The Road to Serfdom (1944) – F.A. Hayek, Chapter 3 – Individualism & Collectivism

  • Socialism is used to describe ideals of social justice, greater equality, & security. It also means the method socialists wish to achieve those.
    • Their methods are the abolition of private enterprise, private ownership of the means of production, creation of a planned economy where the profit-minded entrepreneur is replaced by a central planning committee.
    • Many socialists want the aims to be achieved anyway possible. To those who Socialism as the object of practical politics, the methods are just as important as the ends.
      • Dispute between Socialists is usually about means & not ends.
  • Economic planning is one of those methods but it can’t be used for many purposes. We need to do it if we want equal distribution of income to conform to current ideas of social justice.
    • Demanded by those who want production for use to substitute for production for profit. Whether that’s for equal distribution or for most good things to go to a political or racial elite, or an aristocracy, the method is the same.
      • In some of these cases, “Socialism” isn’t a correct term for the same methods. But they are all forms of collectivism.
      • Most Socialists think only one form of collectivism will represent true Socialism. All points disputed between Socialists are over methods common to all forms of collectivism & not over the ends.
      • Liberals need to convinced the consequences of collectivism are opposite to what is claimed – oppressive & tyrannical.
  • Collectivism’s use of “central planning” is to achieve distributive ideals but it is appealing because of the term’s vague meaning.
    • Planning is popular because it’s what we all want – to approach our problems rationally with foresight. It’s not necessarily bad.
    • Enthusiasts for a planned society wish for a consciously directed society to serve particular ends in a definite way.
    • Dispute isn’t over whether we ought to use foresight but how to do so. Either:
      • A – The holder of coercive power should stick to creating conditions where knowledge & initiative of individuals are given the chance to succeed. Or,
      • B – Rational utilization of resources via central direction according to a blue print.
        • Socialists have warped “planning” to mean B.
  • Opposition to Socialist “planning” isn’t necessarily dogmatic laissez-faire attitude. Liberals wish to use competition as the means of coordinating human efforts based on the idea that where competition can be created, a better way of coordinating individual efforts than anything else.
    • It emphasizes that competition should work beneficially – via legal framework.
    • It admits past rules aren’t flawless.
    • Doesn’t deny that some other methods can make competition effective.
    • Economic liberalism is opposed to competition being supplanted by inferior coordinating methods. It regards competition as superior because it can be done without coercion. It doesn’t require “conscious social control” & allows individuals choice.
  • Use of competition as the principle of social organization precludes most coercive interference with economic life but admits some government action may be necessary.
    • Parties in the market should be free to produce, buy & sell at any price & quantity.
    • Entry to the market should be open to all – the law shouldn’t allow any attempt by individuals to restrict entry.
      • These attempts deprive competition the ability to coordinate individual efforts.
  • Restricting methods of production (so long as they apply to all producers) may be OK, as long as it’s not an indirect way to control price & quantity.
    • Restrictions may impose costs on producers & consumers. But they can be used to prohibit use of poisonous substances, limit working hours, requiring sanitary arrangements, etc. Those are still in line with preservation of competition.
    • The question remains if the advantages gained are greater than social costs imposed.
    • Social services don’t necessarily ruin competition in society.
  • In the past, we’ve focused on how our system works rather than how it has problems. It needs certain institutions like money, markets, channels of information & an appropriate legal system.
    • The legal system must be used to preserve competition & to make it as beneficial as possible. It’s not enough to recognize private property & freedom of contract. The study of legal institutions has been neglected.
      • In some cases, there are externalities where the producer imposes social costs on the public – deforestation, some methods of farming, noise, pollution – all of which ought to be private costs taken on by the producer.
      • Just because some of these instances can be regulated does not mean that competition should be completely suppressed. There is room for state activity, including regulation & a legal framework to prevent fraud & deception.
    • Creating a suitable framework for beneficial competition is being scrapped in favor of planning. Ultimately it’s just reestablishing privileges the liberal era had gotten rid of.
  • What unites Left & Right Socialists is a common hostility to competition & common desire to replace it with a planned economy. The terms “Capitalism” & “Socialism” are used to describe the past & future forms of society & don’t say much of the period of transition.
    • The changes have a trend toward central planning & away from competition but it will lead to the worst possible situation: a corporative organization of society with suppressed industry but the planning is left to each industry’s independent monopolies.
    • Destroying competition puts the consumer at the mercy of each industry’s monopolist.
    • Independent monopolists would achieve the opposite of the planner’s goals & only a return to competition would fix things.
  • Centralization of economic activity still appalls most people because of its difficulty as well as the idea of everything centrally controlled.
    • We’re moving towards it anyway because most people want to find a compromise between “atomistic” competition & central planning. It seem possible & even desirable to a lot of people.
    • While competition can tolerate a bit of regulation but it can’t be planned. The 2 are completely incompatible.

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