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Hayek’s Road to Serfdom destroys a straw man

I have just finished rereading Frederick Hayek’s book Road to Serfdom. It was first published in 1944, and is something of a bible for supporters of limited government and free markets.

As well as the book there is a condensed version by Reader’s Digest that Hayek approved of. And there is also a little picture book which is available as a YouTube video and I have provided a link to that below.

Hayek’s basic aim is to defend free market capitalism by characterizing any alternative as government “planning” which will ultimately lead to dictatorship and servitude. The planners are the “socialists” that come in various varieties and include the national socialists better known as the Nazis.

According to Hayek, this planning requires the central direction of everything. All production decisions are made by central planners. And these central planners will also remove from the individual any choice over what they consume, what work training they receive and where they will work and live. And to avoid any squabbles over what the outcome of the plan should be you need a dictator to decide everything.

I agree that attempts to reduce, interfere with or eliminate the role of markets can lead to very bad outcomes. The former Soviet Union and present-day Cuba are good examples of this as is the crony capitalism found virtually everywhere now. However, I do not see that these bad outcomes are logically necessary. Consequently, I am in no way deflected from my support for a communist future where markets would no longer exist.

Hayek claims that consumption decisions would have to be centralized if the means of production are socially owned. However, he provides no reasons for why production could not be guided by the preferences of individual consumers. It is just part of his assumption that social ownership means central decisions by society as a whole. As far as I can see anything available now to determine consumer preferences would still be available. For example, we have surveys and studies of spending habits.

I also have trouble with his idea that people would have no freedom to choose their jobs and jobs training. He says that if you do not have wage changes inducing workers to enter or leave a line of work they will have to be told where they are going to work. I cannot see how the presence of rigid wages or even a guaranteed income would prevent workers from choosing what jobs to apply for.

We then have the claim that production decisions would have to be excessively centralized because of the absence of markets. Hayek incorrectly assumes that enterprises could not have direct relations with each other based on non-market cooperation and that instead any dealings between them would have to be centrally directed.

Related to this is the idea that without private ownership you could not use a decentralized price system. This is not something Hayek discusses in Road to Serfdom but he does in his other writings. He was a leading figure in the Austrian school of economics which has spilled a lot of ink over this and they call it the socialist calculation problem.

Now I am in no position to set out how a future communist society would organize itself nor do I feel I am obliged to. However, I think I can say that there is nothing that prevents the effective use of a price system just because those running economic undertakings are no longer private owners or their representatives but instead are people you might describe as custodians of social property.

When you cut through the rigmarole, all the Austrian school is doing is arguing that only the profit motive can drive a properly functioning price system because only it can provide the incentives to minimize costs and to put resources to their most valued use. So that brings us to the real debate which is whether it is possible to achieve a communist society where financial reward disappears as a motivator and is replaced by work becoming a want in its own right and by a desire to contribute the best we can.

These guys also automatically assume that investment decisions under communism would have to be excessively centralized in the hands of some planning agency. I think that generally these decisions would be more centralized than under capitalism but that would be because it makes economic sense rather than out of necessity. However, one could possibly imagine a set up where you have a multitude of agencies responsible for allocating investment funds that would assess investment proposals from industries, individual enterprises and start-ups. So there is nothing limiting the extent of decentralization if required.

I don’t claim that these are the final words on The Road to Serfdom but I hope I have given you a fresh way to look at it.

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