The 80th Anniversary of F. A. Hayek’s The Road to Serfdom
by
Eighty years ago, in March 1944, the British edition of Friedrich A. Hayek’s The Road to Serfdom was published. An American edition appeared six months later, in September 1944. During these eight decades, Hayek’s book has become a classic work in defense of the liberal free-market society and against socialist central planning.
Often, when a book has received the status of being a “classic,” it means that many know of it and have heard some general and vague things about it but few actually have read it. This has not been true of Hayek’s book. It fairly quickly became a best seller in both Britain and America. Its reception in the United States was dramatically heightened when a condensed version of it appeared in the April 1945 edition of Reader’s Digest, which back then was regularly subscribed to and read by over 8.7 million Americans. Hayek later remarked that he thought that the Reader’s Digest condensed version more concisely and clearly got all his arguments across than the full text in the book! Shortly after, Look magazine did a cartoon version of the essential aspects of Hayek’s argument that reached millions more.
Throughout the years, The Road to Serfdom has had a constant readership, with bursts of increased attention. This was certainly the case after Hayek was awarded the 1974 Nobel Prize in Economics. Forbes magazine had a cover issue with a drawing of Hayek holding a candle of liberty in the darkness of collectivism, with a copy of The Road to Serfdom in his other hand. This was reinforced when it became known in 1979, shortly after Margaret Thatcher became prime minister of Great Britain, that Hayek’s ideas were the basis of the policy agenda she said she wanted to implement. When Glenn Beck told his large television audience in 2010 that America was still moving down Hayek’s road to serfdom, the book reached the New York Times bestseller list. As of 2021, more than two million copies of the book had been sold, a very large number for a nonfiction work with a political and economic message penned eight decades ago.
Hayek on money and the business cycle
Friedrich A. Hayek was born in May 1899 and in his late teens served in the Austro-Hungarian Army on the Italian front during the First World War. After returning home to Vienna in 1918, he enrolled at the University of Vienna, earning two doctoral degrees, one in law (1921) and the other in political science (1923). With the help of the Austrian economist Ludwig von Mises (1881–1973), Hayek became in 1927 the first director of the Austrian Institute for Business Cycle Research, a position he held until 1931, when he accepted a position at the London School of Economics after delivering a series of lectures that were later published as Prices and Production (1931).
In the 1930s, Hayek attained international recognition in academic and some political circles due to his views on the causes and cures of the Great Depression. This was the case especially against the emerging “new economics” of John Maynard Keynes, who insisted that capitalism was an irrational economic system due to investor “animal spirits” that created unpredictable waves of optimism and pessimism that resulted in periods of prolonged high unemployment. The only potential “savior” in the system, Keynes argued, would be an activist government that used fiscal policy to boost “aggregate” employment through deficit spending programs.
Hayek, on the other hand, said that the 1929 financial crisis that then snowballed into the Great Depression was caused by misguided monetary and interest-rate manipulations by the American Federal Reserve authorities that distorted savings and investment patterns. They eventually required significant corrections and adjustments to bring the consumer and investment sectors of the economy back into balance to create sustainable, long-run prosperity and high employment.
Instead, governments almost everywhere chose to introduce interventions, regulations, and trade restrictions that “froze” supplies and demands into persistent mismatches, one result of which was rising unemployment. Hayek’s policy prescription was to eliminate the price-and-wage interventions, return to international free trade, reduce government spending and taxation, and allow free markets to competitively find their “full-employment” supply and demand relationships.
Hayek’s views on ending the Great Depression became increasingly unpopular in an intellectual and ideological environment dominated by strongly interventionist and socialist ideas that “capitalism” needed to be replaced with heavy-handed government control, regulation, and redistribution at the very least, and most likely with some forms of direct government central economic planning to ensure “full employment.” In this setting, Hayek turned his attention to whether a socialist economy could actually and effectively replace a functioning free-market system.
