Archive for May, 2011

The Road to Serfdom: Chapter 2

“That socialism has displaced liberalism as the doctrine held by the great majority of progressives does not simply mean that people had forgotten the warnings of the great liberal thinkers of the past about the consequences of collectivism. It has happened because they were persuaded of the very opposite of what these men had predicted.” –pg 76

The Great Utopia

                In this chapter Hayek begins by laying out the first step required in moving the masses from supporting the general theories of laissez-faire to the more modern views of democratic socialism. The lynchpin of this shift was to be a subtle but important shift in the meaning of the word freedom. A subversion of the meaning of a people’s central principle could lead them to support philosophies that were drastically opposed to those philosophies that they initially supported. In this case the word freedom was gradually changed from meaning freedom from political coercion to meaning freedom from scarcity. It is easy to see how this would appeal to supporters of free markets when one takes into consideration the lack of freedom of choice experienced by those on the lower rungs of the socio-economic ladder. True liberty would mean that an individual’s choices would not be limited by economic factors.

                We can see that in this context freedom is synonymous with wealth and the consequence of the union of these two concepts is that no one can truly be free while wealthier individuals have greater opportunities of freedom. This complete reversal of values, from the principles of individual achievement to the equal redistribution of wealth, was not completely appreciated at the time. The move towards democratic socialism was seen as an advancement upon the laissez-faire philosophy which made it difficult for many intellectuals to view this shift critically. Socialism was embraced as the heir of the liberal tradition and it therefore would have been impossible for the intellectuals of the day to realise that socialism would produce an outcome opposite to that which had previously been produced under the liberal doctrine.

                For those that believe our current economic malaise is the result of decades of socialist economic policies an acknowledgement must be made of the failure of the old liberal doctrines to defend against this shift in values. If we want to move beyond the current state of democratic socialism it will do us no good to promote simple-minded principles of 19th century laissez-faire as some modern libertarian groups do. We must acknowledge that an individual cannot properly express their political freedoms if they cannot also acquire economic freedoms. It cannot be denied that the rich lose less relative to what the poor gain from the coercive redistribution of wealth and simply pointing out the coercion of redistribution will not convince socialists to once again accept the principles of liberty.

                To move the current debate forward I believe that it will become important to point out where legitimate arguments for the necessity of coercive distribution of wealth are being used to justify unjust distributions of wealth. While the coercive redistribution of wealth from rich to poor may be necessary, there is nothing within the modern socialist theories that can justify the monopolistic operation of government poverty programs. The true level of poverty cannot be calculated in a system that draws monopolist rents from society at the same time that it attempts to eliminate poverty. We do not know where those monopolist rents would have gone and it is possible that some of the poverty may in fact be due to the removal of these rents from the economic system. Since socialists are interested in eliminating poverty and not simply padding the coffers of government officials, a move towards a competitive system of government regulated poverty programs can easily be seen as an important compromise between socialists and supporters of free market competition.

A Book of its Time

                The second half of this chapter dives headlong into Hayek’s theories of the inevitable slide of democratic socialism into fascism. It is difficult to see how much I am going to discuss this part of the book because I simply believe that Hayek got it wrong. Having a broader understanding of the total threat faced by the allies during WWII and also during the cold war we can see many totalitarian elements rise within the democratic nations of the time; internment camps, coercive central planning and distribution, and a permanent military industrial complex are just some examples. The seeds of Hayek’s vision were all in place and yet it did not come to pass. As we read The Road to Serfdom with the advantage of hindsight we can see that as bad as things got the democratic nations never supported leaders that engaged in extreme violence against their own populace. Instead of simply dismissing this part of Hayek’s thesis I believe it will beneficial to look into the causes of his error.

                The first thing that needs to be pointed out is that, depending on the definition of fascism used, Hayek was not entirely incorrect. While we do not live in the brutal fascist society of Germany during the World Wars, we do face a certain amount of soft economic fascism. The populace of modern democracies would be outraged if their government engaged in open violence against them but it is often forgotten that laws benefitting special interest groups at the expense of the general populace are still backed by the threat of unjustified violence. This system of soft fascism remains in place because people have been led to believe that the laws are necessary or they simply do not understand the consequences of all the redistribution and regulation that the government engages in. When reading The Road to Serfdom we must always remember that our current state of economic fascism at its worst is nothing more than the reduction of the wealth of the middle and upper classes and is no way similar to the regular threats of violence those in Germany and Russia faced for disobeying orders that often had nothing to do with the amount of the wealth the individual possessed.

