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The Road to Serfdom: Text and Documents--The Definitive Edition (The Collected Works of F. A. Hayek, Volume 2)

The Road to Serfdom: Text and Documents The Definitive Edition - Friedrich A. von Hayek, Bruce Caldwell, Bruce  Caldwell UtopiaIt’s never too early to start planning for summer vacation. This year, I’ve decided I want to go to Utopia. I’ve heard many good things about it: there’s no crime, pollution, or disease. It’s very clean and well-maintained. In fact, it is ideal in every imaginable way. Sir Thomas More tells us that Utopia doesn't exist; it's “nowhere”, but I refuse to believe this. A simple search on teh interwebs revealed quite a few utopias to choose from:1) How about that domed city in Logon’s Run? We should go there. It's one of the best utopias. On the outside, it looks like a tiny, cheap model of Epcot Center. On the inside, it's super-clean and futuristic: Who wouldn’t want to go there? WHO????...And the facilities are just the beginning! Everybody there is young and gorgeous! Most of them walk around in very revealing, loose-fitting clothes. The primary activities include free love, enigmatic athletic competitions, and FREE LOVE!! The food looks good too. It’s a non-stop party! ...until your 31st birthday, that is. Then they kill you... with their deadly acrobatics show/carnival ride:I don't really get that part, but trust me: they do kill you.On second thought, let’s not go there. (Exactly who in Logon's Run decides you have to be killed at 31? They don’t say, but somebody does, and it’s not you or me.)2) Okay, then. How about Metropolis? Fritz Lang’s 1927 film shows us a super-advanced city of the future. It looks like Manhattan on steroids. It’s clean, orderly and peaceful. I’ll bet the restaurants are fantastic! I'm not sure what there is to do in Metropolis. Probably museums and stuff. I'll bet they have a cool aviary. Also, there's the "Eternal Gardens", which is like Central Park, only more utopian. This will be a lot of fun!What's that you say? There's a large slave population forced to labor underground to keep this city so clean and beautiful? Buzzkill. That's not very utopian. Who's forcing all those people to be slaves? I don't feel so much like going now.3) Third time's the charm! Aldous Huxley's Brave New World! It's clean, efficient, and peaceful... if you happen to be an Alpha, that is. Who decides which kids get to be Alphas? Hayek and the WarUgh, forget it; I don't think I'll go to Utopia after all. There is definitely a pattern here. What is it about these perfect-looking societies that they always turn out to actually be oppressive? Friedrich A Hayek asks that in his 1944 classic treatise on planned and centrally-directed economies. It was an important question at the time, since we happened to be fighting the Third Reich, and wondering how Hitler had come to power. His dictatorship lifted Germany out of a serious depression by employing the jobless masses with enormous State-directed projects, including contruction of the Autobahn and a conspicuous military build-up. The German people loved that part, and they were promised a thousand-year Reich under his rule. The National-Socialist economy merged the organizational powers of government with the technical expertise of private industry. For a few years, Hitler had people believing it would be a teutonic utopia, and nobody was frightened by that.On the other side of the war, we have our ally against Hitler: Joseph Stalin; a strange bedfellow indeed. His dictatorship over the Soviet Union was not very different from Hitler's over Germany. Both ran concentration camps, and had secret police who tortured the citizenry. Stalin was one of the original revolutionaries who toppled Czar Nicholas II in 1917, by promising people a "Workers' Paradise". Sounds utopian to me. The coercive dialectic of planningWhat do all these utopias have in common? Centralization of power. The State directs not just political activities, but economic as well, which it justifies for the purposes of "coordination", "efficiency" and "planning". What's wrong with planning? Isn't it a good thing? Plans are how we make our vision of the future into reality, like this: See?I have lots of plans in my daily life. I manage my personal finances with a budget (a financial plan). I have career plans... you get the idea. This is entirely reasonable in one's personal life. Indeed, it is the responsible way to conduct personal affairs. If you have any money at all, you have to decide how to allocate it. This varies from household to household. Some people spend more fixing up the house; others send the kids to private school. The important thing is that these decisions do not require the consent of anybody outside of one's immediate family. There is no external coercive force telling you to buy a cheaper car so you can afford to remodel your kitchen. How about for larger organizations? The company you work for has to allocate its resources too. On this larger scale, there is a degree of lost personal control. If your company has a good year, it has to decide what to do with its surplus money. Those decisions are centralized within the organization; most lowly workers' opinions don't count for anything. The board of directors works with the CFO and the comptroller to determine expendatures. As an employee, perhaps you'd like to see surplus revenue directed towards a nice end-of-year bonus check for you. The directors, however might decide to give company shareholders an increased dividend instead. They also might decide to award themselves giant bonus checks and give you nothing. That happens a lot. If it bothers you enough, you might decide to quit. That's a drastic move, but it happens sometimes. If enough employees leave, the