Warning about planned economies

The book "Road to Serfdom" can be summarized in a few sentences. At one side it is a defense of market economies and at the other side a warning about totalitarism. Concerning the market economies he repeats more or less the arguments of Adam Smith.

However there is a evident difference between Adam Smith and Friedrich Hayek. The theory of Adam Smith is all about efficiency. Decentral information processing through prices leads to the best possible and most efficient allocation of resources and is the most efficient way to correct wrong decisions, see homo oeconomicus.

In the theory of Friedrich Hayek efficiency becomes a minor problem. He assumes obviously that a market economy is the most efficient economic order, but this is only a minor issue. The main issue is not efficiency, but freedom. For Friedrich Hayek free market economies are a guarantor for efficiency as well, but most of all market economies are a guarantor of freedom.

The name of his book is not "Road to inefficiency", but "Road to serfdom". This position is similar to the one taken by Milton Friedman. The most famous book of Milton Friedman is "Capitalism and Freedom" not "Optimal allocation of resources through decentral decision making" or something like that.

[We put a side the fact that marketing issues play obviously a role. "Road to serfdom" and "Capitalism and freedom" sound much better than "Road to inefficiency" or "Optimal allocation of resources through decentral decision making". From a marketing point of view a title like "General Theory of Employment, Interest and Money" is a catastrophy. People want emotions and not dry theory.]

That means concretely than even in the case that a market economy is less efficient it is the preferable system, because it is the guarantor for freedom.

In all the hundreds of website in favour of the Austrian Schook in general and Friedrich Hayek in particular little importance is assigned to efficiency, but a lot to liberty, see for instance,,, etc. etc..

Summarizing we can say that following Hayek and Friedman any type of coercion triggered by governmental intervention is coercion and an attack to freedom. That means, that all the problems are resolved by the market and problems not resolved by the markets, shouldn't be resolved at all. The transition from the Austrian School and Neoliberalism to Anarcho - Capitalism are fluid. Some authors, for instance Murray Rothbard, started as adepts of the Austrian Schook and finished as Anarcho - Capitalists.

[Still more strange, by the way, is the fact that most of these freedom fighters are public employees, most of them economists in a publicly funded institution. If would be more logical if they saviour freedom fully working for a private company or even better, founding or running one.]

There is a similarity between Friedrich Hayek and Walter Eucken, that's why we have assigned both to the same line of thinking, the ordoliberalism, although Friedrich Hayek saw himself more in the tradition of the Austrian School.

[Actually there are intersections between the Austrian School, Neoliberalism, Ordoliberalism and social market economy, for instance that all of them are against direct intervention of the government in the economy and all of them trust in the functioning of markets. In other words, they see no need for instance for expansive monetary or fiscal policy. However there is a difference concerning the concepts considered essential or not and the weight of these conceps. The austrians for instance are very fond of their business cycle theory. The monetary theory of some prominent neoliberals, for instance Milton Friedman, is completely opposed to the austrian money theory. The term social market economy, although not very precise, assigns more importance to redistribution of income.]

Adam Smith saw the risk that market economies have an inherent tendency to abolish themselves, see monopolies. Very in contrary to what people very often believe, the entrepreneurs don't like competition. Competition is a necessary ingredient for the working of market economies, see homo oeconomicus, but nothing that entrepreneurs like to be exposed to. They will try to circumvent competition by price agreements with their competitors, by forming trusts and cartells, by impeding the access to the market for new competitors and other means. The ideal for entrepreneurs is always to reach the monopoly price. However Adam Smith believed that it is impossible to impede these kind of agreements without interfering in entrepreneurial freedom. 114 years after Wealth of Nations was published for the first time, the Congress of the USA passed a law, the Sherman Antitrust Act. This law can be considered as the beginning of an attempt to keep competition alive by governmental regulations.

Friedrich Hayek shares with the ordoliberalism the idea that governments should ensure a sufficiently high intensity of competition by a legal framework that impedes any kind of attempt to lower the intensity of competition. Nowadays we have such a kind of framework at a national and international level, however experiences shows that very often the situation is more complicated than expected by Adam Smith.

