The Road to Serfdom: The Condensed Version As It Appeared in the April 1945 Edition of Readers Digest
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Under competition — and under no other economic order — the price system automatically records all the relevant data. Entre- preneurs, by watching the movement of comparatively few prices, as an engineer watches a few dials, can adjust their activities to those of their fellows. Compared with this method of solving the economic problem — by decentralization plus automatic coordination through the price system — the method of central direction is incredibly clumsy, primitive, and limited in scope.
Modern civilization has the road to serfdom 59 The difference between the two kinds of rule is important. It is the same as that between providing signposts and commanding people which road to take. Moreover, under central planning the government cannot be impartial. The state ceases to be a piece of utilitarian machinery intendedtohelpindividualsinthefullestdevelopmentoftheirindi- vidual personality and becomes an institution which deliberately discriminates between particular needs of different people, and allowsonemantodowhatanothermustbepreventedfromdoing.
It must lay down by a legal rule how well off particular people shall beandwhatdifferentpeoplearetobeallowedtohave. The Rule of Law, the absence of legal privileges of particular people designated by authority, is what safeguards that equality before the law which is the opposite of arbitrary government. In a planned society the law must legalize what to all intents and purposes remains arbitrary action.
If the law says that such a board or authority may do what it pleases, anything that board or authority does is legal — but its actions are certainly not subject to the Rule of Law.
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By giving the government unlimited powers the most arbitrary rule can be made legal; and in this way a demo- cracy may set up the most complete despotism imaginable. The Rule of Law was consciously evolved only during the liberal age and is one of its greatest achievements. It is the legal embodiment of freedom. In the United States a highly protectionist policy aided the growth of monopolies. In Germany the growth of cartels has since been systematically fostered by deliberate policy. The suppression of competi- tion was a matter of deliberate policy in Germany, undertaken in the service of an ideal which we now call planning.
The 21st Century Learning Initiative ~ Hayek and the Second-hand Dealers of Ideas
Great danger lies in the policies of two powerful groups, organ- ized capital and organized labour, which support the monopol- istic organization of industry. However, there is no reason to believe that this movement is inevitable. The movement toward planning is the result of deliberate action. No external necessities force us to it. Can planning free us from care? Most planners who have seriously considered the practical aspects of their task have little doubt that a directed economy must be run on dictatorial lines, that the complex system of interrelated activi- ties must be directed by staffs of experts, with ultimate power in the hands of a commander-in-chief whose actions must not be fettered by democratic procedure.
This assurance is usually accompanied by the the road to serfdom 61 been possible precisely because it did not have to be consciously created. The division of labour has gone far beyond what could have been planned. Any further growth in economic complexity, far from making central direction more necessary, makes it more important than ever that we should use the technique of competi- tion and not depend on conscious control.
The growth of monopoly, however, seems not so much a necessary consequence of the advance of technology as the result of the policies pursued in most countries. The most comprehensive study of this situation is that by the Temporary National Economic Committee, which certainly cannot be accused of an unduly liberal bias. It should be noted, moreover, that monopoly is frequently attained through collusive agreement and promoted by public policies. When these agreements are invalidated and these policies reversed, competitive conditions can be restored.
Anyone who has observed how aspiring monopolists regularly seek the assistance of the state to make their control effective can have little doubt that there is nothing inevitable about this devel- the roa d to ser fdo m 60 Theso-calledeconomicfreedomwhichtheplannerspromiseus meanspreciselythatwearetoberelievedofthenecessityofsolving our own economic problems and that the bitter choices which this often involves are to be made for us. Since under modern condi- tions we are for almost everything dependent on means which our fellow men provide, economic planning would involve direction of almost the whole of our life.
The power of the planner over our private lives would be hardly less effective if the consumer were nominally free to spend his income as he pleased, for the authority would control produc- tion. Our freedom of choice in a competitive society rests on the fact that, if one person refuses to satisfy our wishes, we can turn to another. But if we face a monopolist we are at his mercy. And an authority directing the whole economic system would be the most powerful monopolist imaginable. Itwouldhavecompletepowertodecidewhatwearetobegiven and on what terms.
It would not only decide what commodities and services are 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. For most of us the the road to serfdom 63 suggestion that, by giving up freedom in the less important aspects of our lives, we shall obtain freedom in the pursuit of higher values.
The arguments used appeal to our best instincts. If planning really did free us from less important cares and so made it easier to render our existence one of plain living and high thinking, who would wish to belittle such an ideal? Unfortunately, purely economic ends cannot be separated from the other ends of life. If we strive for money, it is because money offers us the widest choice in enjoying the fruits of our efforts — once earned, we are free to spend the money as we wish.
