2. Friedrich Hayek
Context to Hayek’s writing
• Writing during WW2 he argues western democracy’s attraction to socialism will lead to authoritarian
dictatorships → soviet Russia or nazi Germany
• Seeking to remind people of the success of economies free of planning, he judged capitalist democracies
had become so free that people had taken this prosperity for granted.
• Book originally began as a memorandum to William Beveridge in the LSE, it was written for a British
audience; Isaiah Berlin working in the British Embassy Washington wrote to a friend in April 1945 that he
was ‘still reading the awful Dr Hayek’
• Hayek’s criticism of socialism was never well received → he had tried to aid the war effort of the British,
but had been rejected. Mobilisation for total war required a massive reallocation and planning of
resources away from peacetime consumer goods and capital; the market system was effectively
abandoned, and his fear was this would be continued.
• Otto Neurath has touted the need for the ‘war economy’ to be continued in peacetime.
• By 1942, the labour party issued a pamphlet titled ‘the old world and the new society’ → this lay out
claims there “must be no return to the unplanned competitive world”; planned society should replace
competitive market where “a privileged few were maintained at the expense of the common good”
• This resulted in the Beveridge report which was an ‘immediate success’ → nobody wanted to return to
deprivation; and there was a desire for the sacrifices made during the war to result in a more equal society
post-reconstruction.
• Hayek wanted to remind Britain of its ‘liberal democratic heritage’ – a centrally planned society = inimical
to liberty. Hayek wanted to address the belief socialism was seen as the next logical phase in a collapsing
capitalism. Hayek viewed fascism and communism to have more in common that liberal democracy.
The Road to Serfdom (Hayek 1944)
Summary of themes & lecture
• Hayek promoted individualism and the negative conception of liberty → where coercion of individuals
is ‘reduced as much as possible’ (Hayek 1944) → this then takes on positive characteristics, allowing
individuals the capacity to pursue their own desires (links to Dunn 1996 – Constant link)
o Social order of a classic liberal character best enables citizens to satisfy own preferences and
avoid coercion by others.
o He is broadly consequentialist and utilitarian in his argument, though his belief in human’s
inability to judge long-term consequence/being ignorant is not utilitarian.
o Believes humans are orientated towards objects → classified as ‘subjective’ rather than
objective properties which could be observed by a scientist (positivism)
• Collective central planning inhibits society’s natural development through the spontaneous order of
free markets. Individual freedom prevented by society becoming unstable, leading to a ‘totalitarian
organisation of life’ in the interest of those exercising control (Hayek 1944).
o This means totalitarianism is the unintended consequence of the pursuit of economic
planning.
• Ideological? Strongly polemical work → means his reputation as an idealogue has prevented
appreciation of his intellectual contributions; this has led to misconception it is a work solely focused
on opposing socialist principles + state intervention; this obfuscates his true focus on the connection
between economic planning + individual liberty; he is not an endorser of laissez-faire government a
state that does nothing cannot be ‘rationally defended’; In the constitution of liberty postscript he
clearly states he is not a Conservative
o Hayek’s liberalism allows a fair degree of government activity, but based upon the rule of
law.
, • Safety Nets (Gamble 1996) - Accepts that in certain circumstances the state should provide safety
nets. But he does not believe social justice exists, there is no ‘fair outcome’. Inequalities within the
market are justified providing they don’t infringe the general rules that govern the market (this links
to Smith’s invisible hand) → Hayek notes the state must play a role in removing barriers which
prevent institutions from spontaneously developing.
o Hayekian terms: Cosmos = spontaneous order resting on general rules. No single source of
authority. Most general kind of spontaneous order is the market order (Catallaxy); and Taxis
= planned order directed towards particular ends. Taxis exists within the Cosmos – needs to
be limited as MUCH as possible; taxis should have a single will and single source of authority
• Knowledge and epistemological argument – he first set out his epistemology in ‘economics and
knowledge’ (1937) → successful economic planning is an epistemological impossibility (Gray 1998).
Hayek views knowledge as tacit, local and dispersed → it makes it impossible for planned institutions
to effectively gather it → NB this extends beyond Smith’s claim it was hard to acquire. The only
knowledge economists can work with is assumptions of what guides individuals (Gamble). Planning
therefore prevents the intricate and balanced coordination of dispersed knowledge and activities of
agents. This causes large scale waste, inefficiency through decisions being made on insufficient
knowledge. This can have unintended consequences. But, market mechanisms operating within
certain rules can efficiently coordinate dispersed knowledge (Catalaxy, provides a natural
equilibrium.