Adam Smith assumed that any attempt to lower the intensity of competion is at the expense of the consumers. However in most cartel proceedings the competitors are complaining not the consumers. It is actually difficult to imagine that in a global economy there is any company able to abuse from its market-dominant position, because there is no company who has a market-dominant position. There is a greater risk that a national or international organisation, like the European antitrust authority, use a presumed infraction against the antitrust laws to protect national companies. An illustriative example of this kind are the proceedings against google.

That's why Milton Friedman and Friedrich Hayek at on es side and Walter Eucken at the other side differs in their evaluation of the role to be played by the government in maintaining the intensity of competition high enough, see Milton Friedman - Monopoly.

All three Friedrich Hayek, Milton Friedman and Walter Eucken have the same approach. The economic order has to give the right incentives, incentives that leads human behaviour in the right direction without fixing a concrete result, but in detail there a differences.

However there is a big difference concerning the concretisation of the concept. Milton Friedman is very concrete and discusses the impact of governmental intervention by concrete issues. In order to know what the author of these line is talking about it is enough to put "free to chose" in the search box of youtube.

The texts of Friedrich Hayek are sufficiently abstract to allow everybody who disagrees with the government can consider himself as a fighter for freedom: the rich who doesn't want to pay taxes, the company that is impeded to treat their waste water before it ends up in the river, people who protest against immigrants, people who are not allowed to smoke in restaurants and so on and so on.

As a rule of thumb we can say that people want the government to resolve any kind of problem and have always the impression that the government is restricting their liberty. A general song of freedom is not really helpfull when it comes to discuss about concrete issues.

This may explain the big economic success of "Road to Serfdom". Everybody who is unhappy with the government for any reason can identify himself with this book. However we won't really advance this way. What we actually need is a concrete analysis of the impact of governmental intervention on the incentives given to economic behaviour. That requires to study each case isolatedly.

We will return on the topic in the chapter about Milton Milton Friedman, but in order to concretise a litte bit the impact of governmental intervention we can analyse three sectors which are highly regulated by the government: jurisdiction, health system and pension system.

That will be enough to see that the Friedrich Hayek logic, what should be controlled, should be controlled by the market and if something can't be controlled by the market mechanism shouldn't be controlled at all is not very helpfull when it comes to discuss real world problems.

Jurisdiction is an interesting case in this context. There is no further discussion neede to prove that jurisdiction must be REGULATED by the governmen, but that doesn't mean that is necessarily FINANCED by the government and in the case of civil litigation in most countries that is not the case. The involved parties pay for the process.

However the results are very strange. The actual court fees in civil litigations are almost always much higher than the actual costs of the process, that is for instance true for copyright issues, which are almost always very trivial. We have therefore the strange situation that people who file a civil lawsuit or who get involved in one, subsidise criminal proceedings, although one thing has nothing to do with the other. Criminal proceedings, the protection against criminal offenses, is a publich good and should be paid therefore by the public.

However in most countries, at least in Germany, courts don't even have any kind of cost controlling. (Right now something like that is on the way to be introduced against the strong opposition of the personal, judges etc., involved. They fear an interpersonal comparison of the efficiency of the public employees.) It is crystal clear that public employee behave like any entrepreneur. They try to avoid any kind of control. In a market economy this control is automatically installed and there is no discussion whether it is possible to produce a product at a lower price or not, if the competitor can produce it at a lower price.

Second there is a qualification problem. Actually there is no obligation for a judge to get acquainted with laws enacted by the government and concerning field of laws where there are a lot of changes, for instance everything that has to do with "online", where often they don't know it. The difference is clear. A company is obliged to use the newest and best suited techniques, otherwise they go bankrupt, but a judge goes never bankrupt. One may say, that a wrong judgement will be corrected by the higher instance, but it is not very plausible that a judge will correct the a wrong judgement of his colleague, at least he has no benefit from that, while a competitor benefits strongly from errors of his competitors. An entrepreneur has a strong personal incentive to "correct" the errors of his competitors.

[We have no intention to go into details here and to prove the statements with empirical data. Actually we run a site about jurisprudence in german where we analyse the qualification of judges. However it is crystal clear, that the qualification of judges depends exclusively from their personal integrity and a system that depends exclusively on the personal integrity of the personnel involved is the horror of any economist. If we count with the personel integrity of the personnel almost any system would work. A dictator or king who behave with personal integrity is as good as a democracy, however control and the cession of power for a limited time, as in a democracy, is the safer way. If the democratically elected government behaves with personal integrity, that's good. If not, there is a way to get rid of them.]

