Hayek believed that economics and politics had taken a wrong turn during the mid-twentieth century. At that time, the prevailing consensus held that sustained government intervention in the economy was necessary to ensure full employment. This was believed to be the only way to prevent a return to the dark days of the Great Depression, when millions of lives were blighted by the scourge of mass unemployment. And as these conditions had contributed to the rise of extreme ideologies such as Nazism and Communism, full employment was considered a political, as well as economic, imperative.

Hayek profoundly disagreed with the current direction of political and economic thought. As with all classical liberals he believed that government should play only a very limited role in the economy. To be sure, government had a vital part to play in setting the basic legal and regulatory framework in which businesses operated, but that was pretty much it. The allocation of resources, as well as the demand for labor, should be decided by the unfettered operation of the free market.

According to Hayek employment, like every other aspect of the economy, should be determined by the laws of supply and demand. If unemployment was too high it was simply because there were distortions in the system—more often than not created by government intervention—that generated a disequilibrium between the supply of, and the demand for, labor.

Hayek firmly believed that an over-mighty government represented a threat to freedom. To that end, he devised a constitution—a constitution of liberty, as he called it—that harked back to the limited government of America's founding fathers. In Hayek's ideal system of government, the power of judicial review would be wielded liberally against any administration that tried to overstep its limited authority. As Hayek was innately suspicious of government, he thought this was always certain to happen, thus necessitating aggressive judicial oversight.

Another key feature of Hayek's political philosophy is his distinction between law and legislation. The two terms tend to be used interchangeably, but for Hayek there was a huge conceptual difference between them. Law meant common law, the law arising from the decisions set down by judges in individual cases. Legislation, on the other hand, such as the measures passed by the United States Senate or the House of Representatives, is not really law at all. It is simply a command which instructs bureaucrats to implement certain policies as a means to achieve political ends.

In other words, law as Hayek understands it arises freely from social interactions over time. It is spontaneous, undesigned, making it more conducive to preserving liberty. Legislation, however, is consciously designed and imposed on society from above. In the wrong hands, therefore, it can be an instrument of tyranny, a powerful weapon used by government to deprive citizens of their liberty.

Friedrich Hayek is the most important historical member of what is known as the "Austrian School" of economics.  This is a very conservative approach to economics that is directly opposed to the ideas of John Maynard Keynes.

Hayek's major argument (in terms of political economy, at least) was that a Keynesian approach to political economy would put a country on the "road to serfdom."  He believed that more government involvement in the economy would lead inexorably to socialism and to the destruction of people's freedoms.  Hayek also believed that government efforts to steer the economy could not work and that only market forces could create an efficient and growing economy.

Hayek, then, was a major advocate of free market and laissez-faire policies.  He did not want government to be involved in the economy because he believed that it took away freedoms and it led to a less productive economy.