company may face manpower shortages, causing it to rethink its executive compensation packages. Employees may feel powerless in all this, but at least they have the option to leave, and it may be cold comfort, but the decision to quit (or not) contributes to an overall market climate which companies must respond to, if they are to survive. This sort of unsatisfying semi-autonomy is the concession we make for living in a complex modern liberal democratic capitalist society. Let's look at an even larger scale: Governments control larger sums of money than most corporations, and they too need to make rational decisions about how revenue is to be allocated. When our nation was young, government was more limited, and expenses were confined to things like national defense, which most citizens could agree was needed. Unfortunately, as [a:C. Northcote Parkinson|52263|C. Northcote Parkinson|http://d.gr-assets.com/authors/1217523009p2/52263.jpg] notes (often humorously), governments have a natural tendency to expand over time. Today, government has its hand in all sorts of things we never anticipated: subsidizing avacado farmers, protecting the endangered five-kneed arctic snow cricket, funding special programs for rural kids to learn Hungarian folk dancing... I make fun, and maybe some of these programs are worthwhile, but consider: as government gets into more diverse programs, there is a steadily increasing liklihood that somebody out there will object. You just can't expect unanimity in a nation of 300 million. Somebody, somewhere is going to stand up and say "I don't want to pay higher taxes to protect the arctic snow cricket!" Now what do you do? Unlike private companies, you can't ask dissenters to leave; people just aren't that mobile or culturally flexible. You also can't tell people they don't have to pay for the government programs they don't use or don't like. The system is structured such that it needs everybody to pay their taxes. So how can the system respond to dissenters? There aren't many options. The answer is "Too bad. If you don't like the program, complain to your Congressman, maybe he'll change it (but probably not). In the mean time, you will pay your taxes, and if you don't, you will go to jail!"...And so the coercive power of the State makes its first appearance.About the RoadEverything I've discussed above is just background to what Hayek was getting at. I'm still just talking about democratic capitalist governments. Under our current system, you probably won't be able to get rid of taxes, but if you find one program or another objectionable enough, and if you can find enough like-minded voters, you may be able to convince your elected officials to make some changes. There is still some freedom for the individual in this system, albeit less and less as you look at larger and larger scales of social organization. ...There are 101 tangents I could go on at this point: deficit spending; how elected officials are rewarded with votes for starting new programs, and punished if they try to scale back; how special interests wield power and influence dispreportionate to their size, and how this perverts the allocation of resources. These things are all important, but I don't want to talk about them now, because Hayek didn't talk about them. His focus was on the interface between economic planning and totalitarianism. One way to explore this is to examine how totalitarian governments view economics. Instead of allowing vendors and producers to act as independent agents in the market, the State dictates from some central bureau how many widgets should be produced, and at what price they should be sold. As the failure of Soviet Communism illustrates, the market is more complex than a central bureau can fathom, so a Soviet-type command economy is extremely inefficient. The Chinese have fused some of the efficiencies of capitalist decision-making into a heavily State-directed model. So far, it seems a bit more efficient, adaptive, and responsive (to market forces), but I think Hayek would ask why the state of human rights is still so poor in China. I think his answer is that China is still far from a capitalist society. Economics takes a back seat to politics in China, as demonstrated by their heavy-handed censorship of the internet. Why is this? Why isn't China a blossoming flower of libertarianism? And what needs to change before China can be free? What needs to change is the philosophy regarding the purpose of government. Communism gained popular support by promising:✓to distribute the fruits of labor more equitably✓to provide an economic package to participants which includes guaranteed employment, state pension, and a full benefits package for life. That's a lot to deliver, and it requires economic tinkering on a whole different scale from what we are used to. We're talking about actual governmental hands-on management of resources. This requires not only an apparatus to form economic policy, but also a byzantine administrative system to keep records, and a management system to execute and enforce policy. Whereas 8% of the U.S. workforce is directly government employed, that number is around 73% in China! Now this conversation is getting somewhere!!! This is where Hayek really shines: dissecting command economies' disincentives to freedom:1)Greater, and more capricious inequlities necessitate greater coercion to enforce: Managing an entire economy requires a massive administrative system, which itself is essentially nonproductive. The productive elements of the economy have to support it, though (through taxes, or some other mechanism of tribute). Despite contributing nothing to national wealth, system adminitrators are the ones who decide how the fruits of labor are to be divided. Human nature being what it is, these