It is crystal clear that any kind of system that is not steered by the very objectiv, clear and resounding mechanisms of the market will end up on the wrong path at the end, however, and this is the mistake of Friedrich Hayek, transparency will have the same effect. A judge for instance whose incompetence has been shown several times on the internet will change his behaviour, even if there is no way to fire him and if he does the same error again and again although he had been publicly informed that he is wrong, will end up to have legal problems as well.

However the situation is different in publicly financed research and development, especially in the case of basic research. Private companies will never finance basic research, research without a concrete perspective to become a marketable product. Basic research is an advance in knowledge some people have in their heads, but nothing that can be granted a patend for. Therefore even in the case that basic research becomes more concrete, there is no profit for the company, because the heads have two legs and if the idea is profitable, they will found their own company.

Beside that advances in basic research are very often the basis for many marketable products and therefore it is more profitable for the government that a lot of tax paying companies has access to these information.

The situation of the government is different and therefore the government is in the best position to finance basic research. A single company has to finance basic research through the cash flow generated by the eventual and unsecure result of the basic research. The government benefits from any kind of secundary effect. Increase in tax revenue, less social transfers, creation of new jobs etc.. and wherever the head goes and whatever it does, that government will benefit.

There is no doubt that the resources made available for basic research will be use at a large scale in an ineffictive way, because nobody knows if nanotechnology or molecular biology, astrophysics or artifical intelligence etc. are the most promising fields of research, but the market wouldn't resolve this problem better.

The public health system is kind of an insurance and works like any other insurance system. The situation that someone needs a very expensive treatment, doesn't happen very often, but when it happens, it is beyond the means of the individuals and it is therefore rational to convert this big risk in a statistically average risk. If everybody were obliged to provide for the maximal misfortune, the savings would be enormous and the economy would collapse.

To establish in parallel to the public health system a private health system creates the problems we see in Germany. People with low risks, for genetic or other reasons as for instance in the case they have no kids, will prefer the private health system, which is in most cases cheaper. The "bad risks" will remain in the public health system. We have therefore in the health system a situation which is not compatible with the way other systems are organised. Normally social systems are organised as supportive society. Those who can pay more, support the others.

In both cases, in the case of publicly financed insurance system and in the case of privately financed insurance the problems are the same. The one who pays the bill is not the customer or client. The customers or client pays a certain fee and this fee is completely independent from what is actually paid to the doctor and therefore he doesn't care. The hospital or doctor can put almost anything on the bill, even things he never did and he can do as well completely useless things, the customer in general will not complain even if he sees the bill, what is not always the case. The only one who has a real interest in controlling the bill is the insurance company, because their fees depend on their costs and if these fees are to high, they will disappear from the market. In general they control the bills and they will not allow fraud from the part of the customers.

However if we have several public insurance companies and several private insurance companies, the difference is not so big. A market solution, where the customer pays the bill directly, is not possible in this case, because this would mean that the customer provide for the maximal risk. This is another example where we see that a general statement of the type "the market will resolve everything" is of no help.

Still more complex is the pension system, because a private pension system would have problems from a macroeconomic point of view. In most countries the pension system is a "contract between the generations". This means, that the working generation pays the pensions of the retired generation. It is obvious that such a system requires a legal system regulated by the government. Due to demographic changes this system runs more and more into problems, because the relationship between the working generation and retired generation becomes more and more unfavourable. In order to resolve this problem a second pillar was established aiming increase the personal capital stock of the people. The idea was that the reduction of the pensions could be at least in part compensated by this personal capitalstock.

However if become obvious in the last years that this won't work. An increase of the capital stock, in other words an increase of private savings, makes only sense if their is investments are high enough to absorbe these savings, what is not the case and it is not very plausible to believe that investments will increase because demand decreases. In other words, a market solution is not posible.

[Added to that, the European Central Bank lowered the interest rates with the final effect, that inflation exceeded the interest rates. People now complain that the ECB is expropriating them, but this critique is based on an error in thinking. Money is nothing scarce by nature it is always kept artificially scarce based on the evaluation of the situation of the ECB. Nobody has the right to ask the ECB to keep money scarce in order to keep interest rates high even if that is harmful for other macroeconomic goals.]

