The Road to Serfdom

The Road to Serfdom

What is the competitive system? Why is it so important for freedom according to Hayek? Is Hayek arguing for no government interference at all in the economy? What is the road to serfdom? How does this relate to Nazism?
How does Hayek’s argument for competition contradict Franklin Delano Roosevelt’s argument for a right to economic security in Document 22, “Four Freedoms.”

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Introduction

Friedrich Hayek (1899-1992) was an Austrian economist, and one of the founders of the Austrian school of economics. He was born in Vienna and studied at the University of Vienna. He also worked with fellow Austrian school economist and teacher Ludwig von Mises at the Chamber of Commerce in Austria. He spent part of his academic career at the London School of Economics from 1931-1950, where he clashed with John Maynard Keynes. In this piece, Hayek demonstrates his range as a thinker, writer, and scholar who was versed in not only economics, but also politics, psychology, anthropology, and sociology to name a few disciplines he studied. His intended audience was popular, rather than academic.

The piece was first published in 1944 for a British audience, but was so widely successful in both the United Kingdom and the United States, that this abridged version was published by Reader’s Digest magazine for popular consumption. Hayek stated that the book’s title was inspired by Alexis de Tocqueville “who speaks about the road to servitude.” His target is the wide-spread admiration for centralized economic planning in public opinion and government administration in the wake of World War II.

Source: Friedrich A. Hayek. The Road to Serfdom. The condensed version of The Road to Serfdom by F. A. Hayek as it appeared in the April 1945 edition of Reader’s Digest London: The Institute of Economic Affairs, 1999. https://iea.org.uk/publications/research/the-road-to-serfdom Accessed: May 21, 2020.


The author has spent about half his adult life in his native Austria, in close touch with German thought, and the other half in the United States and England. In the latter period he has become increasingly convinced that some of the forces which destroyed freedom in Germany are also at work here [in England].

The very magnitude of the outrages committed by the National Socialists has strengthened the assurance that a totalitarian system cannot happen here. But let us remember that 15 years ago the possibility of such a thing happening in Germany would have appeared just as fantastic not only to nine-tenths of the Germans themselves, but also to the most hostile foreign observer.

There are many features which were then regarded as “typically German” which are now equally familiar in America and England, and many symptoms that point to a further development in the same direction: the increasing veneration for the state, the fatalistic acceptance of “inevitable trends”, the enthusiasm for “organization” of everything (we now call it “planning”).

. . .

In the democracies at present, many who sincerely hate all of Nazism’s manifestations are working for ideals whose realization would lead straight to the abhorred tyranny. Most of the people whose views influence developments are in some measure socialists. They believe that our economic life should be “consciously directed,” that we should substitute “economic planning” for the competitive system. Yet is there a greater tragedy imaginable than that, in our endeavor consciously to shape our future in accordance with high ideals, we should in fact unwittingly produce the very opposite of what we have been striving for?

Planning and power

In order to achieve their ends the planners must create power—power over men wielded by other men—of a magnitude never before known. Their success will depend on the extent to which they achieve such power. Democracy is an obstacle to this suppression of freedom which the centralized direction of economic activity requires. Hence arises the clash between planning and democracy.

Many socialists have the tragic illusion that by depriving private individuals of the power they possess in an individualist system, and transferring this power to society, they thereby extinguish power. What they overlook is that by concentrating power so that it can be used in the service of a single plan, it is not merely transformed, but infinitely heightened. By uniting in the hands of some single body power formerly exercised independently by many, an amount of power is created infinitely greater than any that existed before, so much more far-reaching as almost to be different in kind.

It is entirely fallacious to argue that the great power exercised by a central planning board would be no greater than the power collectively exercised by private boards of directors. There is, in a competitive society, nobody who can exercise even a fraction of the power which a socialist planning board would possess. To decentralize power is to reduce the absolute amount of power, and the competitive system is the only system designed to minimize the power exercised by man over man. Who can seriously doubt that the power which a millionaire, who may be my employer, has over me is very much less than that which the smallest bureaucrat possesses who wields the coercive power of the state and on whose discretion it depends how I am allowed to live and work?

