F. Hayek, Adjusting the activities of the free market

A free system can adapt itself to almost any set of data, almost any general prohibition or regulation, so long as the adjusting mechanism itself is kept functioning. And it is mainly changes in prices that bring about the necessary adjustments. This means that, for it to function properly, it is not sufficient that the rules of law under which it operates be general rules, but their content must be such that the market will work tolerably well. The case for a free system is not that any system will work satisfactorily where coercion is confined by general rules, but that under it such rules can be given a form that will enable it to work.

If there is to be an efficient adjustment of the different activities in the market, certain minimum requirements must be met; the more important of these are, as we have seen, the prevention of violence and fraud, the protection of property and the enforcement of contracts, and the recognition of equal rights of all individuals to produce in whatever quantities and sell at whatever prices they choose. Even when these basic conditions have been satisfied, the efficiency of the system will still depend on the particular content of the rules. But if they are not satisfied, government will have to achieve by direct orders what individual decisions guided by price movements will.

The relation between the character of the legal order and the functioning of the market system has received comparatively little study, and most of the work in this field has been done by men who were critical of the competitive order10 rather than by its supporters. The latter have usually been content to state the minimal requirements for the functioning of the market which we have just mentioned. A general statement of these conditions, however, raises almost as many questions as the answers it provides. How well the market will function depends on the character of the particular rules. The decision to rely on voluntary contracts as the main instrument for organizing the relations between individuals does not determine what the specific content of the law of contract ought to be; and the recognition of the right of private property does not determine what exactly should be the content of this right in order that the market mechanism will work as effectively and beneficially as possible.

Though the principle of private property raises comparatively few problems so far as movable things are concerned, it does raise exceedingly difficult ones where property in land is concerned. The effect which the use of any one piece of land often has on neighboring land clearly makes it undesirable to give the owner unlimited power to use or abuse his property as he likes.

But, while it is to be regretted that economists have on the whole contributed little to the solution of these problems, there are some good reasons for this. General speculation about the character of a social order cannot produce much more than equally general statements of the principles that the legal order must follow. The application in detail of these general principles must be left largely to experience and gradual evolution. It presupposes concern with concrete cases, which is more the province of the lawyer than of the economist. At any rate, it is probably because the task of gradually amending our legal system to make it more conducive to the smooth working of competition is such a slow process that it has had little appeal for those who seek an outlet for their creative imagination and are impatient to draw up blueprints for further development.