Hayek’s Teachable Moment: There’s more to ‘Road’ than just ‘Serfdom’ 

Say what you want about Glenn Beck. But even he recently took valuable time out of his entertainment programming to teach American couch potatoes about one of the world’s greatest thinkers--Friedrich Hayek. Even Hayek’s popular work - The Road to Serfdom - will tax some readers. It’s hard readin’. But stay with it. It will fundamentally change the way you see the world.

The Road to Serfdom  is soaring on Amazon. Hayek’s ultimate fear about economic central planning - expressed in this book - was that it could lead to the kinds of systems Hayek had witnessed arising in Europe during the 1930s and 40s. But Hayek haters who would rather you not read inconvenient truths about the limits of government planning have latched onto what we’ll call the Samuelson Critique --  i.e. the idea that not all forms of socialism have lead to totalitarianism (as it did in Italy, German and the Soviet Union). In other words, before he died, Paul Samuelson said look at Denmark and said... “Where are the horror chambers?”

Austrian economist Don Boudreaux responds pointedly to the Samuelson Critique:

 

...Mr. Samuelson profoundly misread Hayek’s book.  Hayek said that “the planning against which all our criticism is directed is solely the planning against competition – the planning which is to be substituted for competition.”  So because Scandinavian countries emphatically do not plan in this way, Samuelson was mistaken to say that their socialism is of the sort that Hayek believed paved the road to serfdom.  Those countries have reasonably free trade, only light regulation of capital markets and business, and strong private property rights.  In short, all Scandinavia retains what for Hayek was the most significant protection against serfdom: competitive economies.

And while Hayek would disapprove of the size of Scandinavian welfare states, he stated explicitly that “Nor is the preservation of competition incompatible with an extensive system of social services.”

Still, can we think of any state currently substituting competition for central planning? (Think: GM, Chrysler, Fannie/Freddie, AIG, Big Energy, Green Energy, Big Corn, etc. etc.) Hayek gives us plenty of reasons not to let history repeat itself here in America -- Scandinavia notwithstanding.

Serfdom may not be at the end of every bureaucratic road paved with good intentions. Sometimes it’s just economic stagnation, unfunded liabilities and trillion-dollar debt bombs waiting in the future for our grandkids. But if Boudreaux is right, Obama’s vision of America looks more like socialism than Denmark, because Denmark isn’t eroding too many of the key institutions of capitalism despite its generous social safety net. Neither is America--yet.

But there is more to the Road to Serfdom than concerns about the political economy that leads to totalitarianism. A lot, in fact. Hayek goes over many of the vital concepts that constitute his true legacy:

  • Spontaneous Order - Complex society and open markets cannot be planned. Period. Human beings just ain’t smart enough. Instead, the extended order emerges - unplanned and undesigned - due to humans interacting in complex ways according to simple rules. These rules do not specify certain social ends, but rather bring order to the diverse ends of billions of people pursuing happiness.
  • The Knowledge Problem - It is impossible for a single mind or group of minds to predict, plan or control the innumerable inputs, outputs and actions in a market. Instead, knowledge is dispersed among billions of people. Entrepreneurial opportunities are seized by individuals with particular, local insights, and/or expertise in some specific area the bureaucrate cannot possess.
  • Price System - Entrepreneurs also respond to information flows communicated through the price system. Bureaucratic control of an economy is impossible due to the loss of information communicated through prices, and due to the inability of one to gain the right kinds of information at the right times and right places. “Prices are signals, not marching orders.”
  • Competition as a Discovery Procedure - The circumstances of time and place are critical to the success of competitive market actors. The idea that we can aggregate economic data - like macroeconomic data - in order to say something meaningful about how things should to be coordinated is, well, a bad idea. Competition among market actors looking for opportunities to offer a previously unnoticed value to consumers is basically crowd-sourcing value creation. Innovators compete, you win.


I’d tell you that Hayek is a Nobel Laureate, but I don’t want that to reflect poorly on him. Suffice it to say he is one of the greatest political philosophers and economists in history. He taught us that the economy is not a machine.

Now, If you’re think you’re really ready for some good, extended Hayek time, try: The Fatal Conceit and Law, Legislation and Liberty, vol. 1. These are even a bit harder to read than The Road to Serfdom, but they will repay careful study. Whatever you read of Hayek’s, you will come away seeing many things through fresh lenses.

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Max Borders

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