The following is the ninth installment in a series of chapter-by-chapter analyses of Friedrich Hayek’s The Road to Serfdom. Previous entries are available here: Introduction, Chapter 1, 2, 3, 4, 5, 6, and 7.
In the eighth chapter of The Road to Serfdom, Friedrich Hayek shows us at once some of the most admirable virtues realized in past chapters and some of his greatest faults as a political theorist. In fairness, it must be said from the outset that Hayek’s writing skill in Chapter VIII is not up to par with his previous installments. This complicates the analysis a bit as we are left, on occasion, to guess at what Hayek means by a particular statement instead of grasping it outright. Though he gives examples to accompany some of the chapter’s major points, others that seem profound are left rather stilted. Nonetheless, some of his major points still shine through clearly, namely the chapter’s primary thesis: the supplanting of economic power with political power in a socialist country and the system of favoritism and arbitrariness that emerges from it.
Describing the taking of power from private citizens by the government in a country transitioning from freedom to socialism, Hayek makes valuable points. Implicitly recognizing a difference between the power held by businessmen in a free society and that held by the state under socialism, Hayek writes, “To believe that the power which is thus conferred on the state is merely transferred to it from others is erroneous. It is a power which is newly created and which in a competitive society nobody possesses” (Emphasis mine, p. 135). However, failing to go deeper into the nature of that difference, he fails to distinguish and describe these two different types of power: ‘economic power’ and ‘political power’—that is, the power to produce wealth and the power to wield force over others.
This failure to distinguish might, at first glance, be dismissed as merely an omission. However, when considered in the context of Hayek’s earlier endorsements of certain regulations and his enthusiasm for antitrust law, it becomes clear that when Hayek does not partition the concepts of political and economic power it is because he himself has failed to recognize them as separate and distinct.
I have written at length elsewhere on the differences between economic and political power, as have others, so I will not go into them at length here. For reference, I recommend Ayn Rand’s essay “America’s Persecuted Minority: Big Business” and for application, my own, “In Defense of Apple, Pt. II: Value, Power, and Determinism.” Suffice it to say that the economic power to produce wealth and to maintain discretion over the price and quantity of one’s own goods and services is entirely different from political power based upon the ability to wield physical force over others.
Antitrust law conflates these powers, treating the power to produce as equivalent to the use of physical force. Businesses are charged and convicted of antitrust violations on the premise that their growth in size or competitiveness in a marketplace is somehow a violation of the rights of their competitors. It seeks to eliminate any competitive advantage that a producer might gain and redistribute any productive gains that a business might achieve among its competitors.
If Hayek cannot distinguish between economic and political power, the root of his support for antitrust expressed in an earlier chapter is exposed. Furthering that, he goes on to write,
“So long as property is divided among many owners, none of them acting independently has exclusive power to determine the income and position of particular people—nobody is tied to any one property owner except by the fact that he may offer better terms than anybody else. What our generation has forgotten is that the system of private property is the most important guaranty of freedom, not only for those who own property, but scarcely less for those who do not. It is only because the control of the means of production is divided among many people acting independently that nobody has complete power over us, that we as individuals can decide what to do with ourselves” (pp. 135-136).
Hayek commits a gross inversion in this passage, but one common to libertarians today: he treats an economic condition—the wide distribution of wealth—as the cause for political freedom rather than as its result. While his description of this arrangement and its effects on the economy—a wide distribution of property leading to the inability of one property owner to exclusively determine the fate of others—is accurate, he errantly treats such a condition as the very core of political freedom and, through his earlier support for antitrust, endorses a policy in which the state forcibly redistributes property within a given industry or market to prevent the alleged oppression of its consumers.
It is not due to the wide distribution of wealth that “nobody has complete power over us, that we as individuals can decide what to do with ourselves.” It is because of a political system that recognizes and protects individual rights against the initiation of physical force. Even if one company employed all of the people in a country (a fantasy arrangement, as anyone with a basic knowledge of a working economy will see), unless they were being enslaved, they would be working there of their own volition for the income they would obtain from their labor. Hayek, however, as in most of The Road to Serfdom thus far, pays no heed to the concept of rights, leaving him with purely economic explanations for a political phenomenon.
