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Word Gems
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F.A. Hayek
The Road To Serfdom
THE “INEVITABILITY” OF PLANNING
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We were the first to assert that the more complicated the
forms assumed by civilization, the more restricted the free-
dom of the individual must become. — Benito Mussolini.
IT IS a revealing fact that few planners are content to say
that central planning is desirable. Most of them affirm
that we can no longer choose but are compelled by cir-
cumstances beyond our control to substitute planning for
competition. The myth is deliberately cultivated that we are
embarking on the new course not out of free will but because
competition is spontaneously eliminated by technological
changes which we neither can reverse nor should wish to pre-
vent. This argument is rarely developed at any length — it is
one of the assertions taken over by one writer from another
until, by mere iteration, it has come to be accepted as an estab-
lished fact. It is, nevertheless, devoid of foundation. The tend-
ency toward monopoly and planning is not the result of any
“objective facts” beyond our control but the product of opin-
ions fostered and propagated for half a century until they have
come to dominate all our policy.
Of the various arguments employed to demonstrate the in-
evitability of planning, the one most frequently heard is that
technological changes have made competition impossible in a
constantly increasing number of fields and that the only
choice left to us is between control of production by private
monopolies and direction by the government. This belief de-
rives mainly from the Marxist doctrine of the “concentration
of industry,” although, like so many Marxist ideas, it is now
found in many circles which have received it at third or fourth
hand and do not know whence it derives.
The historical fact of the progressive growth of monopoly
during the last fifty years and the increasing restriction of the
field in which competition iniles is, of course, not disputed — al-
though the extent of the phenomenon is often greatly exag-
gerated. The important question is whether this development
is a necessary consequence of the advance of technology or
whether it is simply the result of the policies pursued in most
countries. We shall presently see that the actual history of this
development strongly suggests the latter. But we must first
consider in how far modern technological developments are of
such a kind as to make the growth of monopolies in wide
fields inevitable.
The alleged technological cause of the growth of monopoly
is the superiority of the large firm over the small, owing to the
greater efficiency of modern methods of mass production.
Modern methods, it is asserted, have created conditions in the
majority of industries where the production of the large firm
can be increased at decreasing costs per unit, with the result
that the large firms are everywhere underbidding and driving
out the small ones; this process must go on until in each indus-
try only one or at most a few giant firms are left. This argu-
ment singles out one effect sometimes accompanying techno-
logical progress; it disregards others which work in the oppo-
site direction; and it receives little support from a serious study
of the facts. We cannot here investigate this question in detail
and must be content to accept the best evidence available. The
most comprehensive study of the facts undertaken in recent
times is that by the Temporary National Economic Commit-
tee on the Concentration of Economic Power. The final report of
this committee (which certainly cannot be accused of an un-
due liberal bias) arrives at the conclusion that the view ac-
cording to which the greater efficiency of large-scale produc-
tion is the cause of the disappearance of competition “finds
scant support in any evidence that is now at hand.” And the
detailed monograph on the question which was prepared for
the committee sums up the answer in this statement:
“The superior efficiency of large establishments has not been
demonstrated; the advantages that are supposed to destroy
competition have failed to manifest themselves in many fields.
Nor do the economies of size, where they exist, invariably
necessitate monopoly The size or the sizes of the op-
timum efficiency may be reached long before the major part
of a supply is subjected to such control. The conclusions that
the advantage of large-scale production must lead inevitably
to the abolition of competition cannot be accepted. It should
be noted, moreover, that monopoly is frequently the product
of factors other than the lower costs of greater size. It is at-
tained through collusive agreement and promoted by public
policies. When these agreements are invalidated and when
these policies are reversed, competitive conditions can be re-
stored.”
An investigation of conditions in England would lead to
very similar results. Anyone who has observed how aspiring
monopolists regularly seek and frequently obtain the assistance
of the power of the state to make their control effective can
have litde doubt that there is nothing inevitable about this
development.
This conclusion is strongly supported by the historical order
in which the decline of competition and the growth of monop-
oly manifested themselves in different countries. If they were
the result of technological developments or a necessary prod-
uct of the evolution of “capitalism,” we should expect them to
appear first in the countries with the most advanced economic
system. In fact, they appeared first during the last third of the
nineteenth century in what were then comparatively young
industrial countries, the United States and Germany. In the
latter country especially, which came to be regarded as the
model country typifying the necessary evolution of capitalism,
the growth of cartels and syndicates has since 1878 been sys-
tematically fostered by deliberate policy. Not only the instru-
ment of protection but direct inducements and ultimately
compulsion were used by the governments to further the cre-
ation of monopolies for the regulation of prices and sales. It was
here that, with the help of the state, the first great experiment
in “scientific planning” and “conscious organization of in-
dustry” led to the creation of giant monopolies, which were
represented as inevitable growths fifty years before the same
was done in Great Britain. It is largely due to the influence of
German socialist theoreticians, particularly Sombart, gen-
eralizing from the experience of their country, that the in-
evitable development of the competitive system into “monop-
oly capitalism” became widely accepted. That in the United
States a highly protectionist policy made a somewhat similar
development possible seemed to confirm this generalization.
