The Road to Serfdom
I want to share some thoughts on "The Road to Serfdom," a magnificent book by Austrian philosopher and economist Friedrich A. Hayek that remains relevant today, despite having been written in 1944.
The book was published in the context of the tremendous losses of economic, political, and individual freedoms associated with the rise of socialism and fascism in Europe. Despite the disastrous results of these models, we still see new threats to our freedoms—which hurt because our freedoms are at the heart of our very essence.
Hayek begins with a brief historical review and suggests that toward the end of the 17th century communities evolved from hierarchical organizations, without social mobility, to systems that allowed individuals to freely decide where best to develop. The result was unprecedented momentum in worldwide economic and scientific activity.
The inexhaustible energy that flowed from the quest for personal development— this individualistic system— had a remarkable impact on prosperity for all social strata.
The individualistic system had a remarkable impact on prosperity for all social strata.
However, the question soon arose as to why some members of society generated more wealth than others. Thus emerged the ideas of collectivism, which sought to eliminate differences in income through a centrally planned economy.
We don’t need to list the terrible results inflicted on humanity by collectivism. However, it’s worth noting that in terms of production and wealth creation, the collapse was inevitable.
We don't need to list the terrible results inflicted on humanity by collectivism.
Meanwhile, in systems based on economic freedom, each individual member of society decides what, how, and how much to produce, based on information provided by the mechanism of "real time" market prices. This system quickly allocates resources to where they are most efficient, in contrast to a centralized system, where a bureaucrat can take months to decide what, how, and how much to produce and distribute to each group.
The centralized planner also decides how much to pay for inputs, for the factors of production, and for the final goods produced. It is ridiculous to think that a single individual can have immediate access to the information and complex criteria required to make such decisions. In addition to being inefficient, the system discourages effort, productivity, and individual initiative.
Besides being economically inefficient, central planning is incompatible with democracy, because in order to impose the bureaucrat's decisions it is necessary to suppress the rule of law. This is a belief shared by Milton Friedman, which he defends with different arguments in a brilliant essay.
Besides being economically inefficient, central planning is incompatible with democracy.
Under true Rule of Law, it is fundamental that the intrinsic rights of individuals are recognized. But how does collectivism apply general laws if it strives for unequal individuals to have equal benefits? It legislates differently! In addition, as circumstances continuously change, the central planner is continually modifying priorities, which implies repeatedly creating laws and imposing them by force, which leads to authoritarianism and general chaos.
The author is receptive to the idea that economic security is necessary for true freedom. This is why he supports a system of social security, as well as guaranteed minimum economic protections so people can face adverse times.
Economic security is necessary for true freedom.
However, Hayek argues that the pricing for a good or service must be based on the benefit it generates for society. If the market doesn’t determine the pricing, then who does? The bureaucrat with subjective criteria and a volatile state of mind? More times than not, he/she would use erroneous criteria and depress economic activity, which is exactly what occurred in the former Soviet Union.
Given the serious problems that result from collectivism, Hayek asks who could lead a system with so many imperfections. He concludes that it would have to be the most primitive, violent, and ignorant members of society, since capable and educated people will have differentiated points of view and not follow a dictator's criteria.
Collectivism requires unanimity, because the entire society must align itself with the decisions of a tyrant. This is why such regimes tend to be intolerant and repressive – hence the experience of socialist countries. These systems also seek to censor and control the media to eliminate any information contrary to official propaganda, which invariably leads to paralysis of thought.
Collectivism also seeks to censor and control the media to eliminate any information contrary to official propaganda.
On the contrary, independence, self-confidence, willingness to take risks, to defend personal convictions, tolerance, and freedom are virtues of individualistic societies. These are values that are worth promoting, because they encourage the development of civilizations.
Almost 75 years after publication, this book is still timely. There are many irresponsible politicians around the world today who offer equality, "social rights," and economic assurances that ignore reality and the true costs of government programs.
These policies lead to severe economic distortions, such as unemployment resulting from minimum wages that do not take into account labor productivity, shortages due to price controls, regulations that benefit groups close to a leader, expropriations, and fiscal burdens that paralyze the economy.
These activities destroy entrepreneurial spirit and the culture of effort, which in the long run weaken productivity and create a passive, apathetic society, eager for government support. In other words, it paves the road to serfdom.