In every real sense a badly paid unskilled workman in this country has more freedom to shape his life than many an employer in Germany or a much better paid engineer or manager in Russia. If he wants to change his job or the place where he lives, if he wants to profess certain views or spend his leisure in a particular way, he faces no absolute impediments. There are no dangers to bodily security and freedom that confine him by brute force to the task and environment to which a superior has assigned him.

Our generation has forgotten that the system of private property is the most important guarantee of freedom. It is only because the control of the means of production is divided among many people acting independently that we as individuals can decide what to do with ourselves. When all the means of production are vested in a single hand, whether it be nominally that of “society” as a whole or that of a dictator, whoever exercises this control has complete power over us. In the hands of private individuals, what is called economic power can be an instrument of coercion, but it is never control over the whole life of a person. But when economic power is centralized as an instrument of political power it creates a degree of dependence scarcely distinguishable from slavery. It has been well said that, in a country where the sole employer is the state, opposition means death by slow starvation.


Background to danger

Individualism, in contrast to socialism and all other forms of totalitarianism, is based on the respect of Christianity for the individual man and the belief that it is desirable that men should be free to develop their own individual gifts and bents. This philosophy, first fully developed during the Renaissance, grew and spread into what we know as Western civilization. The general direction of social development was one of freeing the individual from the ties which bound him in feudal society.

Perhaps the greatest result of this unchaining of individual energies was the marvelous growth of science. Only since industrial freedom opened the path to the free use of new knowledge, only since everything could be tried—if somebody could be found to back it at his own risk—has science made the great strides which in the last 150 years have changed the face of the world. The result of this growth surpassed all expectations. Wherever the barriers to the free exercise of human ingenuity were removed, man became rapidly able to satisfy ever-widening ranges of desire. By the beginning of the twentieth century the working man in the Western world had reached a degree of material comfort, security and personal independence which 100 years before had hardly seemed possible.

The effect of this success was to create among men a new sense of power over their own fate, the belief in the unbounded possibilities of improving their own lot. What had been achieved came to be regarded as a secure and imperishable possession, acquired once and for all; and the rate of progress began to seem too slow. Moreover the principles which had made this progress possible came to be regarded as obstacles to speedier progress, impatiently to be brushed away. It might be said that the very success of liberalism became the cause of its decline.


The liberal way of planning

“Planning” owes its popularity largely to the fact that everybody desires, of course, that we should handle our common problems with as much foresight as possible. The dispute between the modern planners and the liberals is not on whether we ought to employ systematic thinking in planning our affairs. It is a dispute about what is the best way of so doing. The question is whether we should create conditions under which the knowledge and initiative of individuals are given the best scope so that they can plan most successfully; or whether we should direct and organize all economic activities according to a “blueprint”, that is, “consciously direct the resources of society to conform to the planners’ particular views of who should have what”.

It is important not to confuse opposition against the latter kind of planning with a dogmatic laissez faire attitude. The liberal argument does not advocate leaving things just as they are; it favors making the best possible use of the forces of competition as a means of coordinating human efforts. It is based on the conviction that, where effective competition can be created, it is a better way of guiding individual efforts than any other. It emphasizes that in order to make competition work beneficially a carefully thought-out legal framework is required, and that neither the past nor the existing legal rules are free from grave defects.

Liberalism is opposed, however, to supplanting competition by inferior methods of guiding economic activity. And it regards competition as superior not only because in most circumstances it is the most efficient method known but because it is the only method which does not require the coercive or arbitrary intervention of authority. It dispenses with the need for “conscious social control” and gives individuals a chance to decide whether the prospects of a particular occupation are sufficient to compensate for the disadvantages connected with it.

The successful use of competition does not preclude some types of government interference. For instance, to limit working hours, to require certain sanitary arrangements, to provide an extensive system of social services is fully compatible with the preservation of competition. There are, too, certain fields where the system of competition is impracticable. 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 the fact that we have to resort to direct regulation by authority where the conditions for the proper working of competition cannot be created does not prove that we should suppress competition where it can be made to function. 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. Mere common sense proves a treacherous guide in this field. Although competition can bear some mixture of regulation, it cannot be combined with planning to any extent we like without ceasing to operate as an effective guide to production. Both competition and central direction become poor and inefficient tools if they are incomplete, and 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.


