The Road to Serfdom by Hayek

Context

Friedrich August von Hayek wrote The Road to Serfdom during World War II and published it in Britain in 1944. He lectured at the London School of Economics from 1931 to 1950, where he was Professor of Economic Science and Statistics. Hayek was of Austrian origin but took British nationality in 1938, the year the Nazis invaded Austria following their Anschluss policy. The ensuing World War II economy (1939-45) was centralised in the UK and directly subjected to government orders. Hayek's knowledge of the economic policies under the National Socialist German Workers' (Nazi) Party, led by Adolf Hitler, had demonstrated to him the dangers of centralised government and he argued that a postwar economy must be decentralised to avoid concentrating power in the hands of a future dictator.

However, after the war the European continent was faced with the task of reconstruction and the U.S. was still recovering from the 1929 economic crash and the subsequent war effort. There was a need for security and stability. The ideas that the Wall Street crash had been due to the unpredictability of the free market was compared to the experience of winning the war through centrally directed production and the fact that Russia with its top down regime had been a wartime ally, increased the acceptance of peacetime central planning of the economy.

In his book Hayek used economics to investigate human psychology and came to the conclusion that socialism was totalitarism and would lead to serfdom. His basic belief was that humans cannot know everything and, when they act as if they do, they engender a catastrophe. His theory was that the planned economy by a collectivist State relied on the hubris that we could redesign human nature. 

In 1947 Hayek participated in the creation of the Mont Pelerin Society. At the first MPS meeting, 70 years ago, Hayek decried an:

“intolerant and fierce rationalism which in particular is responsible for the gulf which particularly on the [European] Continent has for several generations driven most religious people from the liberal movement and into truly reactionary camps in which they felt little at home. I am convinced that unless this breach between true liberal and religious convictions can be healed there is no hope for a revival of liberal forces.”

Hayek was influenced by the ideas of Tocqueville (1805-1859) who in his study of US democracy Democracy in America (1835 and 1840)  had written something similar to Hayek's idea:

“What most and always amazes me about my country [France], more especially these last few years, is to see … on the one side men who value morality, religion and order, and upon the other those who love liberty and the equality of men before the law... It seems to me, therefore, that one of the finest enterprises of our time would be to demonstrate that these things are not incompatible; that, on the contrary, they are bound together in such a fashion that each of them is weakened by separation from the rest. Such is my basic idea.”

Hayek repeated the basic idea during his career that our truths about human liberty are sourced from religious traditions as well as from reason. He applied this to economic theory by warning about the dangers of large scale social engineering only through reasoning, while discarding knowledge derived from tradition, religion and non-rational sources.

It was during the war years that Hayek came to the conclusion that since the French revolution there had been a propagation of a "false rationalism" which continued through Positivism and Hegelianism. According to the author these constitute a force of intellectual hubris, contrary to the intellectual humility of true liberalism which respects the spontaneous creation of knowledge greater than present awareness. In 1960 he wrote in Why I am not a Conservative:

“Unlike the rationalism of the French Revolution, true liberalism has no quarrel with religion."

Summary

The Road to Serfdom was published in 1944 as a series of essays in the British journal The Saturday Evening Post. It later caught public attention by being published in a condensed version in the Reader's Digest (1945).

Introduction

Hayek sets out his critique of centralised economic planning by warning that this policy would end up in totalitarianism through suppressing individual liberties.

“Though eternal vigilance is sage advice, surely “wartime” (or when politicians would try to convince us that it is such a time) is when those who value the preservation of individual liberty must be most on guard.”

He reasons that central planning needs a degree of knowledge which is impossible for a human organisation. Economic progress requires the division of labour and the order it generates. This cannot be guided by a central authority.

Chapter 1: The Abandoned Road

The trend of liberal ideas, prevalent in the West since the Enlightenment, is being overtaken by ideas of the collective direction and control of society. This has been brought about by the intellectual leadership of centralised socialist planning in Germany, overruling that of British individual, spontaneous freedoms.