• Social justice – a ‘mirage’ (1944); viewing social justice as distributive justice. Gamble 1996 notes
Hayek sees social justice as one of the key ways collectivist movements have advanced. Justice for
Hayek is inherently tied to the rule of law – as long as laws are general and abstract, the outcomes
will be just, it is impersonal and ‘blind’. But state planning makes outcomes of the law personal, and
state leaders will be directly blamed for any perceived ‘injustice’ that occurs. The tole of the state is
therefore to support with the bare minimum, so no individual falls through the floor.
o Pursuit of social justice will have mischievous consequences.
• Law – good society doesn’t simply rest on pursuit of self-interest within a legal framework but on a
complex framework of law, moral tradition, rules of behaviour → the character of which can only be
known tacitly (indirectly) by majority of members. Law (Skobel 2007)
Definitions: Personal liberty: “respect for the individual man qua man, that is, the recognition of his
own views and tastes as supreme in his own sphere;
Socialism: ‘socialism means the abolition of private enter-prise, of private ownership of the means of
production, and the creation of a system of “planned economy” in which the entrepreneur working for
profit is replaced by a central planning body”
Hayek’s reflection on socialism during WW2 (C1+2)
• Commonality of fascism and Marxism - people have “completely misconceived the nature of these
movements” in reference to fascism and communism. Hayek argues US and UK have assumed they
are disconnected from the liberal world.
o “the connection between socialism and nationalism in Germany was close from the
beginning”
• He was concerned that England would follow in the “fate” of Germany through pursuing collective
centralised planning. The greatest danger is journeying down this road without realising “though the
road be long, it is one on which it becomes more difficult to turn back as one advances” → his
greatest concern was therefore people not realising what had caused the rise of fascism in Germany,
instead blaming it on German characteristics rather than planning economy. England was sharing in
the ideas of Germany 20-30 years previous.
• Classical liberalism was eroding up to WW2 → We have progressively abandoned that freedom in
economic affairs without which personal and political freedom has never existed in the past.”
Concerned England was losing its intellectual leadership in personal freedom, instead learning from
, German intellectuals who purported socialism. British/Americans had become ‘ashamed’ in these
ideas.
• He argues success of liberalism has led to its decline, making men free to no longer ‘tolerate the evils
with him’ → benefits of liberalism too slow.
• Argues revolt against liberalism started in French Revolution – an example he uses to evidence how
they wanted to replace equality with ‘freedom from necessity’ → the word liberty was exploited
under the banner of socialism and ‘flag of liberty’ – despite no freedom of thought (seen as a 19thC
evil); De Tocqueville recognised socialism restricted the sphere of individual freedom. Argues that
socialists have used the word ‘liberal’ to describe freedom movements so that their resulting serfdom
appears ‘inconceivable’.
• He is absolutist – ‘it is a utopia to think democracy and socialism can co-exist’.
Individualism versus collectivism (c3)
• Socialism is a ‘species’ of collectivism, where the aim is to equally distribute resources through
central planning, however this can be used to divert resources to favoured groups making it unequal.
The methods are therefore the same for making society either ‘more just’ or diverting resources to
aristocrats. [Method is not uniquely good]
• Socialists agree about the method of redistribution, but not the end. This creates a ‘dispute’ over the
best way to plan, and the uncertainty over the ‘end’ of the planning is driven by the vague/ambiguous
terms used (i.e. such as common good)
• Hayek argues market place competition and free price setting is the only way activities can be
‘adjusted to eachother’ without coercion/arbitrary intervention – underlying legal framework needed
to prevent restriction of trade between buyers and sellers.
o Using the ‘forces of competition’ as a means of ‘coordinating human efforts’; using a
‘carefully thought out legal framework’
o Entry into trades must therefore be on equal terms, with the law being used to prevent
attempts to restrict entry or control prices which ‘deprives competition of its power’ +
therefore reduces impact of coordinating individual efforts.
o Intervention must be carefully thought through, with advantaged gained exceeding the social
cost of imposing – Hayek would therefore support intervention to ban dangerous
substances, limit working hours etc.
