Nobel Prize winner Friedrich Hayek’s “Road to Serfdom” has influenced countless people on the subjects of collectivism and totalitarian rule.
Hayek was a world class Austrian Economist, debating and debunking early Keynesian theory. FA Hayek was a champion for liberty, classic liberalism, free market economics and limited government.
In 1944 Friedrich Hayek’s Road to Serfdom was published, first in England and six months later in the United States. The following year, Reader’s Digest published an abridged addition that was perhaps the most widely read economic tract of the time, reaching more than half a million readers in one format or another. World War II, the harsh realities of Nazi Germany, and the emerging communist state in the Soviet Union provided Hayek with an especially powerful insight into the horrors of collectivism and the rise of the totalitarian state.
Yet, in both academic and literary circles, Hayek was a voice in the wilderness. The collectivist left was on the rise, enamored with the visions of a Soviet, communist-style utopia, while most academic economists were emboldened with a new set of policy tools they claimed would allow governments to allocate resources far more efficaciously than a market ever could. Hayek was one of the few to advocate the principles of limited government in a world increasingly characterized by an encroaching state.
Hayek’s ideas emerged from simple, but powerful, economic insights. The most basic economic issue is the allocation of resources. There are far more demands for resources than possibly can be met—scarcity haunts every decision. Every society, then, must determine how these resources will be allocated, and there are only two choices: voluntary exchange or coercion. Either the government controls and allocates resources by force, or individuals, exchanging freely in the marketplace, determine how resources are used.
Hayek argued that voluntary exchange was preferable and superior to a government allocation of resources and that no government could replicate the efficiencies of the market. For Hayek, the market was a discovery process that not only allocated resources, but also coordinated the plans of millions of individuals living in a post-industrial society. Hayek described a “spontaneous order” that allowed individuals to prosper and nations to develop in the absence of government coercion.
Key to Hayek’s vision was the price mechanism. Prices carry far-flung bits of information about the relative scarcity of specific goods and services that allow both consumers and producers to adjust their use of scarce resources. Markets are voluntary, dynamic, and evolving, which allow individuals to adapt to a constantly changing world.
The government, on the other hand, is unable to capture the information flowing through the economy and is too large and rigid to adjust easily to new circumstances. When a government allocates resources by fiat, there is no price signal reflecting the degree of scarcity. The struggle between visions first appeared in the Socialist Calculation debate of the 1930s, with economists such as Ludwig von Mises and Hayek arguing against the collectivists that governments would fail in their attempts to improve upon the market. Government price controls—direct and indirect—distort the information conveyed by prices. Coordination breaks down, and economic activity becomes less efficient. This is often followed by even more government intervention, which seeks to undo the damage of the first intervention. As a result, government expands at the price of economic liberty. Little by little, more power is ceded to government, and each loss of liberty is another step on the road to serfdom.
That is the basic message Hayek outlined in his seminal work. Government is coercive by nature. Resources can only be allocated by taking from one group to give to another. Taxes are collected from all, and then spent by the government on particular programs that benefit particular people. Politics, rather than markets, is used to make important decisions about the allocation of resources. Progress suffers as innovation in the marketplace yields fewer rewards, while political power and control of the encroaching state become more important.
Political markets are zero-sum games at best; when the cost of government is included in the transaction, they may even be negative sum games. That is, political actors engage primarily in redistribution, which means when one person gains, someone else loses. Add in what it costs the government to shuffle resources, and the economy may be shrinking.
Hayek’s work examined the critical nexus between markets and governments, between individual freedom and government authority. The Road to Serfdom presented a compelling case that the central government cannot replace the market’s ability to communicate vast amounts of complex information. Hayek demonstrated that the state-led economic model is far inferior to the market’s ability to generate economic growth and prosperity. Even worse, the loss of liberty that occurs under command-and-control regimes can eventually lead to totalitarianism and holocaust. Communism, socialism, fascism, and other forms of centrally planned economies have been in vogue at various times with the intellectual elite, and Hayek’s work was a direct challenge to those endorsing such ideas.
The Road to Serfdom was both a warning and a plea to understand the inevitable link between collectivism and totalitarianism. The 20th century is marked by costly experiments in alternative forms of government that took a horrific toll in terms of human life. Despite the prosperity and liberty created by market economies, the push for a larger state persists. Government continues to grow and the coming election may see renewed efforts to expand its scope. Hayek’s message is just as valid today as it was more than half a century ago when The Road to Serfdom was first released.