A market economy—sometimes referred to as “capitalism”—is one essentially left to itself, save for government regulation against fraud, unsafe practices, and unfair monopolies. Only under such a system can goods and prices find their proper level and produce maximum efficiency. Market economies have generated unparalleled prosperity in the modern age, but inequalities that crop up cause many to prefer a planned economy. Hayek argues that the unfairness of a market economy pales in comparison to the outcomes in a collectivist system.

The old sense of the word “liberal” was of limited government and respect for individual freedom and initiative; it’s in that sense that Hayek uses the term. The more modern use of “liberal” refers to what Hayek calls “collectivism,” “socialism,” or “planning,” and, occasionally, “progressivism.”

The Editor’s Introduction states that “Hayek’s immediate objective was to persuade his British audience that their heritage of liberal democracy under the rule of law should be viewed as a national treasure rather than an object of scorn” (30).

A government that obeys the laws set forth by its own democratically-elected legislature is one that obeys the Rule of Law; a government run by the whims of its rulers does not.