The Road to Serfdom, Chapters 2–4

Group Name: Jagongbi (Let’s Study Liberalism and Soar)

Scope: Chapter 2

Session: 2nd session

Date and Time: Wednesday, November 6, 2024, 6:30 p.m.

Format: Offline book club discussion

Participants: J, Mori, Mimi

Chapter 2. The Great Utopia

The opening sentence of Chapter 2, the quotation from Friedrich Hölderlin’s novel Hyperion (1797–1799), “What has always made the state a hell on earth has been precisely that man has tried to make it his heaven,” perhaps stems from Hayek’s admiration for Hölderlin.

This line offers the paradoxical insight that attempts by human beings to turn the state into a perfect utopia instead make it hell. It is an intellectual observation on the relationship between the state and human “ideals.” I do not know by what path Hayek encountered this sentence, but I dare imagine how deeply the vivid words of a literary figure from an earlier age must have stirred his heart.

As I opened Chapter 2, I felt the need to consider the atmosphere of British society at the time, during the early Industrial Revolution. Hayek is seriously concerned about the profound misunderstanding of ideas in English society in that period. More specifically, the key issue is the misunderstanding of socialism. What is important is that not only most ordinary people, but even social activists, had virtually no grasp of what socialism really was in substance. (p.89)

Why was that? It is fully understandable in light of the conditions of the time. In the early Industrial Revolution, workers suffered long hours under poor conditions, while dangerous and unsanitary workplaces and child labor were also widespread. Productive capacity increased dramatically, but the benefits were concentrated in the hands of capitalists, and workers’ poverty persisted. In other words, early laissez-faire capitalism was far removed from worker protection or welfare, so socialist ideas promising improved rights for workers and liberation from exploitation could well have seemed persuasive.

Socialism, reflecting the desire for reform, soon became connected to the liberal ideal of “freedom,” and I think it would have been nearly impossible for people of that time to distinguish between its ends and the methodology by which those ends were to be achieved. Hayek knew this as well, which is why he wrote with a perspective of understanding.

“So if they become convinced that carrying out their programme would mean the destruction of freedom, they will undoubtedly withdraw from the socialist movement. But at present this is hardly recognized. It is for this reason that ideals which are irreconcilable still coexist so easily.” (p.89)

Yet Hayek clearly points out that the unverified concept of socialism is contradictory to liberalism, and he makes it unmistakably clear that socialism is ultimately connected with fascism.

Hölderlin’s heaven on earth is the utopia of democratic society. Hayek wrote, with the knowledge of an economist and the conscience of a political thinker, that this was in fact hell on earth—a concept difficult for his contemporaries to understand.

How astonishing was Hayek’s courage, to look at socialism—the microscopic blueprint endorsed by overwhelming public opinion at the time—and call it hell? Pausing at the back end of Chapter 2, before I have even finished the book, I think the reason lies not in Hayek’s ideology, but in research and analysis grounded in his work as an economist. This becomes apparent as one follows Hayek’s method of exposition, which from Chapter 1 onward gradually yet precisely identifies the core of the argument.

I place my own circuitry of thought upon Hayek’s words, and I am given the chance to board the thought-world of a genius.

For a moment... a few upright pioneers who were not swept along come to mind.

As time passed, some things were indeed proven true.

Knowledge is power in just that way.

Chapter 3. Individualism and Collectivism

The meaning of socialism (p.93)

- Socialism includes both an ideal (greater equality and security) and a method (abolition of private property, centrally planned economy).

- The method is as essential as the goal. Since socialism may be rejected because of its method, the core of the debate over socialism concerns not the ideal but the method.

- The form of economic planning itself does not guarantee just distribution. The same method can be used for unequal distribution pursued for some purpose.

- In terms of method, socialism is one type of collectivism. The dispute between socialists and liberals concerns not ends but the collectivist method.

- The consequences of socialism raised as a problem in this book arise not from its goals but from the collectivist method.

All those who demand that “production for use” replace “production for profit” support “planning.”

(p.95)

(All those who demand that “production for use” replace “production for profit” support “planning.”)