The development of Germany, however, more than that of the
United States, came to be regarded as representative of a
universal tendency; and it became a commonplace to speak —
to quote a widely read political essay of recent date — of “Ger-
many where all the social and political forces of modern civili-
zation have reached their most advanced form.”
How little there was of inevitability in all this, and how
much is the result of deliberate policy, becomes clear when we
consider the position in England until 1931 and the develop-
ment since that year in which Great Britain also embarked
upon a policy of general protection. It is only a dozen years
since, except for a few industries which had obtained protec-
tion earlier, British industry was on the whole as competitive
as, perhaps, at any time in its history. And, although during
the 1920s it suffered severely from incompatible policies fol-
lowed with regard to wages and to money, at least the years
up to 1929 compare with regard to employment and general
activity not unfavorably with the 1930s. It is only since the
transition to protection and the general change in British eco-
nomic policy accompanying it that the growth of monopolies
has proceeded at an amazing rate and has transformed British
industry to an extent the public has scarcely yet realized. To
argue that this development has anything to do with the tech-
nological progress during this period, that technological neces-
sities which in Germany operated in the 1880’s and 1890’s,
made themselves felt here in the 1930’s, is not much less ab-
surd than the claim, implied in a statement of Mussolini, that
Italy had to abolish individual freedom before other European
people because its civilization had marched so far in advance
of the rest !
In so far as England is concerned, the thesis that the change
in opinion and policy merely follows an inexorable change in
the facts can be given a certain appearance of truth, just be-
cause the nation has followed at a distance the intellectual de-
velopments elsewhere. It could thus be argued that monop-
olistic organization of industry grew up in spite of the fact that
public opinion still favored competition but that outside
events frustrated their wishes. The true relation between the-
ory and practice becomes, however, clear as soon as we look
to the prototype of this development — Germany. That there
the suppression of competition was a matter of deliberate pol-
icy, that it was undertaken in the service of the ideal which we
now call planning, there can be no doubt. In the progressive
advance toward a completely planned society the Germans,
and all the people who are imitating their example, are mere-
ly following the course which nineteenth-century thinkers,
particularly Germans, have mapped out for them. The intel-
lectual history of the last sixty or eighty years is indeed a per-
fect illustration of the truth that in social evolution nothing is
inevitable but thinking makes it so.
The assertion that modern technological progress makes
planning inevitable can also be interpreted in a different man-
ner. It may mean that the complexity of our modern indus-
trial civilization creates new problems with which we cannot
hope to deal effectively except by central planning. In a sense
this is true — yet not in the wide sense in which it is claimed.
It is, for example, a commonplace that many of the prob-
lems created by a modern town, like many other problems
caused by close contiguity in space, are not adequately solved
by competition. But it is not these problems, like those of the
“public utilities,” etc., which are uppermost in the minds of
those who invoke the complexity of modern civilization as an
argument for central planning. What they generally suggest
is that the increasing difficulty of obtaining a coherent picture
of the complete economic process makes it indispensable that
things should be co-ordinated by some central agency if social
life is not to dissolve in chaos.
This argument is based on a complete misapprehension of
the working of competition. Far from being appropriate only
to comparatively simple conditions, it is the very complexity of
the division of labor 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 decentralization becomes im-
perative. But, once decentralization is necessary, the problem
of co-ordination arises — a co-ordination which leaves the sepa-
rate agencies free to adjust their activities to the facts which
only they can know and yet brings about a mutual adjustment
of their respective plans. As decentralization has become neces-
sary because nobody can consciously balance all the considera-
tions bearing on the decisions of so many individuals, the co-
ordination* can clearly be effected not by “conscious control”
but only by arrangements which convey to each agent the in-
formation he must possess in order effectively to adjust his de-
cisions to those of others. And because all the details of the
changes constantly affecting the conditions of demand and
supply of the different commodities can never be fully known,
or quickly enough be collected and disseminated, by any one
center, what is required is some apparatus of registration which
automatically records all the relevant effects of individual ac-
tions and whose indications are at the same time the resultant
of, and the guide for, all the individual decisions.
