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Word Gems
exploring self-realization, sacred personhood, and full humanity
F.A. Hayek
The Road To Serfdom
Individualism and Collectivism
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The socialists believe in two things which are absolutely
different and perhaps even contradictory: freedom and or-
ganization. — Élie Halévy
Before we can progress with our main problem, an ob-
stacle has yet to be surmounted. A confusion largely
responsible for the way in which we are drifting into
things which nobody wants must cleared be up. This confu-
sion concerns nothing less than the concept of socialism itself.
It may mean, and is often used to describe, merely the ideals
of social justice, greater equality, and security, which are the
ultimate aims of socialism. But it means also the particular
method by which most socialists hope to attain these ends and
which many competent people regard as the only methods by
which they can be fully and quickly attained. In this sense
socialism means the abolition of private enterprise, of private
ownership of the means of production, and the creation of a
system of “planned economy” in which the entrepreneur
working for profit is replaced by a central planning body.
There are many people who call themselves socialists, al-
though they care only about the first, who fervently believe
in those ultimate aims of socialism but neither care nor under-
stand how they can be achieved, and who are merely certain
that they must be achieved, whatever the cost. But to nearly
all those to whom socialism is not merely a hope but an object
of practical politics, the characteristic methods of modern
socialism are as essential as the ends themselves. Many people,
on the other hand, who value the ultimate ends of socialism no
less than the socialists refuse to support socialism because of
the dangers to other values they see in the methods proposed
by the socialists. The dispute about socialism has thus become
largely a dispute about means and not about ends — although
the question whether the different ends of socialism can be
simultaneously achieved is also involved.
This would be enough to create confusion. And the confu-
sion has been further increased by the common practice of
denying that those who repudiate the means value the ends.
But this is not all. The situation is still more complicated by
the fact that the same means, the “economic planning” which
is the prime instrument of socialist reform, can be used for
many other purposes. We must centrally direct economic ac-
tivity if we want to make the distribution of income conform
to current ideas of social justice. “Planning,” therefore, is
wanted by all those who demand that “production for use” be
substituted for production for profit. But such planning is no
less indispensable if the distribution of incomes is to be regu-
lated in a way which to us appears to be the opposite of just.
Whether we should wish that more of the good things of this
world should go to some racial elite, the Nordic men, or the
members of a party or an aristocracy, the methods which we
shall have to employ are the same as those which could insure
an equalitarian distribution.
It may, perhaps, seem unfair to use the term “socialism” to
describe its methods rather than its aims, to use for a particular
method a term which for many people stands for an ultimate
ideal. It is probably preferable to describe the methods which
can be used for a great variety of ends as collectivism and to re-
gard socialism as a species of that genus. Yet, although to most
socialists only one species of collectivism will represent true
socialism, it must always be remembered that socialism is a
species of collectivism and that therefore everything which is
true of collectivism as such must apply also to socialism. Near-
ly all the points which are disputed between socialists and
liberals concern the methods common to all forms of collectiv-
ism and not the particular ends for which socialists want to
use them; and all the consequences with which we shall be
concerned in this book follow from the methods of collectivism
irrespective of the ends for which they are used. It must also
not be forgotten that socialism is not only by far the most im-
portant species of collectivism or “planning** but that it is
socialism which has persuaded liberal-minded people to sub-
mit once more to that regimentation of economic life which
they had overthrown because, in the words of Adam Smith,
it puts governments in a position where “to support themselves
they are obliged to be oppressive and tyrannical.”
The difficulties caused by the ambiguities of the common
political terms are not yet over if we agree to use the term
“collectivism" so as to include all types of “planned economy,"
whatever the end of planning. The meaning of this term be-
comes somewhat more definite if we make it clear that we
mean that sort of planning which is necessary to realize any
given distributive ideals. But, as the idea of central economic
planning owes its appeal largely to this very vagueness of its
meaing, it is essential that we should agree on its precise
sense before we discuss its consequences.