Hayek assumes that any kind of governmental intervention will unrelentently end up on the wrong way. Once on this path, governmental intervention, the government will attract more and more resources and increase their power. Bureaucracies will increase and employ more and more people and that will lead to situation, where more and more people depends on political parties and political parties depends more and more on public employees. At the end it becomes difficult to reduce bureaucracies, because any attempt to reduce their power, diminishes the probaility to be selected. We can't say that the analysis of Milton Friedman is completely wrong, see Milton Friedman - The Welfare Establishment. The same can be said about any other bureaucracy.

The problem with the Hayek / Friedman logic, what should be steered, should be steered by the market mechanism and what cannot be steered by the market mechanism, shouldn't be steered at all is not very helpful when it comes to concrete problems, because there are a lot of problems, that can't be resolved by the market mechanisms.

The second problem is, that Hayek / Friedman assumes that the market mechanism are the only mechanisms by which social and economic systems can be efficiently controlled. The author would say that transparency and an easy access to information can play, at least in democracies, a similar role. Inefficient use of resources, privileges earned without performance, absurd laws, obsolete bureaucracies can survive in a democratic system only if people don't know that they pay the bill or if only a minority pays it. See preliminaries.

Milton Friedman and Friedrich Hayek see market economies as a guarantor of freedom. See a very long explanation of Milton Friedman here: Milton Friedman: The Future of Freedom. The basic idea is that a market economy is a necessary condition for freedom, however not a sufficient condition for freedom. (Here he changed a bit his opinion over the years.) We have no intention to discuss the whole video here, we will return on the topic in the chapter about Milton Friedman. Most of his interpretations are historically wrong. The big opponent of corn laws in England for instance was David Ricardo and not Adam Smith and David Ricardo opposed these laws, because with imported corn wage were lower and profits higher. That was not a question of ideas, it was a question of profits.

Beside that he makes the same error as the socialists. He believes that high income taxes means a lower absolute income of the rich. It can be questioned that this is true. It is well possible that nations where income taxes are high offers a lot of infrastructure that allows the companies to be very efficient and absolute income is therefore higher than it would be with less infrastructure and lower taxes. In some countries of South America income taxes are very low or almost inexistent, but rich in South America is an average income in the United States.

(We know that these kind of comparisons are not very useful, but Miltron Friedman very often argues the same way. We can't take the data we like and ignore the data we don't like. That leads nowhere. This way almost anything can be proved.)

The argumentation of socialists is somehow similar. They argue, that differences in income are very different and that these differences has increased in the last 20 years. They want to suggest, that the richness of one group is at the expense of another group. That is possible, but there is no proof for that. It is equally possible that the richness of one group has nothing to do with the poverty of another group.

Friedrich Hayek and Milton Friedman establish both, the first one, at least in the video mentioned before, in a more differentiated way, between economic freedom, low intervention of the government in economic issues, and personal freedom.

It seems that the extreme positions, market fundamentalism and socialism are both a menace to freedom. Market fundamentalism doesn't seek a compromise between access of the poors to fundamental goods and services and economic freedom, what leads in general to very instable political systems and suppression of freedom as we have seen in the 80th in a lot of countries of South America. In socialist systems at the other side, where the government attracts all economic resources, personal freedom can be restricted at any moment and is actually restricted. People with absolute economic power will abuse of this power, in both systems. Friedman and Hayek assumes that markets always restrict dominant economic power through competition. That is not true.

Beside these extreme positions there is little historical evidence that there is any relationship between economic freedom and personal freedom. In the times before world war I Germany for instance has a very free market with almost none governmental intervention, but personal freedom was very restricted. No freedom of speach, newspapers censured, no rights to strike, restriction on political organisations, etc.. No german would say, that germans are less free today than under king Wilhelm II. Iran has a free market economy, but almost anything is restricted in this country included the way of dressing.

France has more economic restrictions than Germany, perhaps this is not a good idea from an economic perspective, but it is very doubtful that french feel less free than germans.

