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

by Friedrich A. Hayek

Few are ready to recognize that the rise of fascism and naziism was not a reaction against the socialist trends of the preceding period but a necessary outcome of those tendencies.

It seems almost as if we did not want to understand the development which has produced totalitarianism because such an understanding might destroy some of the dearest illusions to which we are determined to cling.

There is nothing in the basic principles of liberalism to make it a stationary creed; there are no hard-and-fast rules fixed once and for all. The fundamental principle that in the ordering of our affairs we should make as much use as possible of the spontaneous forces of society, and resort as little as possible to coercion, is capable of an infinite variety of applications.

What has always made the state a hell on earth has been precisely that man has tried to make it his heaven. —Hölderlin1

The extraordinary thing is that the same socialism that was not only early recognized as the gravest threat to freedom, but quite openly began as a reaction against the liberalism of the French Revolution, gained general acceptance under the flag of liberty. It is rarely remembered now that socialism in its beginnings was frankly authoritarian. The French writers who laid the foundations of modern socialism had no doubt that their ideas could be put into practice only by a strong dictatorial government.

“Democracy extends the sphere of individual freedom,” he said in 1848; “socialism restricts it. Democracy attaches all possible value to each man; socialism makes each man a mere agent, a mere number. 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.”

What the promise really amounted to was that the great existing disparities in the range of choice of different people were to disappear. The demand for the new freedom was thus only another name for the old demand for an equal distribution of wealth. But the new name gave the socialists another word in common with the liberals, and they exploited it to the full.

“Stalinism is socialism, in the sense of being an inevitable although unforeseen political accompaniment of the nationalization and collectivization which he had relied upon as part of his plan for erecting a classless society,”

While to many who have watched the transition from socialism to fascism at close quarters the connection between the two systems has become increasingly obvious, in the democracies the majority of people still believe that socialism and freedom can be combined. There can be no doubt that most socialists here still believe profoundly in the liberal ideal of freedom and that they would recoil if they became convinced that the realization of their program would mean the destruction of freedom.

The liberal argument is in favor of making the best possible use of the forces of competition as a means of coordinating human efforts, not an argument for leaving things just as they are. 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 does not deny, but even emphasizes, that, in order that competition should work beneficially, a carefully thought-out legal framework is required and that neither the existing nor the past legal rules are free from grave defects.

The successful use of competition as the principle of social organization precludes certain types of coercive interference with economic life, but it admits of others which sometimes may very considerably assist its work and even requires certain kinds of government action. But there is good reason why the negative requirements, the points where coercion must not be used, have been particularly stressed. It is necessary in the first instance that the parties in the market should be free to sell and buy at any price at which they can find a partner to the transaction and that anybody should be free to produce, sell, and buy anything that may be produced or sold at all. And it is essential that the entry into the different trades should be open to all on equal terms and that the law should not tolerate any attempts by individuals or groups to restrict this entry by open or concealed force. Any attempt to control prices or quantities of particular commodities deprives competition of its power of bringing about an effective coordination of individual efforts, because price changes then cease to register all the relevant changes in circumstances and no longer provide a reliable guide for the individual’s actions.

To prohibit the use of certain poisonous substances or to require special precautions in their use, to limit working hours or to require certain sanitary arrangements, is fully compatible with the preservation of competition. The only question here is whether in the particular instance the advantages gained are greater than the social costs which they impose.

The systematic study of the forms of legal institutions which will make the competitive system work efficiently has been sadly neglected; and strong arguments can be advanced that serious shortcomings here, particularly with regard to the law of corporations and of patents, not only have made competition work much less effectively than it might have done but have even led to the destruction of competition in many spheres.

To create conditions in which competition will be as effective as possible, to supplement it where it cannot be made effective, to provide the services which, in the words of Adam Smith, “though they may be in the highest degree advantageous to a great society, are, however, of such a nature, that the profit could never repay the expense to any individual or small number of individuals”—these tasks provide, indeed, a wide and unquestioned field for state activity.

If we are, nevertheless, rapidly moving toward such a state, this is largely because most people still believe that it must be possible to find some middle way between “atomistic” competition and central direction. Nothing, indeed, seems at first more plausible, or is more likely to appeal to reasonable people, than the idea that our goal must be neither the extreme decentralization of free competition nor the complete centralization of a single plan but some judicious mixture of the two methods. Yet mere common sense proves a treacherous guide in this field. Although competition can bear some admixture 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; they are alternative principles used to solve the same problem, and a mixture of the two means that neither will really work and that the result will be worse than if either system had been consistently relied upon. Or, to express it differently, planning and competition can be combined only by planning for competition but not by planning against competition.

