F.A. Hayek, The Road to Serfdom (New York: Routledge, 2001).
I have decided to write some additional material on Hayek, tangentially related to Hayek’s discussion of the knowledge problem and its relationship to central planning. Below, I will go through Chapters 4 and 5 in Hayek’s most famous work, The Road to Serfdom.
Chapter 4: The “Inevitability” of Planning
The idea that central planning is inevitable, or the conclusion of an inexorable course of events--as advanced by many socialist writers---is little more than propaganda; this idea is rather “the product of opinions fostered and propagated for half a century till they have come to dominate all our policy” (45-46).
The first reason advanced for the inevitability of planning is the economies of scale large firms enjoy over small firms, meaning that we are left with a choice between a market monopoly or planning; competition is no longer a choice (45-47). Unfortunately for socialists, this is at odds with the facts. As firms become larger, they may enjoy some economies of scale in production; however, a larger firm means a greater demand for management to coordinate the production process, but who do not add to productivity itself per se. This means there is a level of optimum efficiency such that growth past this optimum point may lead to diseconomies of scale. In fact, monopolies have generally arisen not through market competition, but through public policy and government grants (47-48). It is only through the protection of the state that a firm could secure a permanent monopoly. In Germany, for example, we can see how “there the suppression of competition was a matter of deliberate policy, that it was undertaken in the service of the ideal which we now call planning” (50).
Another way that technology is supposedly causing the inevitability of planning is the ways in which it has brought about changes in modern society that cannot adequately be solved, but for central planning (50-51). While Hayek (unfortunately) gives some ground to this criticism, he nevertheless points out that
Far from being appropriate only to comparatively simple conditions, it is the very complexity of the division of labour under modern conditions which makes competition the only method by which such co-ordination can be adequately brought about. There would be no difficulty about efficient control or planning were conditions so simple that a single person or board could effectively survey all the relevant facts. It is only as the factors which have to be taken into account become so numerous that it is impossible to gain a synoptic view of them, that decentralisation becomes imperative (51).
The advantage of the market is that it has a price system that “automatically records all the relevant effects of individual actions, and whose indications are at the same time the resultant of, and the guide for, all the individual decisions,” enabling entrepreneurs to “adjust their activities to those of their fellows” as long as competition, rather than state control, is permitted to function (51-52).
A third way in which planning is said to be inevitable is that because technology stimulates competition so greatly, there must be protection against ruinous competition that prevents the use of these new technologies (52-53). Of course, Hayek responds that if it were really true that the technology is useful and efficient, there’s no reason to think it would not stand up to intense competition (53). In fact, in intense competition, a small edge can make a big difference. At best, it may be that we have to choose between using compulsion to gain some benefit from universal adoption of a particular technology and a delay in adoption or non-universal adoption through voluntary choice. At worst, we invoke special pleading and lock-in inferior technologies, in essence making it harder to act on and benefit from new knowledge in the future because of the lack of variety promulgated by compulsion (54).
Hayek points out that we often find some of the most advanced technical experts of the field in the ranks of the planners because
there is little question that almost everyone of the technical ideals of our experts could be realised within a comparatively short time if to achieve them were made the sole aim of humanity. . . .It is the frustration of his ambitions in his own field which makes the specialist revolt against the existing order. . . .Everyone of the many things which, considered in isolation, it would be possible to achieve in a planned society, creates enthusiasts for planning who feel confident that they will be able to instil into the directors of such a society their sense of the value of the particular objective; and the hopes of some of them would undoubtedly be fulfilled, since a planned society would certainly further some objectives more than is the case at present (55).
However, we can see that it substitutes the judgment and preferences of a comparatively small number of individuals for the judgments of the vast array of judgments and preferences that market actors communicate through their decisions, when they buy particular goods and services or invest in particular avenues of production or research. Such a substitution is at best arbitrary and at worst deleterious, as these various experts compete over resources politically, which in turn entrusts the decisions of the distribution and allocation of resources in an even smaller number of hands. The technical expert cannot know whether he’s misdirecting resources into his area of speciality, which he undoubtedly is going to consider as much more value than any other avenue of research or production. As Hayek notes “we all think that our personal order of values is not merely personal, but that in a free discussion among rational people we would convince the others that ours is the right one,” yet to use compulsion to make everyone abide by the judgment of a single individual, or small cadre, rather than the judgments of millions, can lead to costly errors (57). And it is this illusion that the specialist will be able to convince the planner or other specialists of the importance of his personal specialty that impels them to the central planning boards:
The movement for planning owes its present strength largely to the fact that, while planning is in the main still an ambition, it unites almost all the single-minded idealists, all the men and women who have devoted their lives to a single task. The hopes they place in planning, however, are not the result of a comprehensive view of society, but rather of a very limited view, and often the result of a great exaggeration of the importance of the ends they place foremost (57).