The big problem with the concepts of Friedrich Hayek is that they are very abstract and can't contribute anything when it comes to discuss about real world problems. There is no doubt, that governmental monopoly on telecommunication services before 1998 was a stupid idea. It made telecommunication services very expensive and very inefficient with a very low innovation rate. There is no doubt as well that this was a big hindrance for start ups in Germany and even worse in France. But it is a little bit exaggerated to call this a "Way to serfdom".

The same is true for the railway monopoly that still exists in Germany, that has, until 2013, the effect that it was not allowed to private bus companies to run a bus line in parallel to a rail line. Since the opening of this market we have seen a drastic decrease on prices. Bus companies are much more performant than the governmental colossus. In a democratic state however that can be changed and was actually changed. If people get aware that governmental monopolies don't serve their interests, they will change it. The problem is, that very often they are not aware of that, see preliminaries.

However democracy for Hayek is more considered as a problem and not as the solution.

Beside that from a historical point of view the discussion was different. Railways and Telecommunication was considered as a natural monopoly, in other words it was assumed, that the service could be supplied in the most efficient way if there exists only one company. The reasoning was simple. It doesn't make any sense if several companies lay rails or cables. Beside that is was argued, that only a governmental run company will provide these basic services in remote villages where they can't be supplied in a profitable way. (What is actually true.)

Let's repete that: There is no doubt that governmental interventions in the economy are never controlled by mecanism clear, objectiv and resounding as the market mechanisms and that lead to the effects we all know. Bribery, corruption, absurde laws and regulations, pullulating bureaucracies, arrogance, public employees filing their nails, intransparency etc. etc.. What we question is this: 1) That the simple affirmation that governmental intervention into the economy is a "Road to Serfdom" and 2) that there is no way to control governmental activities.

The success of "Roads to Serfdom" can be explained by the fact that is serves a projection surface. All people who are not satisfied with the government find in these books the reasons for their dissatisfaction. The whole book is nothing else than gossip with some interpersed truisms.

The best thing of the book is the title. If he had called his book "The impact of governmental intervention on the allocation of rersources and personal freedom under special consideration of the situation in Germany in the years 1933 to 1945" nodody what had bought it.

The book "Road to Serfdom" can be considered as well as another totalitarism theory. Following Hanna Arendt totalitarism differs from a mere authoritarian regime by the fact that a totalitarian regime takes control of all aspects of life, education, art, research, religion, sport etc.. A totalitarian ideology like nazism attempt to get full control over the individuum through mass organisations and restriction on access to certain professions to anyone who doesn't comply with the characteristics needed. Totalitarism is therefore more a technique to get and remain in power than a specific "idiolgogy", in the sense that the content is relevant.

The problem with Friedrich Hayek is, that his argumentation "=> government attracts more and more economic resources => the government gets more and more powerful => he will abuse this power to restrict liberty on any field" is far to simple.

From a historical point of view this analysis is simply wrong. The nazis didn't dominated first the economy and penetrated then step by step all social spheres as Friedrich Hayek suggests. They took over total power by pseudo democratic elections and from that position they gained control over the economy. In contrary to what Hayes suggests, democracy was not the problem. The abolition of democracy was the problem. A crucial element of democracies is that it is possible to get rid of a government through elections, but that was no longer possible.

What is really strange in this theory is the fact, that the idea, that economic power leads to a restriction of liberty is actually a marxist idea, something Friedrich Hayek hated like the devil the holy water. Marxists believe that the capitalists gain control over the society by their economic power, that allows them to control them for instance the mass media. ("The dominant belief is the belief of the dominant".) For marxism this is a crucial concept, because in a democratic society the "working class" would not wait until the capitalists are ready to be expropriated, they will vote quite pacifically for a redistribution of income through social transfers and taxation. This can only be avoided if they use their economic power to impede any kind of opposition at all levels.

We have seen that already very often, for instance in the very similar methodological approach of the neoclassical theory and marxism. Both believe that the economy is steered by universally valid lows and in both theories there is no human decision making needed, see methodological approach. That is strange, but the most similarities we can always found in ideologies which are, concerning the content, diametrically opposed.