Hayek on socialism and the use of knowledge in society
In 1935, Hayek edited a collection of essays entitled Collectivist Economic Planning, which included an English translation of Ludwig von Mises’s article titled “Economic Calculation in the Socialist Commonwealth” (1920), in which Mises argued that without private ownership of the means of production and competitive markets upon which they might be freely bought, hired, and sold, there would be no market-based pricing system to determine the value and opportunity costs of how labor, resources, and capital should be efficiently applied to most effectively produce those goods and services actually wanted by the consuming public.
In the opening essay to the volume, Hayek summarized the German-language debate in the 1920s over the viability of a socialist economy, including Mises’s arguments, and in the closing essay, he extended the analysis to critically analyzing the socialist planning literature in English. This was followed by an article in 1940 criticizing those who advocated a type of “market-socialism” in which the managers of state-owned enterprises would play at being entrepreneurs by adjusting what and how they produced various goods based on selling prices and resource prices that would be set by a socialist central-planning agency.
However, it was in his essay “The Use of Knowledge in Society,” which appeared as the lead article in American Economic Review (September 1945), that Hayek made what has been considered to be his most penetrating argument against socialist planning. He argued that it was inherently impossible for central planners to ever know enough about everything relevant in the economy to successful plan a society. All the knowledge in society, Hayek said, is divided, decentralized, and dispersed among all its members. Each one of us, in our own corners of the world, knows bits of all that knowledge that others do not and cannot know, appreciate, and utilize in an ever-changing environment better than each one of us working and interacting in the social system of division of labor.
If all that dispersed, decentralized, and divided knowledge is to be taken advantage of in ways that will benefit others besides the individual possessors of that knowledge, each must be left free to best apply what they know, guided by the communications network of a market economy – the competitive price system. Prices serve as a shorthand means of people telling each other what goods they want and the value they place on them as consumers — and what goods and services they may be willing and able to produce and supply given their opportunity costs on the supply side of the market.
The diverse and multilayered forms and types of knowledge that people possess can never be fully shared with and passed on to “higher-up” central planners in all their textured nuance and nonverbal patterns that much of this knowledge takes on. It is either left to the possessors of that knowledge to use it as they think best, or it is lost and not fully utilized to the detriment to everyone else who could have gained from its successful application.
These arguments were, for the most part, directed to an audience of Hayek’s fellow academics and intellectuals he was attempting to influence in the battle of ideas over the cases for competitive capitalism versus socialist central planning. They were not intentionally directed to the general public, who in a democracy help decide the direction of their society through the government policies and candidates for public office they support and vote for.
Writing and publishing The Road to Serfdom
In 1939, shortly after the Second World War began in Europe, Hayek volunteered to work for the British government on anti-Nazi propaganda to be clandestinely spread in Germany. While he had become a naturalized British subject in 1938, due to his Austrian origins, the British government turned down his request to “do his bit” for the war effort. Instead, he continued teaching at the London School of Economics, including after the school had been evacuated to Cambridge University due to the German bombings of London. Hayek decided to write a book that would emphasize the value and importance of the ideas and institutions of a liberal and free society and point out the dangers to political and economic freedom if Great Britain were to follow a socialist and central-planning agenda when the war was finally over.
The Road to Serfdom was written mostly in 1941 and 1942 and was accepted by a British publisher in 1943. What was far more difficult was finding an American publisher. Many of the major American publishing houses turned it down, saying, in effect, that it was too out-of-step with its liberal, pro-market ideas in an intellectual climate strongly in the direction of far more political paternalism. Finally, it was accepted by the University of Chicago Press through the assistance of some free-market friends. Little did the British or American publishers realize how successful the book would be, with new print runs having to be soon ordered due to the high demand for it at bookstores in both countries. (Duke University economist Bruce Caldwell, who has served as the general editor of Hayek’s collected works, explains the history of the book’s writing and publication in great detail in his introduction to the 2007 edition prepared as volume 2 of The Collected Works of F. A. Hayek.)
The socialist roots of Nazism
The underlying theme in much of the book is that any type of fairly comprehensive system of government central planning is incompatible with and a danger to a free, liberal society. As part of this argument, Hayek also debunked the widely believed idea that Nazism was an ideological and political defense of a decadent and “reactionary” capitalist system that was opposed to socialism.
