Book Review:
The Fatal Conceit: The Errors of Socialism
The Fatal Conceit: The Errors of Socialism by Friedrich Hayek was published in 1988. In this work he rejects all forms of Socialism by explaining that the origin of civilization was born when man gave importance and recognition to private property. He states the importance of individual freedom, which is only possible when recognizing private property, and how this can be negatively affected by the fatal conceit that “man is able to shape the world around him according to his wishes”. Hayek emphasizes in the importance of spontaneous order and self- organization that ultimately lie in the foundations of market economies. And how the market became what it is thanks to the morals and values that keep communities alive and striving. His work explains in detail the threat that socialism is to civilization, and how it can affect us all.
Hayek begins by explaining how is it that coordinated activity was born. People, when living in small groups usually share interests and perceptions of their surroundings. It is because of this that people began to coordinate activity. He also states that early thinkers did not believe that an order of human activities that went beyond a single mind could exist. But it is because the rules of human conduct have evolved throughout the years that this order came about. In reality, these rules of conduct were created spontaneously, and they enclosed a limited space in which anyone who wishes to enter has to obey those rules. To participate in exchange, one needs to follow these rules according to the information provided by prices. Because of this, market exchange is led by a pricing system in which everyone is a participant, but no one knows exactly where they stand or how their actions affect this market. Hayek then mentions that it is a fatal conceit to believe that man is able to shape the world around him according to his wishes. Just like biological evolution, cultural evolution is part of an ongoing process in which it is necessary to adapt to unknown events coming in the future. This evolution can only be possible by the teaching of the rules that guide human affairs and conduct.
Before these rules and traditions came about, men were savages. Hayek calls these “learnt traditions” morals. And he believes that when man discovered private property and gave it value, that he became truly civilized. Hayek believes that private property goes hand in hand with individual freedom. And within this freedom Hayek explains the importance of equal restrictions on the freedom of everyone. To achieve this, three fundamental laws of nature exist: first, the stability of possession; second, its transference by consent; and third, the performance of promises. These laws of nature all play out in what Hayek calls “extended order” and “small group order”. In a small group order everyone knows each other, they share interests and perceptions and because of this they organize activity according to this. In an extended order things change. The group becomes larger, and people become strangers. Within these groups, it is important to recognize private property and the necessity of freedom and justice. Hayek explains that trade began out of necessity. Ancient civilizations survived due to trading within themselves and other civilizations. He then goes to say that throughout history, it has been easier to see what organized governments have accomplished than what has happened due to spontaneous order. But it is clear in the example he gives about ancient communities that spontaneous order gave way to all human interactions.
It is also, according to Hayek, a fatal conceit that anything that is not derived form reason is complete nonsense. He explains that traditional morals do not meet with “rational requirements”. They are not scientifically proven, not fully understood, lack a fully specified purpose, and have some unknown effects. He argues this by saying that reason is not the only aspect in the nature and evolution of human institutions. Instinct plays a very important role in this. In economics, at its very core, lie human interactions. There is no possible way to be a hundred percent sure of the outcome of certain situations. In economics it is not intentions that count, but rather the consequences of human action. And in a market economy prices give crucial information about these interactions. Here he explains the importance of a market economy driven by prices. Prices are the most accurate information that explains millions of human interactions. Without prices this information would not be available. Hayek also states that anyone who is truly informed about the market will be aware of the profits that can be earned. This is why instinct is equally important in economics as reason. They both play an important part in a market driven by prices.
Hayek believes that words are guides to action. In the next chapters, he expresses his concern for the use of “poisoned language”. People can make promises that sound good, but in the end, they can empty of reliable content. Words can be twisted and manipulated to express arguments. Reason can tell men how to distribute their efforts to serve their purposes over everyone else’s, and according to Hayek this is a threat to civilization. He believes that Socialism is an enormous threat to human nature because population has grown exponentially. Socialism cannot sustain such an enormous population, and there is no known substitute for market economy that would be able to do so. With Capitalism, mass production was born and this created jobs. Capital is given to workers so they can work. Workers are equipped, and therefore able to perform different jobs. At the end of his work, Hayek also appeals to religious believers. He makes a connection between his arguments throughout the book and religious belief. He starts by saying that nowadays people do not serve one another, but thousands of people with different aims. As culture evolved, groups began to trade and use self-organized methods because it worked. It is natural. He believes that in this process the tradition of morals is imperative. And those morals are the same expressed in the faith of God. Ultimately those morals keep the community alive.
The Fatal Conceit: The Errors of Socialism is a great work that expresses clearly and with many examples the threat that Socialism is to our culture. Friedrich Hayek does an amazing job explaining the origins of economic behavior, and how it evolved spontaneously throughout history. Ultimately becoming what it is today. In his work, it is simple to see why it is that market economy works so well because he presents the reader with history and cultural evolution. Spontaneous order and self-organization have played a great part in human interactions since the beginning of civilization. It is impossible for economy to survive in a controlled market simply because the extended order keeps growing everyday and the only reliable information are prices. The market economy flows naturally and for years and years it has worked beautifully.