Socialism as a kind of collectivism; most socialists may regard only one kind of collectivism as true socialism, but what must never be forgotten is that socialism is one kind of collectivism, and therefore every truth about collectivism also applies to socialism. Nearly all the points of dispute between socialists and liberals concerned methods common to all forms of collectivism, not the ends socialists hoped to achieve by using those methods. The consequences that concern this book arise from the methods of collectivism regardless of the ends toward which they are directed. It should not be forgotten that socialism is by far the most important among the various species of collectivism or “planning.” To organize economic life on military lines, in Adam Smith’s words, made government such that it “could not maintain itself without being both oppressive and tyrannical,” and those of a free spirit overthrew that system. But it should also not be forgotten that socialism persuaded those very free people and led them once again toward the militarized barracks-life organization of their existence.

(p.95)

For most socialists, only one kind of collectivism may represent true socialism, but what must always be clearly remembered is that socialism is one kind of collectivism, and therefore every truth about collectivism also always applies to socialism. Nearly all the points of dispute between socialists and liberals concerned methods common to all forms of collectivism, not the ends that socialists sought to achieve through those methods.

The consequences that concern this book arise from the methods of collectivism regardless of the ends toward which they are directed. It should not be forgotten that socialism is by far the most important among the various species of collectivism or “planning.” To organize economic life on military lines, in Adam Smith’s words, led government to become such that it “could not maintain itself without being both oppressive and tyrannical,” and free-spirited people once overthrew that system. But it should also not be forgotten that socialism persuaded those very free people and led them once again toward the military barracks organization of their lives. (p.75)

The meaning of planning (p.96)

“We are all planners, and in all political acts we are planning.”

- The planning spoken of by collectivism does not mean the liberal kind of planning that consists in the rational forecasting process everyone ordinarily carries out in daily life.

-- Rather, it means a centrally directed system in which all economic activity is controlled, “consciously directing” what resources are to be used, for what ends, and in what specific way, according to a single plan.

- The debate between planners and their opponents concerns the question of what method best enables us to make the fullest use of our foresight and systematic thinking.

- Socialism uses planning in the sense of planning by central direction and control: a “centrally directed economy.”

Liberal planning: Modern planners are not satisfied, for the achievement of their ends, with providing the best rational and durable framework within which different people can engage in various activities according to their own plans. From their point of view, such liberal planning is not planning at all. This liberal kind of planning is not designed to satisfy a particular view as to who should get what. (p.97)

According to modern planners, and for the achievement of their purposes, it is not enough to establish the most rational and lasting social framework within which different people may perform different acts according to their own plans. To them, such liberal planning is no planning at all. Of course, such liberal planning is not designed to satisfy any particular view as to who ought to get what. (pp.76–77)

Rational competition as an alternative to the command economy (p.99)

- Opposition to collectivist planning should not be confused with a dogmatic laissez-faire attitude.

“The liberal argument is in favor of making the best possible use of the forces of competition as a means of coordinating human efforts, not of just letting things happen as they will.”

- For competition to function beneficially, it requires a carefully considered legal framework, and we must be keenly aware of defects in legal rules.

- Opposition to replacing competition with methods inferior to it.

- Competition is the most efficient method known and the only method by which actions can be mutually coordinated without coercive and arbitrary interference by authority.

- One of the core arguments for preferring competition is that it does not require “conscious social control” and gives each person the chance to decide for himself or herself.

- To use competition successfully, coercive interference must be excluded, but coercion that helps competition function must be allowed.

- The role of government: maintaining the legal system that enables competition to function, and playing a role in fields where competition does not apply.

Why liberalism values competition; liberalism does not deny but rather emphasizes the fact that for competition to work beneficially, it requires a carefully considered legal framework, and that past or present legal rules are not free from serious defects. Liberalism also does not deny that where it is impossible to create the conditions that make competition effective, we must rely on other methods as guides to economic activity. But economic liberalism opposes the replacement of competition by methods inferior to it as a way of coordinating the separate efforts of individuals. Liberalism regards competition as the superior method not only because it is in most cases the most efficient method known, but even more because it is the only method by which our activities can be coordinated without coercive and arbitrary intervention by authority. Indeed, one of the principal arguments in favor of competition is that it does not require “conscious social control,” and that it gives each individual the opportunity to decide for himself whether a particular occupation offers prospects sufficient to outweigh the disadvantages and risks associated with it.