Totalitarian states are characterised, following Hannah Arendt, is the penetration of an ideology in all social speheres. Education, culture, jurisdiction, sports, family live etc. etc..The constitutional state is abolished and judges only serve to keep in power the ideology. Mass organisations at all levels exerce a control on the individuum at any stage of his live at any moment. In this sense only the nazi Germany and the stalin Soviet Union where totalitarian states.

There are two fundamental misinterpretations of historical fact in "Road to Serfedom". The first misinterpretation is that totalitarian governments gets to power through attracting more and more economic resources. In Germany and the Soviet Union it worked the other way round. First they got political power and then they took over the economy. That is even logical. It is easier to get power with a gun in the hand than indirectly by attracting economic resources.

It is true that in the last more or less democratic elections in november 1932 the nazis got 33 per cent of the votes, no doubt to much, but that didn't allow them to gover alone. They goberned with a special law that granted dictarorial right to Hitler. In the next and last elections, in march 1933, where they obtained 44 per cent, the competing parties were intimidated or prohibited. After that democracy was abolished and any opposition eliminated. Friedrich Hayek assumed that democracy lead to a totalitarian state. That's not true. The abolition of democracy leads to a totalitarian state. If democratic rules had been respected, if there had been a public debate and opposition, the catastrophy wouldn't had happen, because even the armee was against the war.

The second error is his assumption that in democracies majorities dominate minorities. This is a theoretically pausible constellation, although something that never happened in reality. Totalitarian systems tend to oppress minorties, not democracies. Mobilising against minorities is easier in authoritarian and totalitarian systems than in democracies, because something like majorities or minorities actually doesn't exist. Majorities as well as minorities have is a mixture of several hundreds characteristics: religious belief, income, profession, education level, sexual preferences, family status, immigration background yes / no, ethnic affinity, self employed or employee, smoker or non smoker, living in a big city or a small town, etc.etc.. It is almost imposible to attack a minority without attacking part of the minority. To be more precise: This is only possible in a totalitarian regime, where the controlled mass media can brainwash the mind of the people and one characteristic is presented as dominant.

Democratic majorities are instable and political parties will try to satisfy the maximum of people. They FORM majorities, but majorities are nothing that existed before. Competing parties will try to INCLUDE minorities in the majorities in order to win the elections.

We saw in the transcourse of history, that political parties were able to mobilize the majorities against minorities. (Against certain ethnical groups, immigrants etc..) But in general that only works if there are already strong resentments against these group before the campaign of the political party and the majorities must have a clear advantage of oppressing these minorities. This is the case for instance if the majority competes with the minority on the labour market, if the majority is oppressed by the minority, if the majority believe that they get access to the possessions of the minorty or something like that. However historical experience shows that this phenomenon occurs more often in authoritarian or totalitarian regimes than in democracies.

To illustrate that with an example: The suppression of certain linguistics groups in Spain happened under Franco and since the dead of Franco "minor" languages like the basque, catalan / valenciano or gallego were protected by law. In Mexico, Central America and South America the non european languages have an official status since these countries are democracies.

We can speculate why this is like that, but it is not needed. It is a fact that democracies never oppress minorities. The opposite is true, athough Friedrich Hayek affirms the opposite. There is no historical evidence for this thesis and from a logical point of view it is not plausible.

The thesis of Friedrich Hayek that democracies can lead to tyranny is simply wrong and the seizure of power of the nazis in 1933 is not a good example, because they abolished democracy.

Die heutige Mode, die Demokratie als den bedrohten Eckpfeiler unserer Zivilisation hinzustellen, hat ihre Gefahren. Sie ist weitgehend für den irreführenden und unbegründeten Glauben verantwortlich, dass keine Willkürherrschaft möglich ist, solange der Wille der Majorität für die Ausübung der Macht maßgebend ist. Die trügerische Sicherheit, in die sich viele Leute durch diesen Glauben wiegen lassen, ist eine Hauptursache der allgemeinen Sorglosigkeit gegenüber den uns drohenden Gefahren. Der Glaube, dass keine Regierung eine Willkürherrschaft sein kann, wenn sie nur ein Produkt des demokratischen Wahlverhaltens ist, ist ganz unbegründet und die darin liegende Gegenüberstellung vollkommen falsch: Nicht der Ursprung, sondern die Begrenzung der Regierungsgewalt bewahrt sie vor Willkür. Es ist möglich, dass das demokratische Kontrollrecht eine Willkürherrschaft verhindert, aber dann nicht durch seine bloße Existenz. Wenn die Demokratie sich zu einer Aufgabe entschließt, die notwendigerweise eine Anwendung der Staatsgewalt voraussetzt, die sich nicht an festen Normen orientieren kann, muss sie zur Willkürherrschaft werden.