This is precisely what the price system does under competi-
tion, and which no other system even promises to accomplish.
It enables entrepreneurs, by watching the movement of com-
paratively few prices, as an engineer watches the hands of a
few dials, to adjust their activities to those of their fellows. The
important point here is that the price system will fulfil this
function only if competition prevails, that is, if the individual
producer has to adapt himself to price changes and cannot con-
trol them. The more complicated the whole, the more depend-
ent we become on that division of knowledge between individ-
uals whose separate efforts are co-ordinated by the impersonal
mechanism for transmitting the relevant information known
by us as the price system.
It is no exaggeration to say that if we had had to rely on con-
scious central planning for the growth of our industrial system,
it would never have reached the degree of differentiation, com-
plexity, and flexibility it has attained. Compared with this
method of solving the economic problem by means of decen-
tralization plus automatic co-ordination, the more obvious
method of central direction is incredibly clumsy, primitive,
and limited in scope. That the division of labor has reached
the extent which makes modern civilization possible we owe
to the fact that it did not have to be consciously created but
that man tumbled on a method by which the division of labor
could be extended far beyond the limits within which it could
have been planned. Any further growth of its complexity,
therefore, far from making central direction more necessary,
makes it more important than ever that we should use a tech-
nique which does not depend on conscious control.
There is yet another theory which connects the growth of
monopolies with technological progress, and which uses argu-
ments almost opposite to those we have just considered;
though not often clearly stated, it has also exercised consider-
able influence. It contends not that modern technique de-
stroys competition but that, on the contrary, it will be im-
possible to make use of many of the new technological possi-
bilities unless protection against competition is granted, i.e., a
monopoly is conferred. This type of argument is not necessarily
fraudulent, as the critical reader will perhaps suspect: the ob-
vious answer — that if a new technique for satisfying our wants
is really better, it ought to be able to stand up against all com-
petition — does not dispose of all instances to which this argu-
ment refers. No doubt in many cases it is used merely as a
form of special pleading by interested parties. Even more often
it is probably based on a confusion between technical excel-
lence from a narrow engineering point of view and desirabil-
ity from the point of view of society as a whole.
There remains, however, a group of instances where the
argument has some force. It is, for example, at least conceiv-
able that the British automobile industry might be able to sup-
ply a car cheaper and better than cars used to be in the United
States if everyone in England were made to use the same kind
of car or that the use of electricity for all purposes could be
made cheaper than coal or gas if everybody could be made to
use only electricity. In instances like these it is at least possible
that we might all be better off and should prefer the new situa-
tion if we had the choice — but that no individual ever gets the
choice, because the alternative is either that we should all use
the same cheap car (or all should use only electricity) or that
we should have the choice between these things with each of
them at a much higher price. I do not know whether tliis is
true in either of the instances given. But it must be admitted
that it is possible that, by compulsory standardization or the
prohibition of variety beyond a certain degree, abundance
might be increased in some fields more than sufficiently to
compensate for the restriction of the choice of the consumer.
It is even conceivable that a new invention may be made some
day whose adoption would seem unquestionably beneficial
but which could be used only if many or all people were made
to avail themselves of it at the same time.
Whether such instances are of any great or lasting impor-
tance, they are certainly not instances where it could be legiti-
mately claimed that technical progress makes central direc-
tion inevitable. They would merely make it necessary to
choose between gaining a particular advantage by compulsion
and not obtaining it — or, in most instances, obtaining it a little
later, when further technical advance has overcome the par-
ticular difficuldes. It is true that in such situations we may
have to sacrifice a possible immediate gain as the price of our
freedom — but we avoid, on the other hand, the necessity of
making future developments dependent upon the knowledge
which particular people now possess. By sacrificing such possi-
ble present advantages, we preserve an important stimulus to
further progress. Though in the short run the price we have to
pay for variety and freedom of choice may sometimes be high,
in the long run even material progress will depend on this very
variety, because we can never predict from which of the many
forms in which a good or service can be provided something
better may develop. It cannot, of course, be asserted that the
preservation of freedom at the expense of some addition to our
present material comfort will be thus rewarded in all instances.
But the argument for freedom is precisely that we ought to
leave room for the unforeseeable free growth. It applies, there-
fore, no less when, on the basis of our present knowledge, com-
pulsion would seem to bring only advantages, and although in
a particular instance it may actually do no harm.