Hayek’s evasion of rights leads to yet more egregious statements when he addresses the subject of socialist central planning and the choices that face the planner. Regarding the question of what constitutes a “just” or “fair” distribution of property throughout society, Hayek writes,
“Most people find it difficult to admit that we do not possess moral standards which would enable us to settle these questions—if not perfectly, at least to greater general satisfaction than is done by the competitive system. Have we not all some idea of what is a “just price” or a “fair wage”? Can we not rely on the strong sense of fairness of the people? And even if we do not now agree fully on what is just or fair in a particular case, would popular ideas not soon consolidate into more definite standards if people were given an opportunity to see their ideals realized?… What standards we have are derived from the competitive regime we have known and would necessarily disappear soon after the disappearance of competition. What we mean by a just price, or a fair wage is either the customary price or wage, the return which past experience has made people expect, or the price or wage that would exist if there were no monopolistic exploitation” (p. 140).
This passage presents so many statements worth refuting that it is best to take it piece by piece. To begin, Hayek writes that no moral standard is available to us that would “enable us to settle [questions of what constitutes a proper rationing or pricing of goods]” better than a free market. Two interpretations of Hayek are derivable from this statement. He is either inept to the proper purpose of moral philosophy (that is, the understanding of human values) or he is deliberately misapplying it in order to offhandedly discredit any political philosopher who might seek a more value-based answer to these political problems. Whichever it may be, Hayek’s implication that an objective moral value should dictate a specific price for each good and service in an economy is equivalent to suggesting that a degree in auto engineering would empower one with knowledge of the speed limit of every road in a major city.
Moral standards will not dictate to one the prices of goods and services. A proper and objective moral standard, however, would tell one that using government force to dictate the rates at which private individuals and companies can dispense of their labor is wrong. Likewise, an improper moral standard would lead a dictator or bureaucrat to seek unlimited control over an economy or given market in the name of collectivism.
Though Hayek argued in earlier chapters in favor of individualism over collectivism, his subjectivist morality inhibits him from making a principled defense of capitalism and the products of a free market. Instead of making a firm moral defense of individual rights and stating that the “just” and “fair” result is whatever rate the market produces once those rights are established and defended, Hayek falsely equates the morally proper price of goods and services with the number on the price tag itself and says that when the free market is abrogated we would not know what morally correct price to argue for. This misses the crucial point: that we would still know to argue for whatever the price winds up being once markets are freed. That is the “just price.” That is the “fair wage.”
Hayek commits the same error in a different form at the opening of the chapter. There, he writes, “Although competition and justice may have little else in common, it is as much a commendation of competition as of justice that it is no respecter of persons” (p. 134). To the contrary, competition, as with justice, is the ultimate respecter of persons. Competition provides the greatest respect that an individual or company can earn on its productive merits. Hayek’s statement suggests that to respect persons would be to choose them arbitrarily, to single out particular individuals in disregard of their objective value. This is no truer than to suggest that the morally correct wage can be reduced to a particular number.
Why does Hayek arrive at such misconceptions? Because he is a subjectivist. He ascribes to a subjectivist theory of value that teaches that the value of a good or service is not dependent upon qualities of the good itself, but rather on the value placed upon it by the valuer. Such a theory, however profound an improvement on intrinsic theories of value it may seem to Austrian economists, is no more than a deviation from reality in the opposite direction. While this is no occasion to go into an explanation of a truly rational, objective theory of value (which I intend to do in a future writing in this publication), suffice it to say that any rational determination of value depends equally upon the object that is valued and the subject who values it.
As he is dependent upon a subjectivist view, it is hardly surprising that Hayek places such an emphasis on the role of “chance” and “fortune” as a fundamental part of a free market system. He does, however, provide numerous solid points in defense of a free market or, as he calls it, a “competitive society”, writing,
“The fact that the opportunities open to the poor in a competitive society are much more restricted than those open to the rich does not make it less true that in such a society the poor are much more free than a person commanding much greater material comfort in a different type of society. Although under competition the probability that a man who starts poor will reach great wealth is much smaller than is true of the man who has inherited property, it is not only possible for the former, but the competitive system is the only one where it depends solely on him and not on the favors of the mighty, and where nobody can prevent a man from attempting to achieve this result” (p. 135).