The great utopia

There can be 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.

. . .

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.” Socialism was to bring “economic freedom” without which political freedom was “not worth having.”

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, release from the compulsion of the circumstances which inevitably limit the range of choice of all of us. Freedom in this sense is, of course, merely another name for power or wealth. The demand for the new freedom was thus only another name for the old demand for a redistribution of wealth.

. . .

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.” There will be no real agreement as to the ends to be attained, and the effect of the people’s agreeing that there must be central planning, without agreeing on the ends, will be rather as if a group of people were to commit themselves to take a journey together without agreeing where they want to go: with the result that they may all have to 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—for 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 powers 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 whole system will tend toward that kind of dictatorship in which the head of government is from time to time confirmed in his position by popular vote, but where he has all the power at his command to make certain that the vote will go in the direction that he desires.

Planning leads to dictatorship because dictatorship is the most effective instrument of coercion and, as such, essential if central planning on a large scale is to be possible. 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. A true “dictatorship of the proletariat,”[1] even if democratic in form, if it undertook centrally to direct the economic system, would probably destroy personal freedom as completely as any autocracy has ever done.

Individual freedom cannot be reconciled with the supremacy of one single purpose to which the whole of society is permanently subordinated. To a limited extent we ourselves experience this fact in wartime, when subordination of almost everything to the immediate and pressing need is the price at 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 programme means the destruction of freedom. Democratic socialism, the great utopia of the last few generations, is simply not achievable.


Planning vs. the Rule of Law

Nothing distinguishes more clearly a free country from a country under arbitrary government than the observance in the former of the great principles known as the Rule of Law. Stripped of technicalities this means that government in all its actions is bound by rules fixed and announced beforehand—rules that make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances and to plan one’s individual affairs on the basis of this knowledge. Thus, within the known rules of the game, the individual is free to pursue his personal ends, certain that the powers of government will not be used deliberately to frustrate his efforts.

Socialist economic planning necessarily involves the very opposite of this. The planning authority cannot tie itself down in advance to general rules which prevent arbitrariness.

When the government has to decide how many pigs are to be raised or how many buses are to run, which coal-mines are to operate, or at what prices shoes are to be sold, these decisions cannot be settled for long periods in advance. They depend inevitably on the circumstances of the moment, and in making such decisions it will always be necessary to balance, one against the other, the interests of various persons and groups.

In the end somebody’s views will have to decide whose interests are more important, and these views must become part of the law of the land. Hence the familiar fact that the more the state “plans”, the more difficult planning becomes for the individual.

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 intended to help individuals in the fullest development of their individual personality and becomes an institution which deliberately discriminates between particular needs of different people, and allows one man to do what another must be prevented from doing. It must lay down by a legal rule how well-off particular people shall be and what different people are to be allowed to have.

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. It is significant that socialists (and Nazis) have always protested against “merely” formal justice, that they have objected to law which had no views on how well-off particular people ought to be, that they have demanded a “socialization of the law” and attacked the independence of judges.

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. By giving the government unlimited powers the most arbitrary rule can be made legal; and in this way a democracy 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. As Immanuel Kant put it, “Man is free if he needs obey no person but solely the laws”.[2]


Is planning “inevitable”?

It is revealing that few planners today are content to say that central planning is desirable. Most of them affirm that we now are compelled to it by circumstances beyond our control.

One argument frequently heard is that the complexity of modern civilization creates new problems with which we cannot hope to deal effectively except by central planning. This argument is based upon a complete misapprehension of the working of competition. The very complexity of modern conditions makes competition the only method by which a coordination of affairs can be adequately achieved. There would be no difficulty about efficient control or planning were conditions so simple that a single person or board could effectively survey all the facts. But as the factors which have to be taken into account become numerous and complex, no one center can keep track of them. The constantly changing conditions of demand and supply of different commodities can never be fully known or quickly enough disseminated by any one center.

Under competition—and under no other economic order—the price system automatically records all the relevant data.[3] Entrepreneurs, 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. It is no exaggeration to say that if we had had to rely on central planning for the growth of our industrial system, it would never have reached the degree of differentiation and flexibility it has attained. Modern civilization has been possible precisely because it did not have to be consciously created. The division of labor 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 competition and not depend on conscious control.

