The first chapter of the book, entitled "Reason and Evolution" delves into the reasons why modern individuals do not accept the constitutional limitations of government. The rationality that guided men like Montiesqueu and the founding fathers was a belief in a higher power and acceptance that knowledge of all relevant facts by one person, organization or government was impossible. In today's world, this faith has been replaced by the unfounded certainty that science and technology are limitless in their ability to ascertain facts and advance knowledge. Constructivist rationalists, Hayek argues, are especially prone to this way of thinking, as they base arguments on "synoptic delusion," or the false notion that all relevant information is known to "some one mind" from which it is possible to construct a desirable social order. The error of this theory, according to the author, is that it is naive and expresses itself in a "deliberately planned" or simultaneous thinking society (i.e.: bureaucracy or socialism).

Legal positivism is another school of thought that Hayek takes on in this section, declaring it a "false theory" because it assumes that humans have created their culture and institutions so that the subsequent laws of these institutions are the result of human will. Ultimately, society does not act upon its citizens or institutions, actors such as the "family, the farm, the plant, the firm, and public institutions" are the participants that act upon society because without them, the institutions of civilization would not exist. "We shall find too that such current notions as that society 'acts' or that it 'treats,' 'rewards,' or 'remunerates' persons, or that it 'values,' or 'owns' or 'controls' objects or services, or is 'responsible for' or 'guilty of' something, or that it has a 'will' or 'purpose,' can be 'just' or 'unjust,' or that the economy 'distributes' or 'allocates' resources, all suggest a false intentionalist or constructivist interpretation of words which might have been used without such a connotation, but which almost inevitably lead the user to illegitimate conclusions," Hayek writes.

Chapter 2 of the book, "Cosmos and Taxis" examines the concept of order. The author defines order as "a state of affairs in which a multiplicity of elements of various kinds are so related to each other that we may learn from our acquaintance with some spatial or temporal part of the whole to form correct expectations concerning the rest, or at least expectations which have a good chance proving correct." The order that exists within society is not "made" as some would argue, rather it is "grown" through time. "Made" order develops in an organization and is directed. "Grown" order is described more often as spontaneous and originates from "the discovery that there exist orderly structures which are the product of the action of many men but are not the result of human design." Rules that govern a spontaneous order apply equally to all individuals, while those of an organization do not. Rules established in an organization benefit those who are in command; effectively, those who created that particular order.

Chapter 3, "Principles and Expediency" continues the discussion and addresses the preservation of freedom in modern society, which Hayek believes is destroyed by the contradictory "isms" that "disillusioned socialists" follow in order to protect their beliefs. Freedom is not expedient, Hayek warns. Rather, its continuation depends upon a "constant rejection of measures which appear to be required to secure particular results" and a dogmatic approach that does not make concessions. "Freedom will prevail only if it is accepted as a general principle whose application to particular instances requires no justification," and the homogeneous application of freedom to all requires principles that provide "clear guidance."

In Chapter 4, "The Changing Concept of Law" Hayek differentiates between law and legislation as methods of governing human conduct. Legislation is codified rules of conduct that are invented by men, while laws have existed throughout the course of human history, before they could be articulated or expressly written. According to the author, comparative studies of behavior show that in various animal societies certain behavioral norms existed without legislation, as different species developed their own versions of hierarchy and property rights to limit violence and disputes between members. By the time of the early civilizations, "legislators" sought to introduce individual will into law. Ancient Greece was known to do this, as "the first persistent efforts to draw a clear distinction between the law and the particular will of the ruler" began. This lasted into the medieval age, as England established the modern concept of liberty with its "entrenched tradition of common law" that limited the powers of the king and Parliament. This system, Hayek argues, developed out of the common law, not from the separation of powers theory espoused by Montiesqueu, but because courts ruling on legal matters were bound to an authority separate from government entirely. Thus, the separation that existed was not between the legislature, the executive and the judiciary, it was the court's ability to detach itself from the will of the individuals involved and interpret the matter based on established custom. At this point in the book, Hayek analyzes the differences between precedent and custom as ways of determining legality. The role of a judge is not to dictate how individuals "ought to have acted" but instead to determine if the actions taken conformed to "recognized rules." In order for this to be accomplished, the desires of any ruler or state are not of any concern. The ruling is only impartial when the decision is not guided by "any knowledge of what the whole of society requires at the particular moment, but solely what is demanded by general principles on which the going order of society is based."