That last point, that “the competitive system is the only one where it depends solely on him and not on the favors of the mighty, and where nobody can prevent a man from attempting to achieve this result” is not only valid and well-put, but would seem to contradict his earlier subjectivist statement that competition pays no heed to persons. Perhaps the discrepancy is a result of contradictory premises. Perhaps we can chalk it up to unclear writing. For myself, I am willing to give Hayek the benefit of the doubt, but it is inconsistencies such as these that vindicate paying this measure of careful consideration and analysis to a work like The Road to Serfdom in hopes that we might not swallow a dram of poison with an ounce of medicine.
Hayek elsewhere makes excellent points, including a valuable and informative discussion of the dynamics of interest group conflicts between socialist factions in Germany during the rise of the Nazis. Those portions of the chapter in which he stays most acutely focused on the thesis of the chapter are likewise astute and, as Hayek’s writing so often does, force us to look critically at our own time and acknowledge the ways in which it mirrors the world he describes: “Who plans whom, who directs and dominates whom, who assigns to other people their station in life, and who is to have his due allotted by others? These become necessarily the central issues to be decided solely by the supreme power” (p. 139). And his descriptions of the benefits of capitalism in relieving ethnic and class tensions (described elsewhere in these pages) are excellent:
“Who can seriously doubt that a member of a small racial or religious minority will be freer with no property so long as fellow-members of his community have property and are therefore able to employ him, than he would be if private property were abolished and he became owner of a nominal share in the communal property? Or that the power which a multiple millionaire, who may be my neighbor and perhaps my employer, has over me is very much less than that which the smallest fonctionnaire possesses who wields the coercive power of the state and on whose discretion it depends whether and how I am to be allowed to live or to work? And who will deny that a world in which the wealthy are powerful is still a better world than one in which only the already powerful can acquire wealth?” (p. 136).
However, like a tenor who lulls us with a soft tune but fails to hit the big notes, Hayek seems to falter most in both his clarity and his conclusions when setting out to make his boldest declarations. Describing what he considers “the whole difference between a free and a totalitarian system” (Emphasis mine), Hayek writes that “[I]t is the extent of the activities of the government which decides whether everything that any person gets any time depends on the government, or whether its influence is confined to whether some people will get some things in some way at some time.” (p. 139).
In a work entirely devoted to warning of encroaching totalitarianism, its nature, and what is required to ward against it, a statement of the “whole difference between a free and totalitarian system” should be a clear and emphatic centerpiece. However, we are still left with a host of questions.
What does he mean by ‘extent of the activities of the government’? Does that refer to the question of whether the government’s actions transgress a certain normative boundary (such as rights) or, more superficially, to the size of that portion of the economy comprised by government? He has not introduced or established a concept of rights and makes no mention of them in this chapter, so if he does refer to a moral standard, he has not defined what that standard is. Does the sanctity of rights dictate the extent of government’s activities? If so, one would think Hayek would state this.
He has elsewhere endorsed antitrust law and certain select economic regulations, so one is left to assume that he still counts them in his model of a free society. By what standard does Hayek wish for his reader to judge economic regulations, then? What does he mean when he refers to government’s “confined” influence dictating whether “some people will get some things in some way at some time”? Is this his description of a free society? What “things” will be rationed by government under his definition of freedom? How are we to know with such ambiguous language? Worse: how are we to view The Road to Serfdom as the profound work Hayek wishes it to be when we are left with such questions?
In a work devoted to warning of the dangers of creeping totalitarianism, the author has set out to make a profound statement, establishing the whole difference between freedom and oppression yet, by the end, that difference is still a blur.
In considering the value of Chapter VIII, “Who, Whom?”, the primary take-away that I am left with is the importance of keeping in focus the distinction between the economic and the political. Hayek commits the fatal error of confusing economic and political power, which leads him to endorse government overreach in the form of immoral antitrust regulations. Elsewhere, he attempts to solve distinctly political problems with economic solutions and arrangements regarding the wide distribution of property. Note: he is not even referring to the legal establishment and defense of property rights, only the distribution of property. He makes no mention of constitutional rights or objectively derived laws as a defense against the subjectivism of totalitarian rule. When he sees an economic inefficiency, he seeks a political solution. When he sees political abuse, he seeks a particular economic distribution as its remedy. It is important in reading Hayek’s work to note these inversions, to be aware of them, and to work against them in the political debates of our own time, of our own country, and in ourselves.