“We have progressively abandoned that freedom in economic affairs without which personal and political freedom has never existed in the past. Although we had been warned by some of the greatest political thinkers of the nineteenth century, by Tocqueville and Lord Acton, that socialism means slavery, we have steadily moved in the direction of socialism.”

This new approach is due to the social and economic challenges of the late 19th. century and the earlier philosophies of hegelianism and historicism.

Chapter 2: The Great Utopia

The author asserts that socialism transforms into fascism in a logical way. They both share an aversion to individual freedom and a belief in State control of people's lives.

“It is true, of course, that in Germany before 1933, and in Italy before 1922, communists and Nazis or Fascists clashed more frequently with each other than with other parties. They competed for the support of the same type of mind and reserved for each other the hatred of the heretic. But their practice showed how closely they are related."

The principal difference between socialism and fascism is their interpretation of equality. Socialism requires equality in freedom; fascism forces equality in subjugation.

Chapter 3: Individualism and Collectivism

The competitive society allows individuals to pursue their self-interest and produce gains for society. Competition promotes efficiency and innovation through pricing. 

The downsides of competition are freedom to buy and sell at any price and the right of property. The competitive upside is a legal framework.

“Or, to express it differently, planning and competition can be combined only by planning for competition but not by planning against competition. It is of the utmost importance to the argument of this book for the reader to keep in mind that the planning against which all our criticism is directed is solely the planning against competition — the planning which is to be substituted for competition."

Hayek considers that competition and centralisation are alternatives and that a mix of both produces the worst results.

Chapter 4: The “Inevitability” of Planning

According to the author it is competition, not planning, that stimulates the economy in the long run. Planning may bring together determined idealists, but theirs is a limited view and they tend to exaggerate the importance of their objectives.

The possible dangers of planning are that specialists might be permitted to realise their personal dreams, which would lead to an intolerant world.

“It should be noted, moreover, that monopoly is frequently the product of factors other than the lower costs of greater size. It is attained through collusive agreement and promoted by public policies. When these agreements are invalidated and when these policies are reversed, competitive conditions can be restored.”

What the economist wants is a methodology that coordinates, but does not dictate. This entails impersonal checking of individual efforts.

Chapter 5: Planning and Democracy

The implications of central planning are wide suppression of individual liberties. This leads to dictatorship. There can be no effective democratic control in the absence of open discussion. Democracy is not an end in itself, but a system for maintaining internal peace and individual freedoms.

It is false to believe that power given through the democratic system cannot be used arbitrarily. When ministers obtain legislative powers this can lead to stretching these powers and finally conferring arbitrary power.

“Hitler did not have to destroy democracy; he merely took advantage of the decay of democracy and at the critical moment obtained the support of many to whom, though they detested Hitler, he yet seemed the only man strong enough to get things done.”

Democracy and planning are incompatible because planning requires suppression of individual freedoms. We must focus not on democracy itself, but on limiting power to prevent arbitrariness.

Chapter 6: Planning and the Rule of Law

The rule of law is a principle that restricts the range of legislation to general rules affecting individuals. A planned economy commonly delegates legislative powers to authorities allowing wide discretion and less regard for pre-established rules. 

Maintaining the rule of law is not compatible with central planning and economic control because it limits government arbitrariness. Advocates of central planning support individual rights but render them ineffective through conditions which subject them to governmental discretion.

"It cannot be denied that the Rule of Law produces economic inequality—all that can be claimed for it is that this inequality is not designed to affect particular people in a particular way.”

Losing the rule of law in a planned economy leads to a totalitarian State where populist interests determine legality.

Chapter 7: Economic Control and Totalitarianism

Central planning involves total economic control and includes leisure and travel. Its attraction is the promise of abundance and the spreading of wealth, but that is a false hope with no supporting evidence. The wish for a more equitable distribution of wealth that central planning promises may lead to further discontent and more oppression.

“Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of 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.”