Because it is through the limitation of our money incomes that we feel the restrictions which our relative poverty still imposes on us, many have come to hate money as the symbol of these restrictions. Actually, money is one of the greatest instruments of freedom ever invented by man. It is money which in existing society opens an astounding range of choice to the poor man — a range greater than that which not many generations ago was open to the wealthy. If all rewards, instead of being offered in money, were offered in the form of public distinctions, or privileges, positions of power over other men, better housing or food, opportunities for travel or education, this would merely mean that the recipient would no longer be the roa d to ser fdo m 62 People just wish that the choice should not be necessary at all.
And they are only too ready to believe that the choice is not really necessary, that it is imposed upon them merely by the particular economic system under which we live. What they resent is, in truth, that there is an economic problem. The wishful delusion that there is really no longer an economic problem has been furthered by the claim that a planned economy would produce a substantially larger output than the competitive system.
This claim, however, is being progressively abandoned by most students of the problem.
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They advocate planning because it will enable us to secure a more equitable distribution of wealth. And it is indisputable that, if we want consciously to decide who is to have what, we must plan the whole economic system. For when a government undertakes to distribute the wealth, by what principles will it or ought it to be guided? Only one general principle, one simple rule, would provide such an answer: absolute equality of all individuals.
If this were the goal, it would at least give the vague idea of distributive justice clear meaning. Hence some freedom in choosing our work is probably even more important for our happiness than freedom to spend our income during our hours of leisure. Even in the best of worlds this freedom will be limited. Few people ever have an abundance of choice of occupation. Nothing makes conditions more unbearable than the knowledge that no effort of ours can change them. In our present world there is much that could be done to improve our opportunities of choice.
Planning must control the entry into the different trades and occupations, or the terms of remun- eration, or both. In a competitive society most things can be had at a price. It is often a cruelly high price. The alternative, however, is not freedom of choice, but orders and prohibitions which must be obeyed. That people should wish to be relieved of the bitter choice which hard facts often impose on them is not surprising.
But few want to be relieved through having the choice made for them by the roa d to ser fdo m 64 Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision. It is planning for security of the second kind which has such an insidious effect on liberty. It is planning designed to protect individuals or groups against diminutions of their incomes.
There can be little doubt that it is largely a consequence of the striving for security by these means in the last decades that unemployment and thus insecurity have so much increased. The utter hopelessness of the position of those who, in a society which has thus grown rigid, are left outside the range of sheltered occupation can be appreciated only by those who have experienced it.
There has never been a more cruel exploitation of one class by another than that of the less fortunate members of a group of producers by the well-established. It does not free us from the necessity of deciding in every particular instance between the merits of particular individuals or groups, and it gives no help in that decision. All it tells us in effect is to take from the rich as much as we can.
It is often said that political freedom is meaningless without economic freedom. This is true enough, but in a sense almost opposite from that in which the phrase is used by our planners. The economic freedom which is the prerequisite of any other freedom cannot be the freedom from economic care which the socialists promise us and which can be obtained only by relieving us of the power of choice. It must be that freedom of economic activity which, together with the right of choice, carries also the risk and responsibility of that right.
In a sense this is both true and important. But there are two kinds of security: the certainty of a given minimum of sustenance for all and the security of a given standard of life, of the relative position which one person or group enjoys compared with others. There is no reason why, in a society which has reached the the roa d to ser fdo m 66 In either both choice and risk rest with the individual or he is relieved of both. In the army, work and worker alike are allotted by authority, and this is the only system in which the individual can be conceded full economic security.
This security is, however, inseparable from the restrictions on liberty and the hierarchical order of military life — it is the security of the barracks. In a society used to freedom it is unlikely that many people would be ready deliberately to purchase security at this price. But the policies which are followed now are nevertheless rapidly creating conditions in which the striving for security tends to become stronger than the love of freedom. If we are not to destroy individual freedom, competition must be left to function unobstructed.
Let a uniform minimum be secured to everybody by all means; but let us admit at the same time that all claims for a privileged security of particular classes must lapse, that all excuses disappear for allowing particular groups to exclude newcomers from sharing their relative pros- perity in order to maintain a special standard of their own. There can be no question that adequate security against severe privation will have to be one of our main goals of policy.
But nothing is more fatal than the present fashion of intellectual leaders of extolling security at the expense of freedom. With every grant of such security to one group the insecurity of the rest necessarily increases. And the essential element of security which the competitive system offers, the great variety of opportunities, is more and more reduced. The general endeavour to achieve security by restrictive measures, supported by the state, has in the course of time produced a progressive transformation of society — a transforma- tion in which, as in so many other ways, Germany has led and the othercountrieshavefollowed.
Hayek and the Second-hand Dealers of Ideas
Thisdevelopmenthasbeenhastened byanothereffectofsocialistteaching,thedeliberatedisparagement of all activities involving economic risk and the moral opprobrium castonthegainswhichmakerisksworthtakingbutwhichonlyfew canwin. For example, the harmful effects of deforestation or of the smoke of factories cannot be confined to the owner of the property in question. But a few exceptions do not prove that we should suppress competition where it can be made to function.