In an especially insightful chapter on “The Socialist Roots of Nazism,” Hayek traced out the origins of German National Socialism to the nationalistic and strongly anti-capitalist ideas of many of the leading German intellectuals of the late nineteenth and early twentieth centuries, individuals such as Werner Sombart, who during the First World War penned a work on Merchants and Heroes (1915). Sombart showed contempt for the peace-loving, market-oriented “shopkeepers” of Great Britain versus the self-sacrificing German warriors who placed the collective good of their nation over the self-interested gains of the profit-seeking individual.
The socialist agenda of national health care, government social-security pension programs, regulation of business to serve the “greater good” and the “national interest,” and the need for government ownership and/or control of essential sectors of the German economy purely on grounds of political expediency, were all socialist-based ideas blended with German nationalism that finally culminated in the triumph of Hitler’s National Socialist (Nazi) Party in 1933. The group interest over the individual, disapproval of the profit motive and peaceful self-interest, and the call for political paternalism over the lives of all the citizenry were the socialist roots and contributions to the rise of the Nazis to power. These socialist ideas had prepared and indoctrinated the German people to believe in and think they needed a powerful state and “Fuhrer” (Leader) to bring them to political and economic salvation out of the wilderness of the Great Depression so Germany could be “great again.”
A good number of young American academics and some British academics went off to study and complete their graduate degrees at German universities in the last decades of the nineteenth century and the first decade of the twentieth. There they were imbued with the ideas of the German nationalist and socialist professors with whom they studied. Many of these American graduate students returned to the United States and became the leaders of the American Progressive movement, calling for adopting much of the political paternalist policies they had learned while in Imperial Germany. After completing their German studies, they almost all rejected the free-market, limited-government ideas that had been the hallmark of the American political tradition for more than a hundred years. The centralizing, controlling state to regulate business and redistribute income was their new ideal for a “progressive” America.
It was this very centralization of political power and control that Hayek warned was at the heart of the danger from all forms of collectivism, whether it be National Socialism in Hitler’s Germany or Marxian socialism as in Stalin’s Soviet Russia or “democratic” socialism as was being called for in a postwar Great Britain once Nazi Germany had been defeated.
Rule of law, constitutions, and individual rights
A free society, Hayek said, is based on the premise and value of individual liberty and on the concept that every individual should be viewed as a distinct and unique person possessing certain essential rights that neither other individuals nor government should be allowed to restrict or suppress. The rule of law under written constitutions has had as its historical purpose, Hayek argued, the restraint of governments to clearly defined duties and responsibilities, outside of which political interference in the lives of the citizenry was not to occur.
The purpose of government, therefore, was not to guide and direct the population according to some political plan but rather to leave each individual at liberty to design and plan his own life based on the goals and values that give meaning and purpose to his existence. In Hayek’s words:
Under the rule of law, the government is prevented from stultifying individual efforts by ad hoc action. Within the known rules of the game, the individual is free to pursue his own personal ends and desires, certain that the powers of government will not be used deliberately to frustrate his efforts…. Whatever form it [constitutional orders] takes, such recognized limitations of the powers of legislation imply the recognition of the inalienable rights of the individual, inviolable rights of man.
The critics of the liberal market society have frequently argued that the problem is that it has no general plan to ensure that desired and necessary “social ends” are attained. In response, Hayek insisted it is not a matter of socialist planning versus no planning under liberal capitalism but whether each individual shall be at liberty to peacefully make his own plans versus having one central plan imposed on him along with everyone else, all of whom must then conform to it and be confined within it.
Individual choice and the democracy of the marketplace
The very notion of a “plan” is that the planner has decided upon a set of goals or ends considered to be important and which have been arranged in some rank order of preference. It presumes that the planner also has an idea of what the most useful means may be to attain those desired ends in terms of their quantities and qualities. Furthermore, the planner weighs at “at the margin” how far it is worthwhile using those means in one direction rather than some other to try to achieve some “optimally preferred” combination.