Economic freedom, which involves choosing responsibilities and responding for them, is necessary for political freedom. 

Chapter 8: Who, Whom?

Both fascism and national socialism rose out of socialist movements but diverged in their interpretations of society. They agreed on the need for a hierarchical social structure, but not on who should be in the dominant positions. 

Old socialist parties could not understand why the working classes did not fully embrace them, since they saw themselves as representatives of those classes. 

New socialist parties attracted support by propagating a world view that justified their privileges, assigned by the State which reassigned resources. Their ideologies were adjusted to the challenges of a regulated society. They did not offer equality, but an elite based on meritocracy. 

“The power which a multiple millionaire, who may be my neighbour and perhaps my employer, has over me is very much less than that which the smallest functionaire possesses who wields the coercive power of the state, and on whose discretion it depends whether and how I am to be allowed to live or to work.”

Chapter 9: Security and Freedom

The wish for security has evolved in society into a view that security is a privilege some have while others don't. It has been accompanied by a disdain for risk-taking with a view of profits as immoral. This has led the young generation to avoid entrepreneurship and seek salaried work. 

The ideal of security has been endorsed through the government policies of full employment, wage and price stability and the regulation of competition. These policies have meant less security for some and more for the protected group. This social transformation has been influenced by the experience in Germany which was governed from above and where advancement depended on working for the State. 

Security is necessary to maintain liberty, but it cannot be promoted by controlling the market system where competition should be allowed to work freely. Sacrificing freedoms for temporary safety overlooks the fact that we must pay a material price for our liberty:

“Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.”

Chapter 10: Why the Worst Get on Top

The characteristic of a totalitarian regime is that it subordinates individual rights to those of the State. The leaders of a totalitarian state must set aside personal beliefs and principles, which turns them into unscrupulous, callous individuals.

"It seems to be almost a law of human nature that it is easier for people to agree on a negative program — on the hatred of an enemy, on the envy of those better off — than on any positive task... The enemy, whether he be internal, like the "Jew" or the "kulak," or external, seems to be an indispensable requisite in the armory of a totalitarian leader."

Those regimes sacrifice truthfulness because their priority is presenting the illusion of an ideal society, not facts. They reject the importance of individual happiness and fixate on higher societal aims. 

In totalitarian States posts are only allocated to those totally committed to the leader and the collective goals. Thus the unscrupulous rise to power and anyone with opposing moral beliefs, are rejected.

Chapter 11: The End of Truth

Collectivist thinking argues that reason grows through a social process that can be consciously planned, but this requires a leader or a group to guide intellectual development. However, any bounds set on thinking may end up in a decline in reason and thought. 

Gleichschaltung was the term used by the Nazis to describe coordination of all political, economic and cultural activities in support of the State. This involved uniting disparate groups under one banner, taking land from non-Germans and the Hereditary Farm Law to ensure only German peasantry.

The concept that humans can consciously control their own minds confuses reason with the interpersonal process that is behind intellectual growth. This leads to an overall direction of the social process that will destroy reason.

“The word 'truth' itself ceases to have its old meaning. It describes no longer something to be found, with the individual conscience as the sole arbiter of whether in any particular instance the evidence (or the standing of those proclaiming it) warrants a belief; it becomes something to be laid down by authority, something which has to believed in the interest of unity of the organized effort and which may have to be altered as the exigencies of this organized effort require it.”

Freedom to think is necessary for intellectual growth and social progress. Forcing the majority to follow one lead ruins this growth and threatens intellectual freedom.

Chapter 12: The Socialist Roots of Naziism

Between the World Wars Europe experienced an upsurge of nationalism and imperialism, sometimes mixed with socialist ideas. German intellectuals such as Sombart, Plenge, Naumann, Lensch, Spengler, Freyer, Jünger, and Schmitt tried to integrate fascism with socialism. They sought to continue in the traditions of Hegel, Marx and Nietzsche. They were critical of liberal parliamentary democracy, capitalism and individualism, and argued for a strong State which would centralise the economy and society.