The alleged technological cause of the growth of monopoly is the superiority of the large firm over the small, owing to the greater efficiency of modern methods of mass production. Modern methods, it is asserted, have created conditions in the majority of industries where the production of the large firm can be increased at decreasing costs per unit, with the result that the large firms are everywhere underbidding and driving out the small ones; this process must go on until in each industry only one or at most a few giant firms are left. This argument singles out one effect sometimes accompanying technological progress; it disregards others which work in the opposite direction; and it receives little support from a serious study of the facts. We cannot here investigate this question in detail and must be content to accept the best evidence available. The most comprehensive study of the facts undertaken in recent times is that by the Temporary National Economic Committee on the Concentration of Economic Power. The final report of this committee (which certainly cannot be accused of an undue liberal bias) arrives at the conclusion that the view according to which the greater efficiency of large-scale production is the cause of the disappearance of competition “finds scant support in any evidence that is now at hand.”3 And the detailed monograph on the question which was prepared for the committee sums up the answer in this statement: “The superior efficiency of large establ...

The statesman who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted to no council and senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. —Adam Smith1

It merely starts from the indisputable fact that the limits of our powers of imagination make it impossible to include in our scale of values more than a sector of the needs of the whole society, and that, since, strictly speaking, scales of value can exist only in individual minds, nothing but partial scales of values exist—scales which are inevitably different and often inconsistent with each other. From this the individualist concludes that the individuals should be allowed, within defined limits, to follow their own values and preferences rather than somebody else’s; that within these spheres the individual’s system of ends should be supreme and not subject to any dictation by others. It is this recognition of the individual as the ultimate judge of his ends, the belief that as far as possible his own views ought to govern his actions, that forms the essence of the individualist position.

But in a society which for its functioning depends on central planning this control cannot be made dependent on a majority’s being able to agree; it will often be necessary that the will of a small minority be imposed upon the people, because this minority will be the largest group able to agree among themselves on the question at issue.

Formal rules are thus merely instrumental in the sense that they are expected to be useful to yet unknown people, for purposes for which these people will decide to use for them, and in circumstances which cannot be foreseen in detail. In fact, that we do not know their concrete effect, that we do not know what particular ends these rules will further, or which particular people they will assist, that they are merely given the form most likely on the whole to benefit all the people affected by them, is the most important criterion of formal rules in the sense in which we here use this term. They do not involve a choice between particular ends or particular people, because we just cannot know beforehand by whom and in what way they will be used.

The state ceases to be a piece of utilitarian machinery intended to help individuals in the fullest development of their individual personality and becomes a “moral” institution— where “moral” is not used in contrast to immoral but describes an institution which imposes on its members its views on all moral questions, whether these views be moral or highly immoral. In this sense the Nazi or any other collectivist state is “moral,” while the liberal state is not.

The Rule of Law thus implies limits to the scope of legislation: it restricts it to the kind of general rules known as formal law and excludes legislation either directly aimed at particular people or at enabling anybody to use the coercive power of the state for the purpose of such discrimination.

Because in modern society it is through the limitation of our money incomes that we are made to feel the restrictions which our relative poverty still imposes upon us, many have come to hate money as the symbol of these restrictions. But this is to mistake for the cause the medium through which a force makes itself felt. It would be much truer to say that 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.

But the question remains whether the price we should have to pay for the realization of somebody’s ideal of justice is not bound to be more discontent and more oppression than was ever caused by the much-abused free play of economic forces.

The fact that the opportunities open to the poor in a competitive society are much more restricted than those open to the rich does not make it less true that in such a society the poor are much more free than a person commanding much greater material comfort in a different type of society. Although under competition the probability that a man who starts poor will reach great wealth is much smaller than is true of the man who has inherited property, it is not only possible for the former, but the competitive system is the only one where it depends solely on him and not on the favors of the mighty, and where nobody can prevent a man from attempting to achieve this result. It is only because we have forgotten what unfreedom means that we often overlook the patent fact that in every real sense a badly paid unskilled worker in this country has more freedom to shape his life than many a small entrepreneur in Germany or a much better paid engineer or manager in Russia.