“Planning” owes its popularity largely to the fact that every-
body desires, of course, that we should handle our common
problems as rationally as possible and that, in so doing, we
should use as much foresight as we can command. In this
sense everybody who is not a complete fatalist is a planner,
every political act is (or ought to be) an act of planning, and
there can be differences only between good and bad, between
wise and foresighted and foolish and shortsighted planning. An
economist, whose whole task is the study of how men actually
do and how they might plan their affairs, is the last person
who could object to planning in this generad sense. But it is
not in this sense that our enthusiasts for a planned society now
employ this term, nor merely in this sense that we must plan
if we want the distribution of income or wealth to conform to
some particular standard. According to the modern planners,
and for their purposes, it is not sufficient to design the most
rational permanent framework within which the various ac-
tivities would be conducted by different persons according to
their individual plans. This liberal plan, according to them,
is no plan — and it is, indeed, not a plan designed to satisfy
particular views about who should have what. What our plan-
ners demand is a central direction of all economic activity ac-
cording to a single plan, laying down how the resources of
society should be “consciously directed” to serve particular
ends in a definite way.
The dispute between the modern planners and their op-
ponents is, therefore, not a dispute on whether we ought to
choose intelligently between the various possible organiza-
tions of society; it is not a dispute on whether we ought to em-
ploy foresight and systematic thinking in planning our com-
mon affairs. It is a dispute about what is the best way of so
doing. The question is whether for this purpose it is better
that the holder of coercive power should confine himself in
general to creating conditions under which the knowledge
and initiative of individuals are given the best scope so that
they can plan most successfully; or whether a rational utiliza-
tion of our resources requires central direction and organiza-
tion of all our activities according to some consciously con-
structed “blueprint.” The socialists of all parties have ap-
propriated the term “planning” for planning of the latter type,
and it is now generally accepted in this sense. But though this
is meant to suggest that this is the only rational way of han-
dling our affairs, it does not, of course, prove this. It remains
the point on which the planners and the liberals disagree.
It is important not to confuse opposition against this kind of
planning 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 co-ordinating human ef-
forts, not an argument for leaving things just as they are. It is
based on the conviction that, where effective competition can
be created, it is a better way of guiding individual efforts than
any other. It does not deny, but even emphasizes, that, in
order that competition should work beneficially, a carefully
thought-out legal framework is required and that neither the
existing nor the past legal rules are free from grave defects.
Nor does it deny that, where it is impossible to create the con-
ditions necessary to make competition effective, we must re-
sort to other methods of guiding economic activity. Economic
liberalism is opposed, however, to competition’s being sup-
planted by inferior methods of co-ordinating individual efforts.
And it regards competition as superior not only because it is in
most circumstances the most efficient method known but even
more because it is the only method by which our activities
can be adjusted to each other without coercive or arbitrary
intervention of authority. Indeed, one of the main arguments
in favor of competition is that it dispenses with the need for
“conscious social control” and that it gives the individuals a
chance to decide whether the prospects of a particular occu-
pation are sufficient to compensate for the disadvantages and
risks connected with it.
The successful use of competition as the principle of social
organization precludes certain types of coercive interference
with economic life, but it admits of others which sometimes
may very considerably assist its work and even requires certain
kinds of government action. But there is good reason why the
negative requirements, the points where coercion must not be
used, have been particularly stressed. It is necessary in the first
instance that the parties in the market should be free to sell
and buy at any price at which they can find a partner to the
transaction and that anybody should be free to produce, sell,
and buy anything that may be produced or sold at all. And it
is essential that the entry into the different trades should be
open to all on equal terms and that the law should not tolerate
any attempts by individuals or groups to restrict this entry by
open or concealed force. Any attempt to control prices or
quantities of particular commodities deprives competition
of its power of bringing about an effective co-ordination of
individual efforts, because price changes then cease to register
all the relevant changes in circumstances and no longer 'pro-
vide a reliable guide for the individual’s actions.
This is not necessarily true, however, of measures merely
restricting the allowed methods of production, so long as these
restrictions affect all potential producers equally and are not
used as an indirect way of controlling prices and quantities.
Though all such controls of the methods or production impose
extra costs (i.e., make it necessary to use more resources to pro-
duce a given output), they may be well worth while. To pro-
hibit the use of certain poisonous substances or to require spe-
cial precautions in their use, to limit working hours or to re-
quire certain sanitary arrangements, is fully compatible with
the preservation of competition. The only question here is
whether in the particular instance the advantages gained are
greater than the social costs which they impose. Nor is the
preservation of competition incompatible with an extensive
system of social services — ^so long as the organization of these
services is not designed in such a way as to make competition
ineffective over wide fields.