It is also argued that technological changes have made competition impossible in a constantly increasing number of fields and that our only choice is between control of production by private monopolies and direction by the government. 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. . . .

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 development. In the United States a highly protectionist policy aided the growth of monopolies. In Germany the growth of cartels has since 1878 been systematically fostered by deliberate policy. It was here that, with the help of the state, the first great experiment in “scientific planning” and “conscious organization of industry” led to the creation of giant monopolies. The suppression of competition was a matter of deliberate policy in Germany, undertaken in the service of an ideal which we now call planning.

Great danger lies in the policies of two powerful groups, organized capital and organized labor, which support the monopolistic organization of industry. The recent growth of monopoly is largely the result of a deliberate collaboration of organized capital and organized labor where the privileged groups of labor share in the monopoly profits at the expense of the community and particularly at the expense of those employed in the less well-organized industries. 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 activities 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. The consolation our planners offer us is that this authoritarian direction will apply “only” to economic matters. This assurance is usually accompanied by the suggestion that, by giving up freedom in the less important aspects of our lives, we shall obtain freedom in the pursuit of higher values. On this ground people who abhor the idea of a political dictatorship often clamor for a dictator in the economic field.

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. What is misleadingly called the “economic motive” means merely the desire for general opportunity. 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.

We shall better understand the significance of the service of money if we consider what it would really mean if, as so many socialists characteristically propose, the “pecuniary motive” were largely displaced by “non-economic incentives.” 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 allowed to choose, and that whoever fixed the reward would determine not only its size but the way in which it should be enjoyed.

The so-called economic freedom which the planners promise us means precisely that we are to be relieved of the necessity of solving our own economic problems and that the bitter choices which this often involves are to be made for us. Since under modern conditions 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. There is hardly an aspect of it, from our primary needs to our relations with our family and friends, from the nature of our work to the use of our leisure, over which the planner would not exercise his “conscious control”.

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 production.

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.

It 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 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. Not our own view, but somebody else’s view of what we ought to like or dislike, would determine what we should get. . . .

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.


Two kinds of security

Like the spurious “economic freedom”, and with more justice, economic security is often represented as an indispensable condition of real liberty.[4] In a sense this is both true and important. Independence of mind or strength of character is rarely found among those who cannot be confident that they will make their way by their own effort.

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 general level of wealth ours has, the first kind of security should not be guaranteed to all without endangering general freedom; that is: some minimum of food, shelter and clothing, sufficient to preserve health. 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.

If, as has become increasingly true, the members of each trade in which conditions improve are allowed to exclude others in order to secure to themselves the full gain in the form of higher wages or profits, those in the trades where demand has fallen off have nowhere to go, and every change results in large unemployment. 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. This has been made possible by the “regulation” of competition. Few catchwords have done so much harm as the ideal of a “stabilization” of particular prices or wages, which, while securing the income of some, makes the position of the rest more and more precarious.

In England and America special privileges, especially in the form of the “regulation” of competition, the “stabilization” of particular prices and wages, have assumed increasing importance. With every grant of such security to one group the insecurity of the rest necessarily increases. If you guarantee to some a fixed part of a variable cake, the share left to the rest is bound to fluctuate proportionally more than the size of the whole. And the essential element of security which the competitive system offers, the great variety of opportunities, is more and more reduced.

. . .

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 prosperity 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. It is essential that we should re-learn frankly to face the fact that freedom can be had only at a price and that as individuals we must be prepared to make severe material sacrifices to preserve it.

We must regain the conviction on which liberty in the Anglo Saxon countries has been based and which Benjamin Franklin expressed in a phrase applicable to us as individuals no less than as nations: “Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.”


Toward a better world

. . .

The guiding principle in any attempt to create a world of free men must be this: a policy of freedom for the individual is the only truly progressive policy.

Footnotes
  1. 1. A reference to Karl Marx’s idea in The Communist Manifesto that in between capitalism and socialism there will be an intermediate government system.
  2. 2. Immanuel Kant (1724-1804) was a German philosopher of the Enlightenment.
  3. 3. See Hayek’s argument in “The Use of Knowledge in Society”
  4. 4. This idea is proposed by FDR as one of his four freedoms