In much of the current discussion on the efiects of technolog-
ical progress this progress is presented to us as if it were some-
thing outside us which could compel us to use the new knowl-
edge in a particular way. While it is true, of course, that inven-
tions have given us tremendous power, it is absurd to suggest
that we must use this power to destroy our most precious in-
heritance: liberty. It does mean, however, that if we want to
preserve it, we must guard it more jealously than ever and that
we must be prepared to make sacrifices for it. While there is
nothing in modern technological developments which forces
us toward comprehensive economic planning, there is a great
deal in them which makes infinitely more dangerous the power
a planning authority would possess.
While there can thus be little doubt that the movement to-
ward planning is the result of deliberate action and that there
are no external necessities which force us to it, it is worth in-
quiring why so large a proportion of the technical experts
should be found in the front rank of the planners. The explana-
tion of this phenomenon is closely connected with an impor-
tant fact which the critics of the planners should always keep
in mind; that there is little question that almost every one of
the technical ideals of our experts could be realized within a
comparatively short time if to achieve them were made the
sole aim of humanity. There is an infinite number of good
things, which we all agree are highly desirable as well as possi-
ble, but of which we cannot hope to achieve more than a few
within our lifetime, or which we can hope to achieve only very
imperfectly. It is the frustration of his ambitions in his own
field which makes the specialist revolt against the existing or-
der. We all find it difficult to bear to see things left undone
which everybody must admit are both desirable and possible.
That these things cannot all be done at the same time, that
any one of them can be achieved only at the sacrifice of others,
can be seen only by taking into account factors which fall out-
side any specialism, which can be appreciated only by a pain-
ful intellectual effort — the more painful as it forces us to see
against a wider background the objects to which most of our
labors are directed and to balance them against others which
lie outside our immediate interest and for which, for that
reason, we care less.
Every one of the many things which, considered in isolation,
it would be possible to achieve in a planned society creates en-
thusiasts 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. It would be foolish to deny that the instances of
planned or semiplanned societies which we know do furnish
illustrations in point, good things which the people of these
countries owe entirely to planning. The magnificent motor
roads in Germany and Italy are an instance often quoted —
even though they do not represent a kind of planning not
equally possible in a liberal society. But it is equally foolish to
quote such instances of technical excellence in particular fields
as evidence of the general superiority of planning. It would be
more correct to say that such extreme technical excellence out
of line with general conditions is evidence of a misdirection of
resources. Anyone who has driven along the famous German
motor roads and found the amount of traffic on them less than
on many a secondary road in England can have little doubt
that, so far as peace purposes are concerned, there was little
justification for them. Whether it was not a case where the
planners decided in favor of “guns” instead of “butter” is an-
other matter.® But by our standards there is little ground for
enthusiasm.
The illusion of the specialist that in a planned society he
would secure more attention to the objectives for which he
cares most is a more general phenomenon than the term “spe-
cialist” at first suggests. In our predilections and interests we
are all in some measure specialists. And 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. The lover of the countryside
who wants above all that its traditional appearance should be
preserved and that the blots already made by industry on its
fair face should be removed, no less than the health enthusiast
who wants all the picturesque but insanitary old cottages
cleared away, or the motorist who wishes the country cut up
by big motor roads, the efficiency fanatic who desires the
maximum of specialization and mechainization no less than the
idealist who for the development of personality wants to pre-
serve as many independent craftsmen as possible, all know
that their aim can be fully achieved only by planning — and
they all want planning for that reason. But, of course, the
adoption of the social planning for which they clamor can only
bring out the concealed conflict between their aims.
The movement for planning owes its present strength large-
ly to the fact that, while planning is in the main still an ambi-
tion, it units 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 the result not of a
comprehensive view of society but rather of a very limited
view and often the result of a great exaggeration of the impor-
tance of the ends they place foremost. This is not to underrate
the great pragmatic value of this type of men in a free society
like ours, which makes them the subject of just admiration.
But it would make the very men who are most anxious tb plan
society the most dangerous if they were allowed to do so — and
the most intolerant of the planning of others. From the saintiy
and single-minded idealist to the fanatic is often but a step.
Though it is the resentment of the frustrated specialist which
gives the demand for planning its strongest impetus, there
could hardly be a more unbearable — and more irrational —
world than one in which the most eminent specialists in each
field were allowed to proceed unchecked with the realization of
their ideals. Nor can “co-ordination,” as some planners seem
to imagine, become a new specialism. The economist is the
last to claim that he has the knowledge which the co-ordinator
would need. His plea is for a method which effects such co-
ordination without the need for an omniscient dictator. But
that means precisely the retention of some such impersonal,
and often unintelligible, checks on individual efforts as those
against which all specialists chafe.
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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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