The Road to Serfdom: Chapter 4

“The illusion of the specialist that in a planned society he would secure more attention to the objectives for which he cares most is a more general phenomenon than the term “specialist” at first suggests. In our predilections and interests we are all in some measure specialists. And we all think that our personal order of values is not merely personal but that in a free discussion among rational people we would convince the others that ours is the right one. All know that their aim can be fully achieved only by planning – and they all want planning for that reason. But, of course, the adoption of the social planning for which they clamor can only bring out the concealed conflict between their aims.” –pg 98

The “Inevitability” of Planning

            Hayek begins this chapter with a critique of two slightly outdated arguments the socialists of his day used to justify their belief in the inevitability of planning. Both arguments may have been common back in Hayek’s time but they show their age mostly because both arguments revolve around the advancement of technology. In today’s age of advanced technology and constant innovation it is easy for us to forget how little effect technological change had on the everyday lives of the contemporary readers of Hayek’s arguments. It is highly unlikely that anyone educated in modern economics would be caught using either of these arguments but within Hayek’s critique the reader is introduced to the coordinating role that competition and the price system plays and therefore it would be useful to take a look at Hayek’s response.

            The first argument, and the less believable of the two, is that the large players within an industry that can afford to invest in new technology are able to develop economies of scale that are not available to their less technologically advanced counterparts. This allows the technologically advanced companies to produce goods at a cheaper price and put their competitors out of business thereby achieving a monopoly within an industry. At this point the business will begin to raise their prices and take whatever monopolistic rents they can and it will be required by the state to take control of the industrial monopoly in the name of protecting consumers. If this argument is true then the inevitability of technological progress is the inevitability of state planning of industries and cannot be blamed on those who implement the planned economy but must be blamed on the private monopolies that arise in a competitive economy.

            While we know now that technological progress usually breeds competition, there are similar processes at work within our society as those that brought about the type of planning that Hayek was discussing. Hayek’s response to the argument of his day was that these monopolies did not gain their monopolistic status through technological advance but through direct and indirect support from the state, either through direct monetary subsidy or through the indirect subsidy gained by the state placing regulatory burdens onto the monopolist’s competitors. The principle at work here is that if the supporters of planning do not have the knowledge of the monopolistic effects of the state then the government can intervene in a problem that it has itself created. If costs placed on consumers by special interest groups can be blamed on a third party then the special interest groups can increase the ability of the state to further their agenda in response to the negative effects that were created by their agenda in the first place.

            The second argument of the socialists is that technological advances within a society create a complexity within that society that no individual is able to fully comprehend. Without the ability to obtain a coherent picture of the complete economic process it becomes indispensable that individuals have a central agency responsible for coordinating social life to prevent society from dissolving into chaos. Therefore, it will be required that the state takes the role of economic planner and coordinates the needs that the various industries require in satisfying the needs of consumers.

            In response Hayek lays out the most important role played by competition and the price system; as a method for collecting disparate information within the economic system and coordinating the desires of the competing interests of consumers and producers. Contrary to the argument of the socialists, the more complex a society becomes the greater the need for the economic system to be decentralized because no central authority is going to be able analyze the vast amount of data within the system, most of which they do not have access to. Society is serviced best when the role of collecting the demands of consumers and satisfying those demands is left to the group of people that is best able to accomplish this goal. The only way to objectively discover this group of people is through the free competition that naturally takes place within the market system. Not only does this process produce the best methods of production, the ability of consumers to withdraw their support for marginal producers ensures that the monopolistic tendencies of producers are kept in check.

The Limits of Expertise

            Hayek ends the chapter with a discussion of the great appeal that planning has for the experts within society. When a group of individuals have reached the pinnacle of their field not only are they capable of seeing the next required innovation but they are also able to have a full appreciation of the limits set on them by the scarcity of their resources. The next break through can seem like it is just over the horizon if only more people would support their efforts. It can be very tempting to use the coercion of the state to force others to take on the risk required to invest in untested methods under the justification that those forced would support the investment if they were able to fully appreciate the benefits of the desired innovation.

            What experts often fail to grasp is that their drive to excel in their preferred field has led them to neglect their knowledge of other fields. While the depth of an expert’s knowledge in their particular field exceeds that of the average person, the breadth of their knowledge is not necessarily greater than that of the average person. This leads the expert to overestimate the benefits that innovations in their field will have and, more importantly, underestimate the opportunity cost of forcibly redistributing wealth from other areas of study. While those that support government led research find themselves naturally drawn to collude against the consumer, they often have little understanding of how their forced distribution prevents consumers from benefitting from any innovations they may discover.

            It is unfortunate that the belief in the necessity of centrally planned research draws the most intellectually capable members of society within the paradigm of supporting the state because it leaves the average citizen with the impression that innovation would not exist if it were not for state support for research. Those that are the most intelligent and articulate within society are then put into the service of the state and will thereafter be incentivized to defend the programs of the state. This process then selectively biases discourse within society by creating a special interest group out of the intellectual class that would otherwise be able to point out the negative consequences of state coercion. In addition it removes those intellectuals from the pursuit of finding innovative and voluntary solutions to the problems of society which could lead to eventual removal of all coercive solutions.

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