                The other point that needs to be taken into consideration is that there have been two main forces holding back the ability of the state to consume the productive capital of the economy. Namely the massive number of technological advances that occurred throughout the 20th century and the reliance on deficit financing to ensure that the government was never in a position to fail at maintaining its spending commitments. If we are living in a time of technological and economic stagnation and the only way to prop up the socialist democratic system is through deficit financing, we have to admit that we cannot be entirely sure how much conflict will be created once the status quo cannot be sustained. When there are a limited number of resources to pay for an unsustainable number of social programs it will inevitably create conflict between the groups that wield political power and the voters that fund those groups. If voters refuse to pay for these programs and the unions of the socialized economy respond by going on strike, it may become necessary for the government to engage in violent actions against certain portions of its populace. We may not see the fascism because the forces that would lead the government to require a fascistic response are being held at bay through deficit financing.

                It is this view that I will take whenever discussing Hayek’s more archaic views. I address the issue here because going forward I will not spend much time defending or criticizing the similarities between modern democratic socialist states and the most heinous aspects of Hitler’s Germany and Stalin’s Russia, I think it is pretty evident that we will never slide back to that extreme. However, I will discuss Hayek’s views in relation to the aspects within modern democracies that can cause a perfectly functioning democracy to slide into the soft economic fascism that we see many modern states threatened with today.

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The Road to Serfdom: Chapter 1

“We are ready to accept almost any explanation of the present crisis of our civilization except one: that the present state of the world may be the result of genuine error on our own part and that the pursuit of some of our most cherished ideals has apparently produced results utterly different from those which we expected.” -pg 66

The Abandoned Road

            In this first chapter we see the core thesis of Hayek’s work, how good intentions can lead to negative results. Although this is little more than assertion at this point we can already see the historical framing of the work. Hayek is fearful that the principles of freedom that were responsible for much of the prosperity of the 19th century will be tossed aside in the face of the successful planning that took place during World War II.

            It is hard to argue with the success of WWII as an operation whose goal it was to defend freedom within Europe and around the world. A project where societies comprised of millions had to be rapidly planned and coordinated to address one massive obstacle, whose outcome would have serious ramifications for every person around the globe. It was apparent to Hayek that the ability of the government to manage this operation would drastically alter the beliefs of a society which not long before had believed in the principle of individualistic organization. To Hayek this shift in values towards central planning would inevitably lead to the fascist outcomes that he saw arise in Germany and Russia.

Fundamental Principles of Liberalism

            For Hayek there were no hard and fast rules laid down by the principles of classical liberalism. He believed that the fundamental principle of classical liberalism was that in ordering our affairs we should make as much use as possible of the spontaneous forces of society, and resort as little as possible to the use of coercion. It was his belief that deliberate action should be taken to create a system where competition would work as beneficially as possible and that liberalism was not an argument for the passive acceptance of institutions.

            Hayek did not agree with classical liberals who ideologically supported a strict doctrine of laissez-faire but, considering that everyone could lay forth their particular preferred exception, Hayek understood that strict rules would be necessary and unavoidable. Without these rules it was trivial for special interest groups to show the immediate effects that their programs conferred on some, while the harm they caused was more indirect and difficult to see. Those that would pay the costs were dispersed within society and not entirely aware of the costs they paid.

            If the principles of classical liberalism that created such great prosperity were not understood, it would only be a matter of time before the combined efforts of special interest groups would be able to penetrate the stiff laissez-faire doctrine and collapse the popular support for the philosophy. In Hayek’s mind the advancement required to fully understand the benefits of spontaneous order were not yet acquired to a degree suitable to scientifically fend off the propaganda of those who opposed classical liberalism. The special interest groups could create critiques faster than the scholars of political economy could discover the general laws that revealed the dispersed costs to the general public.

