All entries for Tuesday 18 January 2005
January 18, 2005
Originally reviewed for India Nest
Neo-liberalism, the dominant thought in the international realm today, owes to no other theorist its intellectual foundation than Friedrich von Hayek. Together with the ‘monetarists’ under Milton Friedman, these two individuals identified the tools with which to demolish that brainchild of democratic socialism- social democracy, which had been the prevalent mode of organising civil society after the Second World War. We need to remember that during the time of this book, Hayek was striving to turn the current of the societal stream. His ideas were very much against the prevalent consensus, and returned only in the late 1970s with the advent of Thatcherism and Reaganomics.
Hayek’s core focus in The Road to Serfdom is identifying the relation between socialism and totalitarianism. He argues that the ‘road’ to totalitarianism gets clearer, as socialist influence in policy making gets deeper. Although he elaborated his famous thesis on the price mechanism in his The Use of Knowledge in Society (1945), he does make the fundamental argument in this book. He identifies that the fluctuation of the prices in the market as mere responses by individuals to what they think is the correct value of a particular commodity. He argues that such a cumulative effect of local knowledge is bound to be the nearest to perfect accuracy, because it is within the vicinity of both the consumer’s perceptions towards price, as well as the producer’s view of it. Therefore, he launches a vehement attack on centrally controlled price mechanisms, as practised in many socialist economies like the USSR during that time, because according to him, that distorted the actual value of the commodity up for sale, and was indirectly harming both the producers of that commodity as well as the consumers of another commodity. For example, by keeping the price of Commodity A too high, it is lowering the disposable income of the consumers of A, which consequently can quell demand, ultimately harming producers of A as well. Moreover, depressed incomes mean less demand for Commodities B and C, thus harming the producers of the same at the same time. Hayek contests the claim that a government agency can have such arbitrary powers at its disposal, for he directly links this with the loss of freedom for the market. Since for Hayek, the market represents the cumulative liberties of the individuals under its jurisdiction, he goes on to claim that such government restriction on the price mechanism is detrimental to liberty in general.
The more elaborated work by Hayek propounding his views on liberty in more detail was his The Constitution of Liberty. Margaret Thatcher in particular drew great inspiration from it. In The Road to Serfdom, however, Hayek’s target audience is not the academic, but the cadres of the numerous socialist, pseudo-Marxist parties that dominated the political scene in the 1940s. He constantly lauds the intentions of many idealist socialists, but persuasively contends that socialist thought, in whatever form, would ultimately lead to a compromise of liberty and set the society on ‘the road to serfdom’. In that sense, Nazism and Communism mean the same thing to Hayek- both forms of totalitarianism being a derivative of socialism.
Hayek mentions regrettably that liberalism in its 19th century form has come under vicious and often unjustified criticism from both the left as well as the right. He points out that the Victorian age of laissez faire brought unprecedented prosperity to western Europe. All that the early 20th century’s pseudo liberals/socialists managed to achieve was economic stagnation, protective tariffs on the erstwhile lucrative trading network, hostilities and ultimately, war and devastation of civil society. He calls out for a recognition for the achievements of the Victorian Englishman (he categorically hails the British version of liberalism as the superior one to its continental counterpart), and remodelling the contemporary public policy more in accordance with its liberal roots.
The ultimate blame for this debacle must lie on the socialist fetish for ‘planning’. Hayek argues that planning only works well in the short run, such as rationing during wartime. Without the pressures of conflict, it is bound to lead to a loss of liberty on one hand, ultimately resulting in totalitarianism, and poor economic performance on the other. His analysis points out that when the central governmental agency is engrossed in planning, invariably it has to play up a certain sectional interest and downplay others to adhere to the ‘collective goal’. Hayek maintains through out his book that no public agency can have such powers to determine individual lives. Inevitably, the colossal scale of planning would naturally entail less discussion and decision making by parliament, and more delegating of jobs to non-elected entities. Thus, the seeds of totalitarian government are sown. As the public institutions become more and more dependent on such delegated bodies, vested interests creep into the whole planning mechanism. Monopolies arise because of state led economic growth, and not due to free market competition. A much more effective alternative to planning is leaving the task to the cumulative effect of the spontaneous actions of the individuals in a market. The only planning Hayek concedes the state must do is ‘to plan not to plan’. Albeit jesting on that particular point, Hayek does mention the need for state action in areas where the private sector cannot deliver profitably. In essence he draws upon the concept of ‘publick goods’ and ‘publick works’ originally used by Adam Smith in his Wealth of Nations.
Nothing can compromise liberty for Hayek. This is not ideological fixation, but his ardent belief that it is through liberty that the potential of every individual can be optimally utilised. Like Adam Smith, Hayek believes that the cumulative individual good is indeed the public good. All the talk about re-organising society on the basis of a plan is sure to lead us down the ‘road’, and eventually prepare us for slavery under a Hitler or Stalin.