The fifth chapter, "Nomos: The Law of Liberty" details how the functions of judges and organizational leaders should differ, due to the differences between society and the smaller organizations that it is comprised of. A judge should aspire to ascertain the facts of a case and make a decision as to whether or not a law, which is derived from the spontaneous order of society, has been broken. An organizational leader dictates what the order is within his or her domain and when one of those rules is broken, order within the organization has been violated. The law interpreted by the judge sets standards for human behavior and "will consist of rules regulating the conduct of persons towards others, applicable to an unknown number of future instances and containing prohibitions delimiting the boundary of the protected domain of each person." Any attempt by the judge to impose laws of his or her own making is strictly prohibited. The rule of law is effective only when it is made up of "mutually modifying" laws that can be universally applied, not used to further the interests of one actor or another in a specific instance.

Hayek continues this discussion in Chapter 6, entitled "Thesis: The Law of Legislation." The necessity for order in modern society led to the formation of a legislature whose function is to regulate conduct along the standards articulated by Hayek in earlier chapters. Even the most authoritarian rulers, such as divine right monarchs, had to set rules based on the perceptions of the limits of the leader's authority. The author argues that even the most absolute leader had limits to his authority which required "special measures" to override. The early legislatures that developed during that period were involved with "governmental matters rather than with giving law in the narrow sense."

Law, in the modern sense, has two meanings. The nomos aspect of law, or the norms established by the evolution of culture and institutions is different from the thesis aspect, which is the statute of law passed by a legislature.

Rules of conduct can be legislated, Hayek writes, but statues passed by legislatures do not have to become rules of conduct. Modern governments tend to have organizations within a larger bureaucracy that make its rules of conduct different from that of private organizations. These differences are designated by the application of public and private laws. Public law applies to organizations and can be made, Hayek argues, while private law is determined by the spontaneous order principle. They are not, the author emphasizes, the same as public and private welfare. Spontaneous order creates laws that govern the general welfare, and is more important in determining general welfare than the services and benefits some citizens receive associated with government organizations.

Next, Hayek compares and contrasts the different types of law that exist within modern society. Law that deals with the most basic rights of individuals and organizations is constitutional law, and often it is the primary source for both public and private law, as most "other rules derive their authority from it." Hayek argues that a constitution should limit the powers of a legislature and provide a guide for the judiciary. A constitution does not have to "articulate conceptions underlying an existing system of norms" because that articulation could prove "inadequate."

Definition of rules in the constitution does not have to be specific, but should give a judge enough guidance as to determine if a rule meets the standards of a just rule of conduct. More specific guides of conduct such as administrative law, which attempts to foresee outcomes of particular situations and events, is determined by expediency, which Hayek condemns as detrimental to personal freedom. When governments reach this point, as the author believes the United States has, the spontaneous order of free society and personal liberty are trampled on by the legislature. The current environment of legislation to achieve "social aims" attempts to change nomo into theses by allowing unequal treatment of individuals, as is the case with affirmative action. Hayek disagrees with attempts to right historical wrongs through special treatment, saying "equal treatment in this sense has nothing to do with the question whether the application of such general rules in a particular situation may lead to results which are more favorable to one group than to others: justice is not concerned with the results of the various transactions, but only with whether the transactions themselves are fair."

Law, Legislation, and Liberty shows its readers that the evolution of societal customs into common law, which in turn leads to constitutionalism, has deviated from the path of reason and common sense, and instead has resulted in a modern society that accepts legislation that secures the social aims of those who pass the statutes. If the securing of and maintenance of personal freedom and liberty through limited legislation and objective adjudication are not practiced by members of a given society, the social aims of special interests and the interests of those in government transform the spontaneous order of a civilized society into an authoritarian state that can treat its members unequally. An ad hoc system develops in which expediency is put above the ideals on which the society is based, which undermines the freedom of all citizens, regardless of race, gender, religion and socioeconomic status.