            The defence against the ever increasing costs of special interests could only ever mean the protection of the general prosperity of a society. A prosperity that no individual could directly point to nor could they have a complete understanding of what their total share was. The inability to determine this share meant that individuals within society would be unable to rationally calculate their preferences and likely would support policies that they themselves would be forced to pay an unfair share for. While the classical liberal philosophy was slower and more gradual than government intervention, the classical liberal philosophy at least had an objective methodology for determining if it was meeting the individual preferences of those that paid for and benefitted from the voluntary programs within the economy.

Patterns of Sustainable Trade and Specialization

            What Hayek is laying out in this first chapter is what has been the core of the economic debate since the time of Adam Smith. The agreed goal of all those who attempt to understand the workings of the economy is that people should be able to specialize in work that permits them to trade with others and acquire the goods that they demand. The patterns, or the specific ways in which individuals coordinate with each other to meet their demands, should be sustainable over time so as to prevent the stress that results when people are unemployed and cannot acquire the goods that they seek.

            Those that promote theories of laissez-faire appeal to the market process because it is an objective method for determining which patterns are viable and sustainable. The price system, and more importantly the system profit and loss, allows individuals to coordinate their preferred forms of specialization and trade within the economy. It is a method of objectively testing and comparing between the subjective preferences of entrepreneurs and consumers. Wherever we see successful patterns of specialization or trade there is always the opportunity open to others to test for new patterns and create more profitable forms of trade. Likewise when there are dynamic shifts within the economy and certain patterns become unprofitable they are discontinued before much waste accrues to the economic system.

            Although this process is open and objective it is a process that takes considerable time to coordinate and can be knocked from its course whenever a set of rules or institutions arise that give unfair advantage to some individuals over others. Failures of the market process may be overcome with time but in the interim it is hard to look at those affected simply as autonomous pieces within an economic theory and not as people that are suffering with no hope in sight. The interventionist may agree with the principles of the market method but see a need for fast action that can only be brought about by coercing people to support others within the economic system. If the method of waiting for voluntarily support to reach those who have suffered the fate of being in an unsustainable pattern takes too long, society might be justified in setting up coercive institutions that have the ability to circumvent the market method.

            It is the conflict between these two world views that Hayek will end up discussing in The Road to Serfdom. It is Hayek’s belief that the interventionist method, while providing immediate relief, sets up long run forces within society that will continue to undermine the market process even after the immediate economic threat has passed. It is hard to determine what the true long run cost of intervention will be to society and therefore makes it impossible for those affected to calculate the best path to resolving the economic crisis. In addition, if people are unable to critically assess the merits of the program it becomes that much easier for special interest groups to make proposals that cost more than they really should.

            Although this problem can occur within any coercive institution, it is specifically within the democratic paradigm that Hayek investigates. This suggests that the modern reader can gain much benefit from a reading of The Road to Serfdom, not only to draw parallels with historical cases but to help the supporter of democracy to see how democratic institutions have within them the seeds of what would typically be considered undemocratic outcomes.

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The Road to Serfdom: Introduction

                To kick off this blog I have decided to start with Hayek’s most widely read book The Road to Serfdom. Although I have spent the last 4 years reading Hayek, I read this book rather recently. Last summer, near the end of my undergrad, I tore through this tome rather quickly. Its strange, considering that this is his most popular book, that I would leave this one till the very end after reading pretty much all of his other major political works. I think I avoided this book because it was my impression that this book was more a book of its time, written in a world that did not have the successful examples of socialism that we in the modern world have easy access to. Canada, Sweden and many other European countries have seemed to managed the transition to democratic socialism without instantly collapsing into fascism. I viewed it as a message to the world of WWII where many people did agree with some of the means of fascism while not explicitly agreeing with the ends of the fascists.

                To my surprise there was a lot to gained from reading this book. The first half of the book is a look into the fascistic tendencies of democracy and while I believe our modern societies would never let a Hitler into power again,  a softer form of fascism is very much present within our institutions. The only refinement is that instead of  a system of murderous control existing simply for the sake of power, we now have a kinder system of coercive laws that get abused for the cause of wealth distribution to special interest groups. Much of what I read felt like I was reading about our current system of governance.

                Over the next couple of weeks I plan on rereading the book in a modern light. Not only will I attempt to relate what Hayek argued to our current democracies but I will also see if there is any additional structure that can be added to his argument in light of what we have learnt in the past 60 years.

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