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To create conditions in which competition will be as effective as possible, to prevent fraud and deception, to break up monopolies - these tasks provide a wide and unquestioned field for state activity. This does not mean that it is possible to find some "middle way" between competition and central direction, though nothing seems at first more plausible, or is more likely to appeal to reasonable people.
Although competition can bear some admixture of regulation, it cannot be combined with planning to any extent without ceasing to operate as an effective guide to production. Both competition and central direction become poor and inefficient tools if they are incomplete. A mixture of the two means that neither will work. Planning and competition can be combined only by planning for competition, not by planning against competition. The planning against which all our criticism is directed is solely the planning against competition.
There is no doubt that most of those in the democracies who demand a central direction of all economic activity still believe that socialism and individual freedom can be combined. Yet socialism was early recognized by many thinkers as the gravest threat to freedom. It is rarely remembered now that socialism in its beginnings was frankly authoritarian.
It began quite openly as a reaction against the liberalism of the French Revolution. The French writers who laid its foundation had no doubt that their ideas could be put into practice only by a strong dictatorial government. The first of modern planners, Saint-Simon, predicted that those who did not obey his proposed planning boards would be "treated as cattle.
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Nobody saw more clearly than the great political thinker de Tocqueville that democracy stands in an irreconcilable conflict with socialism: "Democracy extends the sphere of individual freedom," he said. Democracy and socialism have nothing in common but one word: equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude. To allay these suspicions and to harness to its cart the strongest of all political motives - the craving for freedom - socialists began increasingly to make use of the promise of a "new freedom.
To make this argument sound plausible, the word "freedom" was subjected to a subtle change in meaning. The word had formerly meant freedom from coercion, from the arbitrary power of other men. Now it was made to mean freedom from necessity, the old demand for a redistribution of wealth. They meant freedom reduced to hunger for power and wealth.
The claim that a planned economy would produce a substantially larger output than the competitive system is being progressively abandoned by most students of the problem. Although our modern socialists' promise of greater freedom is genuine and sincere, in recent years observer after observer has been impressed by the unforeseen consequences of socialism, the extraordinary similarity in many respects of the conditions under "communism" and "fascism.
No less significant is the intellectual outlook of the rank and file in the communist and fascist movements in Germany before The relative ease with which a young communist could be converted into a Nazi or vice-versa was well known, best of all to the propagandists of the two parties.
The communists and Nazis clashed more frequently with each other than with other parties simply because they competed for the same type of mind and reserved for each other the hatred of the heretic. Their practice showed how closely they are related. To both, the real enemy, the man with whom they had nothing in common, was the liberal of the old type. While Nazis, communists and socialists are potential recruits made of the right timber for each othre, they all know that there can be no compromise between them and those who really believe in individual freedom.
What is promised to us as the Road to Freedom is in fact the Highroad to Servitude. For it is not difficult to see what must be the consequences when democracy embarks upon a course of planning. The goal of the planning will be described by some such vague term as "the general welfare. The result is they may all make a journey which most of them do not want at all. Democratic assemblies cannot function as planning agencies. They cannot produce agreement on everything - the whole direction of the resources of the nation.
The number of possible courses of action will be legion. Even if a congress could, by proceeding step by step and compromising at each point, agree on some scheme, it would certainly in the end satisfy nobody. To draw up an economic plan in this fashion is even less possible than, for instance, successfully to plan a military campaign by democratic procedure. As in strategy it would become inevitable to delegate the task to experts. And even if, by this expedient, a democracy should succeed in planning every sector of economic activity, it would still have to face the problem of integrating these separate plans into a unitary whole.
There will be a stronger and stronger demand that some board or some single individual should be given power to act on their own responsibility. The cry for an economic dictator is a characteristic stage in the movement toward planning. Thus the legislative body will be reduced to choosing the persons who are to have practically absolute power.
The Road to Serfdom, the Definitive Edition
There is no justification for the widespread belief that, so long as power is conferred by democratic procedure, it cannot be arbitrary. It is not the source of power which prevents it from being arbitrary; to be free from dictatorial qualities the power must also be limited.
Even a democratic "dictatorship of the proletariat," undertaking centrally to direct the economic system, would probably destroy personal freedom as completely as any autocracy has ever done. In wartime, subordination of almost everything to the immediate need of victory comes at a price by which we preserve our freedom in the long run. The fashionable phrases about doing for the purposes of peace what we have learned to do for the purposes of war are completely misleading, for it is sensible temporarily to sacrifice freedom in order to make it more secure in the future, but it is quite a different thing to sacrifice liberty permanently in the interests of a planned economy.
To those who have watched the transition from socialism to fascism at close quarters, the connection between the two systems is obvious. The realization of the socialist program means the destruction of freedom. Democratic socialism, the great utopia of the last few generations, is simply not achievable. This is a classic from a great world economist of a bygone era. Because he condemned national socialism after WWII, his works became popular.