Supreme Court Economic Review 10 (2003), 143; see also Kenneth Arrow, Social Choice and Individual Values (New York: Wiley, 1951).

[4] Michael Oakeshott, “The Rule of Law,” in On History: And Other Essays (Indianapolis: The Liberty Fund, 1999), p. 119.

[5] Oakeshott, p. 161.

[6] See Todd J. Zywicki, “The Rise and Fall of Efficiency in the Common Law: A Supply-Side Analysis,” Northwestern Law Review 97 (2003), 1551.

[7] Nathan Rosenberg and L.E. Birdzell, Jr., How the West Grew Rich: The Economic Transformation of the Industrial World (New York: Basic Books, 1986).