It is regrettable, though not difficult to explain, that in the
past much less attention has been given to the positive require-
ments of a successful working of the competitive system than
to these negative points. The ftinctioning of a competition not
only requires adequate organization of certain institutions like
money, markets, and channels of information — some of which
can never be adequately provided by private enterprise — but
it depends, above all, on the existence of an appropriate legal
system, a legal system designed both to preserve competition
and to made it operate as beneficially as possible. It is by no
means sufficient that the law should recognize the principle of
private property and freedom of contract; much depends on
the precise definition of the right of property as applied to dif-
ferent things. The systematic study of the forms of legal in-
stitutions which will make the competitive system work effi-
ciently has been sadly neglected; and strong arguments can be
advanced that serious shortcomings here, particularly with re-
gard to the law of corporations and of patents, not only have
made competition work much less effectively than it might
have done but have even led to the destruction of competition
in many spheres.
There are, finally, undoubted fields where no legal arrange-
ments can create the main condition on which the usefulness
of the system of competition and private property depends:
namely, that the owner benefits from all the useful services
rendered by his property and suffers for all the damages
caused to others by its use. Where, for example, it is impracti-
cable to make the enjoyment of certain services dependent on
the payment of a price, competition will not produce the serv-
ices; and the price system becomes similarly ineffective when
the dsimage caused to others by certain uses of property C2in-
not be effectively charged to the owner of that property. In all
these instances there is a divergence between the items which
enter into private calculation and those which affect social
welfare; and, whenever this divergence becomes important,
some method other than competition may have to be found to
supply the services in question. Thus neither the provision of
signposts on the roads nor, in most circumstances, that of the
roads themselves can be paid for by every individual user. Nor
can certain harmful effects of deforestation, of some methods
of farming, or of the smoke and noise of factories be confined
to the owner of the property in question or to those who arc
willing to submit to the damage for an agreed compensation.
In such instances we must find some substitute for the regula-
tion by the price mechanism. But the fact that we have to re-
sort to the substitution of direct regulation by authority where
the conditions for the proper working of competition cannot
be created does not prove that we should suppress competition
where it can be made to function.
To create conditions in which competition will be as effec-
tive as possible, to supplement it where it cannot be made
effective, to provide the services which, in the words of Adam
Smith, “though they may be in the highest degree advanta-
geous to a great society, are, however, of such a nature, that the
profit could never repay the expense to any individual or small
number of individuals” — these tasks provide, indeed, a wide
and unquestioned field for state activity. In no system that
could be rationally defended would the state just do nothing.
An effective competitive system needs an intelligently de-
signed and continuously adjusted legal framework as much as
any other. Even the most essential prerequisite of its proper
functioning, the prevention of fraud and deception (including
exploitation of ignorance), provides a great and by no means
yet fully accomplished object of legislative activity.
The task of creating a suitable framework for the beneficial
working of competidon had, however, not yet been carried
very far when states everywhere turned from it to that of sup-
planting competition by a different and irreconcilable princi-
ple. The question was no longer one of making competition
work and of supplementing it but of displacing it altogether.
It is important to be quite clear about this: the modern move-
ment for planning is a movement against competition as such,
a new flag under which all the old enemies of competition have
rallied. And although all sorts of interests are now trying to re-
establish under this flag privileges which the liberal era
swept away, it is socialist propaganda for planning which has
restored to respectability among liberal-minded people op-
position to competition and which has effectively lulled the
healthy suspicion which any attempt to smother competition
used to arouse.* What in effect unites the socialists of the Left
and the Right is this common hostility to competition and
their common desire to replace it by a directed economy.
Though the terms “capitalism” and “socialism” are still gen-
erally used to describe the past and the future forms of society,
they conceal rather than elucidate the nature of the transition
through which we are passing.
