Hayek, Leoni, and Law as the Fifth Factor of Production

This paper discusses the nature of law as the fifth factor of production, or more fundamentally as the institutional framework within which the production process takes place. Unlike land, labor, capital, and entrepreneurship, whose coordination is an outcome of institutional arrangements, the law itself is the institutional embodiment of the voluntary exchange processes evolving from the decisions, but not the design, of judges that form the reliable expectations about who “plans” the coordination of the other four factors of production. The legal theory of Hayek and Leoni lends itself to this dual nature of spontaneous order analysis and also the basis of the burgeoning literature on analytical anarchism. Although Hayek and Leoni were not legal centralists, their conception of law as part of a larger spontaneous order was open-ended to competition and experimentation on the constitutional level of rules just as that experienced on the post-constitutional level of the market itself. Copyright International Atlantic Economic Society 2014