Friedrich von Hayek, Weg zur Knechtschaft, München 2011, page 100

The today's fashion to consider the democracy as the pillar of our civilisation bears risks. This fashion responsible for the misleading and unfounded belief that tyranny is not possible as long as the will of the majority is the basis of the legitimity of power. The illusory security people are lulled by this belief is the main reason for the general insouciance for the impending threat. The belief that no government can be a tyranny as long as it is the product of a democratic election is completely unfounded and the inherent opposition completely wrong: It is not the origin, but the limitation of governmental power that save us from tyranny. It is possible that democratic control impedes tyranny, but that is not done by the mere existence of this control. If a democracy decides to comply a task that supposes the use of force that is not justified by preestablished norms it becomes a tyranny.

This is a typical Friedrich Hayek text. It is so vague and imprecise, that it means actually nothing. The general thesis is clear, but meaningless. It is well possible that a government is democratically elected, but once elected it can do whatever it want, if there are no preestablished norms and constitution. This is actually more or less true, more less than more, but this kind of government is not going to be reelected and if it abolishes democracy, something that happened indeed very often in the transcourse of history, democracy is abolished and therefore the problem has nothing to do with democracy.

Beside that it is impossible to discuss about the text because he doesn't mention a concrete country and a concrete constitution, although it can be assumed that there is no democratic country whose constitution allows to abolish democracy. If a democratic party doesn't respect the constitution, his preestablished norms are of course of no help, but a dictator wouldn't care about the constitution either if he wants to take power by force. He explains us with a lot of words the risks of a democracy, but he didn't explain us how to resolve the problem.

We can even say that the scenario he describes can happen. An illustration for that are the recent event in Egypt. A democratically elected president, Mohammed Morsi, abolished democracy once he was in power. However it is ridiculous to believe that preestablished norms will have any effect in destabilised countries.

The last sentence, although as vague and imprecise as all the writings of Friedrich Hayek "If a democracy decides to comply a task that supposes the use of force that is not justified by preestablished norms it becomes a tyranny" can be understood this way. If a democracy undertakes measures that requires the use of force it is not enough that they are democratically legitimized, they must as well be based on preestablished general norms valid for everybody.

That means that it shouldn't be possible for instance that only the fortune of a certain ethical group is taxed. The same tax has to be applied for everybody. In a certain sense this is obviously true. It is for instance inacceptable that in "christian" countries only the muslims are taxed.

But beside obvious scenarios like that, it is difficult to know what that means in concrete. In a lot of countries there are for instance a luxury tax on luxury cars, but in now country there is a luxury tax on luxury houses. It can be discussed if this is fair or not. The group is actually the same, rich people, but depending on what they spend there money for, they are taxed in a different way. In the first case we have a progressive rate, in the last one a proportional rate.

To take another example. There is no difference between someone from Buenos Aires and Madrid. Both speak the same language, both have the same cultural background, the education system they went through is almost the same, but the person from Madrid belongs to the European Community and the one from Buenos Aires not, and therefore they have very different rights if they come, for instance, to Germany.

In most countries there are customer duties on coffee, but not on tea. This can obviously be criticized, but the vague arguments of Friedrich Hayek will not convince the government. It is to suppose that a more economic argumentation can reach the broader public and lead to an abolition of this kind of customer duties. Customer duties that reduce the income of underdeveloped countries are always harmful, because they prevents them from buying the products of the developed countries. The difference between tea and coffee and the reason why there are customer duties on coffee but not on tea is the simple fact that in the case of coffee the added value consists in the elaboration of the green beans, which can be, in contrary to toasted beans ready for consumption, imported for free. There are lobby groups interested in preventing the import of beans ready for consumption, because the profit is made with the elaboration. That's not the case with tea. A philosophical and vague approach of the Hayek kind will have no impact. A clear explanation of what is actually happening can have an impact, because people pay for the priviliges assigned to the coffee industry.