Liberalism does not deny but rather emphasizes the fact that for competition to work beneficially, it requires a carefully considered legal framework, and that past or present legal rules are not free from serious defects. Liberalism also does not deny that where it is impossible to create the conditions that make competition effective, we must rely on other methods as guides to economic activity. But economic liberalism opposes the replacement of competition by methods inferior to it as a way of coordinating the separate efforts of individuals. Liberalism regards competition as the superior method not only because it is in most cases the most efficient method known, but even more because it is the only method by which our activities can be coordinated without coercive and arbitrary intervention by authority. Indeed, one of the principal arguments in favor of competition is that it does not require “conscious social control,” and that it gives each individual the opportunity to decide for himself whether a particular occupation offers prospects sufficient to outweigh the disadvantages and risks associated with it. (p.78)

If prices or quantities are controlled for particular goods, competition is deprived of its ability to effectively coordinate the efforts of individuals. That is because price changes then no longer reflect all the changed circumstances, and as a result, changes in prices can no longer serve as reliable guides for individual action. (p.100)

If prices or quantities are controlled for particular goods, competition is deprived of its ability to effectively coordinate the efforts of individuals. This is because price changes then no longer reflect all the changed circumstances, and as a result, changes in prices can no longer serve as reliable guides for individual action. (p.79)

The mixture of centralized command and competition (p.104)

- The modern “planning” movement is an anti-competition movement in which the old enemies of competition have regrouped under a new banner.

- Various interest groups are trying under the banner of planning to reestablish the privileges that the liberal age had swept away.

- What unites left-wing and right-wing socialists is a common hatred of competition and a common desire to replace it with a command economy.

- Corporatist-style organization and struggles for the cooperative organization of industry suppress competition, but planning is then captured by monopolists in each industrial sector; joint monopolistic action by capital and labor.

- Once cartelized industrial monopolies are formed, the only way back to competition is for the government to step in and control industrial monopolies.

- To make this government control effective, the government expands its scope of control down to the fine details of the entire economy.

- Competition can still function with some degree of regulation, but once combined with any form of planning, it ceases to serve as a guide to production.

- Planning is not a medicine that works effectively in small doses.

- Neither competition nor planning works effectively unless each is implemented fully.

- The planning criticized by liberalism is limited to “planning against competition” and “planning that replaces competition.”

Planning tends to expand in scale; competition can function even when mixed with some degree of regulation, but once planning is mixed in even a little, competition ceases to play an effective guiding role in production. The medicine called “planning” is effective only when taken in large doses; it is not a medicine whose effects can be obtained in small doses. Whether competition or planning, both become weak and ineffective tools unless implemented fully. These two are alternative principles for addressing the same problem; they cannot be used together, only as substitutes for one another. Therefore, to mix these two principles means that neither will function, and the result will be worse than if one of the two systems were applied consistently. Put differently, planning and competition can be combined only in the form of “planning for competition,” never in the form of “planning against competition.” It is one of the most important points in this book to make clear to readers that what we oppose is only planning against competition—in other words, planning that seeks to take the place of competition. (p.85)

Competition cannot be combined with any degree of planning that we desire without ceasing to play its effective guiding role in production. The medicine called “planning” is effective only when taken in large doses; it is not a medicine whose effects can be obtained in small doses. Whether competition or planning, both become weak and ineffective tools unless implemented fully. These two are alternative principles for addressing the same problem; they cannot be used together, only as substitutes for one another. Therefore, to mix these two principles means that neither will function, and the result will be worse than if one of the two systems were applied consistently. Put differently, planning and competition can be combined only in the form of “planning for competition,” never in the form of “planning against competition.”

Readers should keep in mind that the planning we criticize is only planning opposed to competition—planning that replaces competition.

- What do we oppose: the goals of socialism, or its methods?

- Is socialism an acceptable ideal if its method of implementation were acceptable?

- Is liberalism laissez-faire? Is there such a thing as liberal planning?

- Must we accept competition, which makes people anxious? Is competition a necessary evil that must be properly regulated?

Chapter 4. The “Inevitability” of Planning?

Competition does not become impossible because of technological change (p.111)

“The myth is deliberately cultivated that because technical changes make competition spontaneously impossible, we are entering on a new road.”

- The logic of the tendency toward industrial monopoly (the Marxist doctrine of concentration of industry): technological change leads to monopoly by private enterprise and the disappearance of competition, so government control becomes inevitable.

- Monopoly is not the result of technological progress but of collusion and public policy (p.113, Final Report of the U.S. Temporary National Economic Committee).

- The advantages of large-scale production do not necessarily result in the abolition of competition.