While these specialists are extremely valuable when acting within their proper sphere in the marketplace, innovating and producing goods valuable to consumers, they become detrimental when acting in these positions of power--not only because they subsume part or all of their roles within their specialty to their official role, but because their unchecked zeal and single-mindedness toward their special interest goals tend to be intolerant of individual choice and decentralized planning (57-58).
Chapter 5: Planning and Democracy
Hayek identifies the single common feature underlying all socialist systems as the conscious direction of the economy toward a single social goal (59). The main basis for the socialist critique of capitalism has been the lack of this conscious direction toward one overriding goal, instead opting for the anarchy of the market and its transitory coordination. Socialism, then, is a totalitarian creed because conscious direction toward a single aim cannot permit individual actors to pursue their own ends that may conflict with the social goal. Conceiving of a single societal end such as the collective good is an error, Hayek says, because
It cannot be adequately expressed as a single end, but only as a hierarchy of ends, a comprehensive scale of values in which every need of every person is given its place. To direct all our activities according to a single plan presupposes that every one of our needs is given its rank in an order of values which must be complete enough to make it possible to decide between all the different courses between which the planner has to choose (60).
And this is emphatically not the case. It is also problematic because in order to conceive of a single social end, we also have to conceive of a single ethical code governing all situations and proscribing the proper course of action given the social goal (61). Since it is not their own ethical code, any questions they have can only be answered in reference to this external code, with their own ethical presumptions being practically useless in any given situation. If individuals are free to pursue their own ends, such a unitary ethical code is unnecessary; all that is needed is enough commonality to allow voluntary interaction and peaceful exchange to take place with regularity.
“[I]t would be impossible for any mind to comprehend the infinite variety of different needs of different people which compete for the available resources and to attach a definite weight to each” (62), Hayek says. The advantage of individualism is that
It does not assume, as is often asserted, that man is egoistic or selfish, or ought to be. It merely starts from the indisputable fact that the limits of our powers of imagination make it impossible to include in our scale of values more than a sector of the needs of the whole society, and that, since, strictly speaking, scales of value can exist only in individual minds, nothing but partial scales of values exist, scales which are inevitably different and often inconsistent with each other. From this the individualist concludes that the individuals should be allowed, within defined limits, to follow their own values and preferences rather than somebody else's, that within these spheres the individual's system of ends should be supreme and not subject to any dictation by others (63).
And it is through the commonality of ends among individuals--or at least the commonality of wishing to pursue definite courses of action--that social cooperation is made possible and desirable. Individuals may combine in pursuit of a variety of ends, using common courses of actions as a means to achieving these disparate purposes. This commonality, then, is not unlimited in scope, but it does not have to be. The problem with the state is that it uses force to pursue ends that are common to some, but uncommon to others. Namely, it suppresses and subordinates the ends of some individuals to the ends of others--usually through majoritarian rule--promoting social conflict. Unless we believe in the unlikely proposition that men pretty much agree on everything, expanding the scope of state action necessarily shrinks the sphere of individual autonomy and increasingly substitutes common action into areas of widespread disagreement among the population (64).
Even if people can generally agree that the state should be directed toward a single social end using the mechanism of central planning, it is less likely that they will be able to agree in the particulars, i.e., what features will actually promote the common good: “The effect of the people agreeing that there must be central planning, without agreeing on the ends, will be rather as if a group of people were to commit themselves to take a journey together without agreeing where they want to go: with the result that they may all have to make a journey which most of them do not want at all” (65), leaving most people unhappy. A system in which planners are tasked not “to act where they can agree, but to produce agreement on everything,” is one that is doomed to failure. If, in fact, for central planning to be successful, it requires a coherent economic plan from start to finish, it presents insurmountable obstacles in a democratic state. It is unlikely that a single plan will be presented to and accepted by a democratic majority with no changes; “Nor can a coherent plan be achieved by breaking it up into parts and voting on particular issues” (67), because doing so will lose the coherence of the plan and dissipate its effectiveness, as some parts of the plan begin contradicting or undermining other parts. Hence, in practice, the planning will be delegated to a body of experts (68).
Hayek concludes by recognizing that democracy is a means and not an end; what should be focused on is the goals we hope to achieve through democracy, not democracy as such.
There is no justification for the belief that so long as power is conferred by democratic procedure, it cannot be arbitrary; the contrast suggested by this statement is altogether false: it is not the source but the limitation of power which prevents it from being arbitrary. Democratic control may prevent power from becoming arbitrary, but it does not do so by its mere existence. If democracy resolves on a task which necessarily involves the use of power which cannot be guided by fixed rules, it must become arbitrary power (74).