“from the point of view of fundamental human liberties there is little to choose between communism, socialism, and national socialism. They all are examples of the collectivist or totalitarian state ...”

After World War I, Germany's sense of national pride grew and the socialist movement in the country became more authoritarian with leaders such as Bebel and Hilferding demanding militarization and a State run economy. These ideas gained traction when the Weimar Republic failed and the economy became unstable in the 1920s. Fascist regimes in Europe, especially in Germany, were the results of those trends. 

Chapter 13: The Totalitarians in Our Midst

Hayek criticised what he saw as a movement towards central planning and control after World War II. He warned that this trend was not only German, but that other countries had adopted it, including Britain. 

The author decried that this centralisation was particularly obvious in economics and the social sciences and criticised intellectuals for their role in this:

“The way in which, in the end, with few exceptions, her scholars and scientists put themselves readily at the service of the new rulers is one of the most depressing and shameful spectacles in the whole history of the rise of National Socialism.”

He argued that this control would lead to poverty, inefficiency and inequality and called for free competition and private property as the basis for economic prosperity. Hayek also pointed out that some socialists showed an unusual interest in rentiers and monopolies, even though they criticised profits.

Chapter 14: Material Conditions and Ideal Ends

The author declares that the gulf between democratic and totalitarian systems cannot be joined by concessions, only by a defence of democractic values: personal freedoms and rejection of the interference of the State. The liberal tradition defends individual freedoms; totalitarianism wishes to impose on the collectivity through central planning. This will stifle creativity and innovation. 

The goal should be the creation of an economy that encourages individual freedoms while ensuring social stability.

“Only if we understand why and how certain kinds of economic controls tend to paralyze the driving forces of a free society, and which kinds of measures are particularly dangerous in this respect, can we hope that social experimentation will not lead us into situations none of us want.”

Chapter 15: The Prospects of International Order

Hayek's proposal for international relations was a federation, while admitting that it was unrealistic in the short term. (Note: The UN charter was signed in 1945, one year after Hayek's book. The European Economic Community was formed in 1958.)

The author argued that local self-government was essential for maintaining the growth of democracy. Large, centralised States suffocated individual creativity and responsibility. The first step would be regional federations, but not yet world organisations such as the League of Nations (which morphed into the UN in 1946).

However, he advocated for international law with supranational authority. (The International Court of Justice was established in 1945.)

He criticised Western dominance and pointed to the colonial experience as evidence of its failure and the absurdity of such attempts.

Conclusion

Hayek laid out a series of decisions needed to secure an economic future:

- Detailed blueprints for a future society are not useful now (1944).

- To create the conditions for progress we must agree on basic principles and avoid past mistakes.

- Reassess our approaches

- Reject any "new order" that simply repeats the recent past.

- Admit that the 20th. century has made mistakes and renew the effort to create a free world.

- Recognise that progress involves individual freedoms.

Themes

Decentralisation 

The information needed to make the best decisions is not centralised but scattered among individuals. Central planning cannot make optimal economic decisions since it is not as adaptive as individuals with local knowledge.

The 'invisible hand' of the market, predicted by Adam Smith, is the mechanism for aggregating this dispersed knowledge. 

Centralised Control is a slippery slope

If wide economic controls are given to the government, that may lead to infringement on individual freedoms. If State intervention is increased it can make way for an authoritarian regime. Once some freedoms are restricted, even those involving welfare and security, it is easier to implement more restrictions.

A democracy that functions properly should not allow temporary measures to become permanent and thus contribute to eroding individual rights.

Democracy/ Freedom

Democracy is a system where the majority decide, but this does not guarantee individual freedoms. Majorities can oppress minorities. In order to protect individual rights there must be a strong system of checks and balances, even within democracies.

There is a distinction to be made between the democratic processes and how much liberty is permitted. While the promotion of democracy is important, it is also crucial to protect individual freedoms from possible tyrannical majorities.