Yet, though all the changes we are observing tend in the di-
rection of a comprehensive central direction of economic ac-
tivity, the universal struggle against competition promises to
produce in the first instance something in many respects even
worse, a state of affairs which can satisfy neither planners nor
* Of late, it is true, some academic socialists, under the spur of criticism and animated by the same fear of the extinction of freedom in a centrally planned society, have devised a new kind of “competitive socialism” which they hope will avoid the difficulties and dangers of central planning and combine the abolition of private property with the full retention of individual freedom. Although some
discussion of this new kind of socialism has taken place in learned journals, it is hardly likely to recommend itself to practical politicians. If it ever did, it would not be difficult to show (as the author has attempted elsewhere that these plans rest on a delusion and suffer from an inherent contradiction. It is impossible to assume control over all the productive resources without also deciding for whom and by whom they are to be used. Although under this
so-called “competitive socialism” the planning by the central authority would take somewhat more roundabout forms, its effects would not be fundamentally different, and the element of competition would be little more than a sham.
liberals: a sort of syndicalist or “corporative” organization of
industry, in which competition is more or less suppressed but
planning is left in the hands of the independent monopolies of
the separate industries. This is the inevitable first result of a
situation in which the people are united in their hostility to
competition but agree on little else. By destroying competition
in industry after industry, this policy puts the consumer at the
mercy of the joint monopolist action of capitalists and workers
in the best organized industries. Yet, although this is a state of
affairs which in wide fields has already existed for some time,
and although much of the muddled (and most of the inter-
ested) agitation for planning aims at it, it is not a state which is
likely to persist or can be rationally justified. Such independ-
ent planning by industrial monopolies would, in fact, produce
effects opposite to those at which the argument for planning
aims. Once this stage is reached, the only alternative to a re-
turn to competition is the control of the monopolies by the
state — a control which, if it is to be made effective, must be-
come progressively more complete and more detailed. It is this
stage we are rapidly approaching. When, shortly before the
war, a weekly magazine pointed out that there were many
signs that British leaders, at least, were growing accustomed
to thinking in terms of national development by controlled
monopolies, this was probably a true estimate of the position
as it then existed. Since then this process has been greatly ac-
celerated by the war, and its grave defects and dangers will
become increasingly obvious as time goes on.
The idea of complete centralization of the direction of eco-
nomic activity still appalls most people, not only because of the
stupendous difficulty of the task, but even more because of the
horror inspired by the idea of everything being directed from
a single center. If we are, nevertheless, rapidly moving toward
such a state, this is largely because most people still believe
that it is must be possible to find some middle way between
“atomistic” competition and central direction. Nothing, in-
deed, seems at first more plausible, or is more likely to appeal
to reasonable people, than ‘the idea that our goal must be
neither the extreme decentralization of free competition nor
the complete centralization of a single plan but some judicious
mixture of the two methods. Yet mere common sense proves a
treacherous guide in this field. Although competition can bear
some admixture of regulation, it cannot be combined with
planning to any extent we like without ceasing to operate as an
effective guide to production. Nor is “planning” a medicine
which, taken in small doses, can produce the effects for which
one might hope from its thoroughgoing application. Both com-
petition and central direction become poor and inefficient
tools if they are incomplete; they are alternative principles
used to solve the same problem, and a mixture of the two
means that neither will really work and that the result will
be worse than if either system had been consistently relied
upon. Or, to express it differently, planning and competition
can be combined only by planning for competition but not
by planning against competition.
It is of the utmost importance to the argument of this book
for the reader to keep in mind that the planning against which
all our criticism is directed is solely the planning against com-
petition — the planning which is to be substituted for competi-
tion. This is the more important, as we cannot, within the
scope of this book, enter into a discussion of the very necessary
planning which is required to make competition as effective
and beneficial as possible. But as in current usage “planning”
has become almost synonymous with the former kind of plan-
ning, it will sometimes be inevitable for the sake of brevity to
refer to it simply as planning, even though this means leaving
to our opponents a very good word meriting a better fate.
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- "How sharp a break not only with the recent past but with the whole evolution of Western civilization the modern trend toward socialism means becomes clear if we consider it not merely against the background of the nineteenth century but in a longer historical perspective. We are rapidly abandoning not the views merely of Cobden and Bright, of Adam Smith and Hume, or even of Locke and Milton, but one of the salient characteristics of Western civilization as it has grown from the foundations laid by Christianity and the Greeks and Romans... The Nazi leader who described the National Socialist revolution as a counter-Renaissance spoke more truly than he probably knew." F. A. Hayek
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