officials usually award themselves a better lifestyle than the productive elements they are supposedly serving. Examples? : Check out the historic Sovietsky Hotel in Moscow. During the Soviet era, it was the most luxurious hotel in the city. In the lobby is a display of all the famous people who've stayed there over the years. You know who those people are?: high-ranking Soviet ministers, and foreigners from the West. Certainly nobody who works for a living! I'll leave you to find your own links about Kim Jong Il's palaces and Chairman Mao's decadences. The point is that while administrators are extracting productivity from the working class, they are enjoying luxuries workers can only dream about. That's bound to create some envy... the same sort of envy, in fact, that led to the Russian Revolution! To preserve order, a powerful police and/or military is needed. Enter once more the coercive powers of the State. A Ministry of Propaganda also helps preserve order, by building consent among the ruled... but note: a Ministry of Propaganda is yet one more non-producing sector of the economy, burdening the productive class, and flaming their discontent!2)Too Big to Fail, Now and Forever:A command economy may allow a certain degree of faux competition, but government engines of production can never be allowed to fail. That means essentially a public-funded bailout of any State institution, whenever it is needed (i.e. frequently). Without corrective market forces in place, valuable resources can be commandeered indefinitely to keep State engines going, however inefficient or misguided they may be. 3) If market forces don't make the decisions, human forces will:In a free market, consumer demand determines prices and profits. These can be harsh powers to reckon with; 50% of new businesses fail in the first five years. However, if you are smart and have a bit of luck, you may overcome these challenges, and if you do, the market rewards you with riches. In a command economy, the spoils go to whoever is slicing up the pie, irrespective of what they've contributed. The authority to take the lion's share of the wealth stems from political power rather than economic achievement. "The market" -if it has any real expression at all- has no bearing on one's material status. Where is the incentive to work hard or innovate? There isn't any. There is, however incentive to seek political power, since that is the pathway to riches.Aside: this is why directed economies never seem to innovate much. Innovation carries with it risk of failure. Launching an unproven new product requires capital and manpower. In a free market, you obtain these through venture capitalists, or patrons who believe in your idea. In a command economy, you would need to convince a government board to allocate the necessary materials and manpower. With no profits to be gained, why should they assume any risk of failure? 4) Free Speech, Intellectual Freedom, and the end of Truth:When State business is conducted under the guise of fulfilling a utopian dream, all economic activity is political activity. Thus dissent over economic injustices becomes political dissent against the utopian philosophy and its executors. Hayek quotes one Soviet official on this subject (p.176):"Whilst the work is in progress, any public expression of doubt, or even fear that the plan will not be successful, is an act of disloyalty and even of treachery because of its possible effects on the will and on the efforts of the rest of the staff."...so if you had the bad fortune to be rounded up in 1958, seperated from your family, and forced to do backbreaking work for up to twelve years in the service of building one of Chairman Mao's famed hydroelectric plants, complaint would have been taken as a sedition against The People!Sad to say, but we actually tolerate that sort of mentality here in free market societies as well. Speaking out against the war in Iraq was decidedly unfashionable in March of 2003. The difference is that here, we expect our freedoms of speech to eventually return. In directed economies, management of resources is a neverending affair. It will always be a work in progress, so dissent will always be criminal. Now consider that the State controls the media. It is easy to see why unpleasant truths never come to light, in directed economies. In fact "The Truth" is transformed from a matter of objectively provable facts to a product manufactured for official use. Back to the FutureHayek goes on at length about the mechanisms of tyrrany in directed economies, and he's wonderful. You should get the book. It is clear to see how a population living under central planning really are serfs, stripped of all assets and rights. ...But why am I bothering to write all this? Surely you already knew that Hitler and Stalin's governments were morally offensive. What's new about any of this?What's new is Hyak's exploration of how close free markets are to directed economies. What's new is Hayek showing how liberal free market systems degenerate into totalitarainism in fewer steps than I would have expected. It starts off innocently enough- pooling resources during times of trouble; temporary programs to relieve short-term economic downturns. This was all written in 1944. Don't look so surprised; you knew this part was comingIn 2008-2009, Congress gave TARP bailout money to distressed Wall Street Banks. Over the following eighteen months, Congress issued out another $23 trillion in public resources, with essentially no public debate. Distribution of the funds was government-directed, and far from transparent. Lehman Brothers was allowed to fail, while Bear Stearns, AIG, and Beltway darling Goldman Sachs were bailed out. Why? Who decided? The public trusted this was all done for the good of the economy.CONTINUED BELOW