• Hayek is not absolutist though, he recognises exceptions should be made for protecting public safety,
limited social services & improving infrastructure. The government is in essence a referee to the
market.
o It may be ‘unpractical’ for usage of some services to be dependent on paying (i.e. roads) –
this requires a system other than competition.
• Competition is therefore dependent on an ‘appropriate legal system’ – to ‘pre-serve competition
and make it operate as beneficially as possible’ – it’s not enough to state recognition of freedom or
private property, precision of the definition and how it is applied is essential and study of such law has
been ‘sadly neglected’
o When competition is destroyed (and he notes both left + right ‘hostility’ towards
competition), consumers are left ‘at the mercy’ of joint monopolist action – planning is
conducted by the monopolist, who then benefits from it ➔ evidences that a combination of
the free market and centralised planning would be the ‘worst of both worlds’ ➔ “both
competition and central direction become poor and inefficient tools if they are incomplete”
Hayek’s assessment of planning’s attractiveness+ flaws in the argument (C4)
1. As industries develop, they become monopolies and only the state can restore competition → but he
argues this is a consequence of state support “aspiring monopolists regularly seek and frequently obtain the
assistance of the power of the state”
2. Economies are so complicated they require planning to prevent chaos. But it is this complexity that
requires competition. Competition is the ‘only’ method through which coordination can take place. This
, cannot be managed in an office → “nobody can consciously balance all the considerations bearing on the
decisions of so many individuals”. Without this decentralisation, industry would not have become as
differentiated/complex + flexible as it is.
3. Forcing people to use new tech will reduce cost + make it more viable + advance civilisation. Hayek argues
benefits would be limited and at the cost of developing another tech. We can prioritise development of new
tech > liberty. “if we want to preserve it [liberty] we must guard it more jealously than ever and that we must
be prepared to make sacrifices for it”.
4. Technologists can focus resources on special tech, such as German autobahn. Hayek argues ‘pet projects’
should be liable to the market place. The Autobahn has little ‘justification’ to them. He notes the subjectivism
of what is a good focus on resources “we all think that our personal order of values is not merely personal” –
people cannot agree what to focus resources on. Those most anxious to plan, with personal obsessions would
become “the most dangerous”, they are the “frustrated specialist”
Planning becomes dictatorial + erodes democracy as requirements of collectivism are not suited to
democratic institutions
• He notes criticism that western capitalist democracy lacks a ‘conscious’ aim, instead guided by ‘whims
and fancies’
• (1) The aim of collectivism is vague and morally suspect → defined as “the deliberate organisation of
the labors of society for a definite social goal” → collectivist planners replace individual preference
with unitary purpose. This is how fascism and Nazism hold similarities, replacing individual
preferences with a ‘common purpose’. A ‘common purpose’ or ‘common good’ are terms which
“have no sufficient;y definite meaning to determine a particular course of action”. Failed to recognise
autonomous spheres where ‘individual reigned supreme’.
o Happiness of people is dependent on many things, which can exist in different combinations
and cannot be ‘adequately expressed as a single end; assumes an ethical code exists which
ranks all human values → there is ‘no such ethical code’
• (2) Legislating a unitary purpose would require many small adjustments to the economy → this would
become impossible as democracy and legislature are designed for decisions where the majority
already agrees → there would be a lot of disagreement.
o Assessment of these needs will always be ‘only an infinitesimal fraction of the needs of all
men’ → this means that when there is no agreement, the state is ‘bound to supress
individual freedom’ → quite simply, you cannot expand the sphere of common action and
leave individual free in their sphere.
o He notes that in Germany 1928, the state owner 53% of the economy → individual ends
become dependent on ‘the action of the state’ and its values
• (3) Central planning leads to dictatorial effect even if it starts democratic (i.e. Germany 1928) →
lawmakers will be tempted to pass vague laws. Decisions left to the bureaucrats.
o A - The vague terms of ‘common welfare’ obfuscate the “absence of real agreement on the
ends of planning”
o B – Unable to ascertain what seems to be a clear mandate + population will be caused
‘dissatisfaction’
o C – Gov asked to produce agreement on everything – ‘system of majority decision’ = not
suited
o D – Cannot break economic plan into small chunk and then vote on it as it needs a ‘unitary
conception’ – planning of economy where everything must be ‘carefully adjusted’ cannot be
done through compromise.
o E – no true agreement can be reached in democratic assemble, as views are too divergent →
this will lead to the “cry for an economic dictator” as democratic assemblies will be unable to
produce a plan.