In the liberal free society, each individual makes his own plans, deciding on the means and the ends to pursue. A useful imagery is the checkout counters at supermarkets. Each shopper brings to the checkout counter a cart of goods taken off the shelves that reflects his desired ends, his chosen means, and his preferred relative amounts.
If you look at other people’s shopping carts, you may notice that some of your fellow shoppers have similar types of goods in their cart as you (bread, milk, canned corn or peas, chicken, or hamburger meat, etc.). But chances are the brands of many of the goods and the quantities of each may be noticeably different from those in your cart. That is, some people eat lots of meat, while others may like to have more fish in their diet. Some are big milk buyers (maybe because they have small children), while others purchase just enough to put a touch in their coffee or tea. You may like pork chops, while another shopper is a vegetarian; you may like butter on your bread, while the other person tries not to eat too much bread and likes to spread hummus or peanut butter and jelly on it instead.
The marketplace is truly “democratic” in that it reflects and serves the wants and desires of each consumer. It is, however, not a majoritarian democracy in which 50 percent plus one determines what everyone must have but a pluralistic democracy under which multitudes of minority wants and desires are satisfied along with those of the majority. As long as a particular segment of the population has sufficient numbers and willingness and ability to pay a price for certain things to make it economically profitable for some suppliers to bring those goods and services to market, their wants and desires are likely to be satisfied, not just the majority’s wants and desires.
When I was growing up, due to government regulation of the airwaves, there were only three major national television networks (ABC, CBS, and NBC), with a small number of their local affiliates. Viewer choices were few and designed to cater to the lowest common dominator of the population. Once the broadcasting airwaves began to be deregulated starting in the late 1970s, and cable and satellite television began to have the economic opportunities to develop with less government control and authority over them, television offerings increased into the dozens, then into the hundreds, with niche viewing markets and audiences all being satisfied at the same time.
Central planning means centralized power over people
Hayek’s point was that government centralized planning requires a politically determined hierarchy of ends that all the members of “society” as a whole are made to follow. The same centralized authority determines how all the means at “society’s” deposal (land, resources, labor, capital) will be allocated and applied to serve and fulfill those nationwide ends, with the central authority deciding how much of each of those “social ends” will be produced and supplied for “society as a whole.” Each individual’s desired ends and use of means are replaced with the central plan imposed on all. The central plan replaces all of our personal plans. Explained Hayek:
Whoever controls all economic activity controls the means for all our ends and must therefore decide which are to be satisfied and which not…. Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of all the means for all our ends. And whoever has sole control of the means must also determine which ends are to be served, which values are to be rated higher and which lower — in short, what men should believe and strive for….
[The central planning authority] would have complete power to decide what we are to be given and on what terms. It would not only decide what commodities and services were to be available, and in what quantities; it would be able to direct their distribution between districts and groups and could, if it wished, discriminate between persons to any degree it liked….
How in a planned world “freedom of travel and migration” is to be secured when not only the means of communication and currencies are controlled but also the location of industries planned, or how the freedom of the press is to be safeguarded when the supply of paper and all the channels of distribution are controlled by the planning authority are questions to which [the individual socialist] provides as little answer as any other planner.
Government planning then and now
When in 1944 Hayek was warning of the dangers from any and all forms of collectivist central planning in The Road to Serfdom, Great Britain and the United States were engulfed in a world war against two of these centrally planned countries, Nazi Germany and fascist Italy, and in a de facto political and military alliance with a third, the Soviet Union. Underground communist resistance forces in European countries like Nazi-occupied France and Italy were insisting that the Marxist model should be followed when the war was over. In Great Britain, the socialist Labour Party was in a wartime coalition government with the Tory Party under Winston Churchill as prime minister and was designing plans for nationalizing British industry and expanding the welfare state in a postwar era of central planning. The United States was in the 11th year of Franklin Roosevelt’s presidency, with administrative officials and economic-policy pundits insisting that if America was to avoid a postwar economic depression, the government’s planning and regulating and spending hands had to remain large and powerful.
It might be argued, that was then, and this is now. The Nazi and fascist tyrannies and systems of central planning are almost 80 years long gone. And even the Soviet system of central planning disappeared over 30 years ago when the Soviet Union ended. All that is just history now. If only that was completely true.