In a competitive society it is no slight to a person, no offense to his dignity, to be told by any particular firm that it has no need for his services or that it cannot offer him a better job.

On the whole question, what John Stuart Mill wrote nearly a hundred years ago remains equally true today: “A fixed rule, like that of equality, might be acquiesced in, and so might chance, or an external necessity; but that a handful of human beings should weigh everybody in the balance, and give more to one and less to another at their sole pleasure and judgment, would not be borne unless from persons believed to be more than men, and backed by supernatural terrors.”

This demand for security is thus another form of the demand for a just remuneration—a remuneration commensurate with the subjective merits and not with the objective results of a man’s efforts. This kind of security or justice seems irreconcilable with freedom to choose one’s employment.

That socialism can be put into practice only by methods which most socialists disapprove is, of course, a lesson learned by many social reformers in the past.

others had already learned the lesson that in a planned society the question can no longer be on what do a majority of the people agree but what the largest single group is whose members agree sufficiently to make unified direction of all affairs possible; or, if no such group large enough to enforce its views exists, how it can be created and who will succeed in creating it.

That socialism so long as it remains theoretical is internationalist, while as soon as it is put into practice, whether in Russia or in Germany, it becomes violently nationalist, is one of the reasons why “liberal socialism” as most people in the Western world imagine it is purely theoretical, while the practice of socialism is everywhere totalitarian.3 Collectivism has no room for the wide humanitarianism of liberalism but only for the narrow particularism of the totalitarian.

To split or decentralize power is necessarily to reduce the absolute amount of power, and the competitive system is the only system designed to minimize by decentralization the power exercised by man over man.

The most effective way of making people accept the validity of the values they are to serve is to persuade them that they are really the same as those which they, or at least the best among them, have always held, but which were not properly understood or recognized before. The people are made to transfer their allegiance from the old gods to the new under the pretense that the new gods really are what their sound instinct had always told them but what before they had only dimly seen. And the most efficient technique to this end is to use the old words but change their meaning.

The situation in a totalitarian state is permanently and in all fields the same that it is elsewhere in some fields in wartime. Everything which might cause doubt about the wisdom of the government or create discontent will be kept from the people. The basis of unfavorable comparisons with conditions elsewhere, the knowledge of possible alternatives to the course actually taken, information which might suggest failure on the part of the government to live up to its promises or to take advantage of opportunities to improve conditions—all will be suppressed. There is consequently no field where the systematic control of information will not be practiced and uniformity of views not enforced.

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 be believed in the interest of the unity of the organized effort and which may have to be altered as the exigencies of this organized effort require it.

The idea that the human mind ought “consciously” to control its own development confuses individual reason, which alone can “consciously control” anything, with the interpersonal process to which its growth is due. By attempting to control it, we are merely setting bounds to its development and must sooner or later produce a stagnation of thought and a decline of reason.

Even though some workmen will perhaps be better fed, and all will no doubt be more uniformly dressed in that new order, it is permissible to doubt whether the majority of English workmen will in the end thank the intellectuals among their leaders who have presented them with a socialist doctrine which endangers their personal freedom.

A complex civilization like ours is necessarily based on the individual’s adjusting himself to changes whose cause and nature he cannot understand: why he should have more or less, why he should have to move to another occupation, why some things he wants should become more difficult to get than others, will always be connected with such a multitude of circumstances that no single mind will be able to grasp them; or, even worse, those affected will put all the blame on an obvious immediate and avoidable cause, while the more complex interrelationships which determine the change remain inevitably hidden to them.

individual freedom cannot be reconciled with the supremacy of one single purpose to which the whole society must be entirely and permanently subordinated. The only exception to the rule that a free society must not be subjected to a single purpose is war and other temporary disasters when subordination of almost everything to the immediate and pressing need is the price at which we preserve our freedom in the long run.

What our generation is in danger of forgetting is not only that morals are of necessity a phenomenon of individual conduct but also that they can exist only in the sphere in which the individual is free to decide for himself and is called upon voluntarily to sacrifice personal advantage to the observance of a moral rule. Outside the sphere of individual responsibility there is neither goodness nor badness, neither opportunity for moral merit nor the chance of proving one’s conviction by sacrificing one’s desires to what one thinks right.

The guiding principle that a policy of freedom for the individual is the only truly progressive policy remains as true today as it was in the nineteenth century.