It always helps clarify thought and improve the quality of action if we define some terms. Ludwig von Mises defined economics as the science of Human Action. This is a little broad for my purposes. I will define economics as the study of exchanges.
For me, "the economy" is simply the legal, political, moral, ethical, traditional, cultural and social framework in which exchanges are made. A "good economy" is, therefore, one that allows for the maximum potential exchanges. A "bad economy" is one in which exchanges are restricted, controlled, forbidden and hampered in numerous ways. We normally do not think of a good or bad economy in this light, but when we come to discuss Hayek, I hope that the reason for defining the economy in this way will be clearer.
The market is simply the place where exchanges are made. It can, of course, be a physical location, such as a store, or a less tangible "place" such as the commodities market.
Money is ideally the medium of exchange. When we discuss the law of markets we will explore reasons that so few of us in modern coutries really think of money as a medium of exchange and why, in our country, it is much more (or less, depending on your political orientation).
We begin our discussion of rules by looking at what seems almost obvious, and, therefore, I call it "the zeroth law". This states merely that before making an exchange we should ask ourselves the question, "can what I hope to gain from this exchange be gained by exchange at all?" In the popular vernacular the question is, "can I buy it?' We can, of course, think of all kinds of things that we cannot really buy, but the temptation is to try, because everything has an exchangeable component. Take "salvation" for example. In the delightful play, "Big River", Huckleberry Finn's guardians tell him that if he doesn't learn to read and write he won't get to heaven because "he won't know how". It seems that even so intangible a thing as salvation requires that we make some very tangible exchanges. This is true of all the qualities or things that we seek, i.e. happiness, wisdom, friendship, and health.
The zeroth law simply states that we examine every exchange to see if what we hope to obtain by it is obtainable at all by exchange. It is my conviction that as society becomes more corrupt, we seek increasingly to gain by exchange things that simply cannot be obtained by exchange. A few examples may help.
Although, I plan to discuss political problems when I deal with controverseries in the next series, I begin with an example from politics, i. e. the conviction that elections can more or less be bought. Because I am a registered Republican, I have been bombared of late through phone calls, e-mails, and letters, by various campaigns and the national committee with requests for donations. Most of these are somehow prefaced with the statement that their campaigns are in a state of emergency due to the fact that the Democratic opponents have so much more money. Implicit in all this is that an office can be bought. Of course, there is a kernal of truth to this in the fact that most victors, although certainly not all, spend more than their opponents. There are, of course, notable exceptions. William Proxmire was very proud of the fact that he spent almost nothing on his reelection campaigns. Others have been elected despite being vastly outspent. But even the fact that resources, particularly monetary resources, have much influence at all, is a result, I believe, from the fact that whenever government attempts to enter into activities best left to the market, they do so on the underlying premise that things can be obtained through exchange which are essentially unexchangeable. These include health, jobs, learning, and in many counties, and even in our own at an earlier time, the example I used earlier, salvation. As we explore the rules of personal economics, we will see, I hope, why so many of these things cannot really be exchanged.