Few countries anywhere around the world impose the older type of comprehensive, all-encompassing system of central planning. Instead, the directing hands of government today take the form of government spending and regulation over the private sectors of economic activity. More along the lines of a “soft,” fascist-style planning.
According to the Organization for Economic Cooperation and Development (OECD), government spending absorbs huge percentages of the Gross Domestic Products (GDP) of many of the 38 member nations. Here are a few examples from the OECD’s most recent data:
France 60 percent
Greece 57 percent
Austria 56 percent
Finland 56 percent
Belgium 55 percent
Italy 54 percent
Germany 51 percent
Spain 50 percent
Denmark 50 percent
Iceland 49 percent
Sweden 49 percent
U.K. 48 percent
Norway 48 percent
Netherlands 46 percent
U.S. 45 percent
Japan 45 percent
Australia 41 percent
Israel 41 percent
Switzerland 36 percent
Government planning through taxing and spending
In many of these countries, government spends close to or significantly more than 50 percent of GDP. This means that half or more of the wealth created and produced in these countries is siphoned off by the government. The use of those societies’ resources, land, labor, and capital is determined by those in political power deciding — planning — how they shall spend the money (and the resources the money represents) that has been either taxed or borrowed (due to deficit spending) from the citizens of these countries.
To this extent, the choice of ends, the selection of means, and the decisions concerning preferred combinations of desirable goods and services to be produced and used, and for what purposes, are removed from the hands of the individual members of society and shifted into the paternalistic hands of the government. The individual does not decide, given his personal circumstances, values, and judgments, what type of retirement plan seems best for him, or the healthcare insurance coverage that reflects his personal and family requirements given the opportunity costs of best using the total income he has earned.
The government has taken out of his hands the choice of what type of education his children should have, both in terms of curriculum and pedagogy. By subsidizing through either direct government expenditures or various types of tax breaks and write-offs, the government planners determine what industries will be fostered or hindered; what agricultural products will be favored or disfavored; and what exports will be encouraged, and which imports will be restricted. The planners decide on how town and country will be laid out and for what purposes in terms of numbers of people, location of various forms of residences, recreational facilities, commercial enterprises, and infrastructures. The taxing-and-spending planners modify and determine what individuals and groups of people will receive or not receive through redistribution of wealth.
In most countries around the world, governments subsidize the arts and sciences, use amorphous language about “hurtful” and “hateful” words and phrases to restrict, control, and even punish the ideas that individuals express as a means of planning how we think, communicate, argue, and debate by keeping such things within linguistic corridors of the politically acceptable. Governments impose their planning preferences about who we may interact with and on what terms.
The continuing relevance of The Road to Serfdom
These forms of government intervention, regulation, restriction, and redistribution are no less types of government planning than the older and more direct and explicit forms of central planning against which Hayek argued 80 years ago. They are more subtle and more fascist-like in that they do not overtly nationalize the means of production, as the Marxists did in Soviet Russia. Instead, it all remains under nominal private ownership but is “guided,” “led,” and “influenced by,” even sometimes directly controlled by the government planners.
In a 1976 foreword to a new paperback edition of The Road to Serfdom, Hayek said that for a long time he was a bit embarrassed by the book, since it has resulted in many of his colleagues in the economics profession accusing him of having left his “scientific” roots as an economic theorist to become a mere political polemicist on the wrong side of history in opposing socialism. That he had followed a path that was, in a sense, beneath a real scholar. But having reread his own book after many, many years, Hayek said: “I feel no longer apologetic, but for the first time am rather proud of it…. I am now prepared unhesitatingly to recommend this early book to the general reader who wants a simple and nontechnical introduction to what I believe is still one of the most ominous questions we have to solve,” that is, the liberal, free-market society versus the command-and-control planned society.
The Road to Serfdom remains an invaluable guidebook on the dangers from all forms of collectivist planning, both 80 years after the book was published and nearly 50 years after Hayek re-endorsed it to the reading public.
This article was originally published in the Feburary 2024 edition of Future of Freedom.
No comments:
Post a Comment