The tendencies toward monopoly and planning are merely the result of public opinion; although treated as though they were established facts, such assertions are entirely groundless. The tendency toward monopoly and planning is not the result of any “objective facts” beyond our control, but the result of public opinion that, having been fostered and propagated for half a century, has come to dominate all our policies. (p.87)

(Although treated as though they were established facts, such assertions are entirely groundless. The tendency toward monopoly and planning is not the result of any “objective facts” beyond our control, but the result of public opinion that, having been fostered and propagated for half a century, has come to dominate all our policies.)

Causes of the growth of monopoly (p.115)

- Evidence that monopolization is not the inevitable result of technological progress or the evolution of capitalism.

- Monopoly first appeared in the newly industrializing countries of the United States and Germany. In both places it was due to state policy.

- Monopoly in Britain also grew only after its turn toward protectionism.

“The suppression of competition is a matter of deliberate policy, carried out in order to realize the so-called ‘ideal of planning.’”

New problems brought by technological change (p.119)

- Does the complexity of modern industrial civilization create a greater need for central planning?; the idea that social disintegration through chaos must be prevented.

- The decentralization of decision-making and the importance of the price system as a recording device.

- As complexity increases, systems beyond conscious control are required, such as diversity and flexibility through competition.

The claim of technical possibilities that cannot be realized under competition (p.121)

- In cases of technology that yields benefits only when competition is absent, must we sacrifice immediately attainable gains for the sake of freedom?

- In the long run, preserving diversity preserves an important stimulus to future progress.

“The case for individual freedom rests chiefly on the recognition of the inevitable ignorance of all of us concerning a great many of the factors on which the achievement of our ends and welfare depends,” or in the phrasing here, “we must leave room for the unforeseeable free growth.” p.124

The narrow viewpoint of experts and the claim for planning (p.125)

“The movement toward planning is the result of deliberate action, and there is no external necessity whatever forcing planning upon us.” p.125

- Yet technical experts tend toward planning.

- Technical superiority in a particular field is not proof of the superiority of planning but evidence of the misallocation of resources.

- Hope placed in planning results not from a comprehensive view of society but from a very limited point of view.

When considered in isolation, many things seem wholly achievable in a planned society, and this is what produces enthusiasts for planning. (p.126)

Cases of extreme technical superiority that do not fit the general conditions of the time are rather evidence of the misallocation of resources. (p.126)

“The distance from the saintly and single-minded idealist to the fanatic is often but a step.” (p.128)

The resentment of experts as a powerful driving force behind planning; the strongest impetus behind the demand for planning is the resentment of experts whose dreams have been frustrated, yet there could be no more intolerable and irrational world than a system in which the most eminent experts in every field faced no restraints whatever in trying to realize their ideals. (p.128)

The strongest impetus behind the demand for planning is the resentment of experts whose dreams have been frustrated, yet there could be no more intolerable and irrational world than a system in which the most eminent experts in every field faced no restraints whatever in trying to realize their ideals. (p.101)

Planned society as a product of experts’ fantasies; many experts fall into the illusion that in a planned society they would be able to secure greater attention for the purposes they value most. This illusion is far more general than the term “expert” at first suggests. For all of us are, to some extent, experts in that we all live within our own prejudices and interests. (p.127)

Many experts fall into the illusion that in a planned society they would be able to secure greater attention for the purposes they value most. This illusion is far more general than the term “expert” at first suggests. For all of us are, to some extent, experts in that we all live within our own prejudices and interests. (p.100)

Contrary to what some planners imagine, the problem of “co-ordination” cannot become a new specialized field. The economist never claims personally to possess the knowledge needed by the coordinator. What the economist wants is precisely some method that can produce such coordination without requiring an “omniscient dictator.” (p.129)

- Are there not situations in which the absence of competition is unavoidable?

- If competition is left alone, does it not lead toward monopoly?

- Has not the complexity of modern industrial civilization increased the need for a national control tower?

- Why do experts tend toward planning?

* The “Liberalism Book Club” Kakao Open Chat or Band group is a communication space operated by members of the book club.

This is not a channel operated by the Center for Free Enterprise (CFE), so please keep that in mind when joining and participating.

▶ Join the Liberalism Book Club:

https://open.kakao.com/o/g4Nn1uud

---

Original title: <노예의 길> 2장-4장

Author: Jayujuui Ipmun Dokseo Toronmoim

Date: 2024-11-06

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=reading01&pn=2&idx=27005