At the other side the government can impede discrimination by the private sector. In some countries for instance the access to schooling is not free with the result that only a certain group, the group who can afford to pay for that, has access to schooling or to the universities. The government can change that by giving free access to the education system at all levels.

Beside obvious situations, the statement of Friedrich Hayek is completely meaningless.

Perhaps he only wants to say that it is incompatible with a constitutional state and the rule of law, if laws were changed arbitrarily or if the government interferes without any legal legitimation. But this insight is older than the green hills of Africa: Nulla poena sine lege.

But even with this simple principle we can run into problems. After the fall of the wall of Berlin in 1989 a lot of judges from the former German Democratic Republic were prosecuted for having bend the law. However the case were not as simple as one might believe, pero their judgements were based on the laws of the German Democratic Republic and therefore most of them were not convicted, although their judgement had not been compatible with any idea of justice.

The problem with the texts of Hayek is that there are very, very vague. They are more kind of a Rohrschach test. Objectively there is nothing in these texts, but we can learn a lot about the reader of these texts, because the reader projects his own feelings and experiences into these texts.

This is a big, very big, difference between Milton Friedman and Friedrich Hayek. On most topics, beside the role of money and monetary transaction mechanisms, they agree, but Miltion Friedman is very concrete and discusses concrete topics. People will not agree with his statements and affirmations, the author of these lines actually never agrees with him, but there is a basis for discussion.

Just saying that any kind of governmental interaction is a road to serfdom is not very helpful when it comes to discuss about concrete issues. Real issues are more complicated.

By simply saying that a tax on fortune, labour rights, interdict the selling of genetically modified food, compulsory schooling etc. are all roads to serfdom is nonsense. Each case must be discussed separately.

What is actually somehow strange is that every time people have a little problem they ask the government to resolve it. (That's the opposite that what is assumed by Hayek. People ask the government to intervene.) People ask for instance the government to protect their personal data on the internet. That's a problem they can resolve themselves by not using any kind of services where they have to deliver personal data and they can prevent tracking by installing an add on that impedes the installation of cookies.

The general problem is that none of the political mouvement by which Hayek wants to underpin his thesis that totalitarian governments got to power through democratic elections actually got to power by democratical elections. In the case of Mussolini and the italian fascists these obvious. Mussoline was appointed head of state by Vittorio Emanuelle III because it was unclear whether the armee would oppress the insurrection leaded by Mussolini. The nazis, see above, got two power in a semi legal way and once got two power, they elimininated any democratic opposition.

In order to show that any kind of collectivism, by collectivism he understand any kind of mouvement he considers to be a variant of "socialism", communisme, socialisme, fascisme, leads to totalitarism he quotes Mussolini, see paragraph below. However that proves nothing, because Mussolini didn't get to power by a democratic selection. He can quote just any other fool. What is actually through is that Mussolini was inspired by Vilfredo Pareto, one of the strongest opponent of any kind of governmental intervention and "socialism".

He can't prove with that quote either that "socialism" tends to the suppression of the individuum and restrict his personal freedom. The french PS, the german SPD or the spanisch PSOE, to take some arbirtrarily chosen examples, have their origins in "socialist" mouvements, but this mouvements were opposed to regimes that restricted personal freedoms. If Friedrich Hayek assumed that more personal freedom were granted in Spain under Franco than in the era of Felipe Gonzales, than he had no clue of spanish history.

Wir waren die ersten, die erklärt haben, daß die Freiheit des Individuums um so mehr beschränkt werden muss, je komplizierter die Zivilisation ist.

Friedrich von Hayek, Weg zur Knechtschaft, München 2011, page 67

We [the fascists] were the first to say that the freedom of the individual has to be restricted the more complicated the civilisation.

Given the fact that the texts of Friedrich Hayek are very imprecise and that he never discusses a real world problem, it is hard to test his thesis against reality.

His approach to illustrate his theories with examples taken from history, beside the fact that he commits obvious errors in presenting the historical facts, can't work. A historical phenomenon is always the confluence of incidental phenomenon. In other words the confluence of social, technological, psychological, economic, cultural, religious, political etc. facts. If we attempt to illustrate for instance an economic, social, psychological "law" with an example taken from history, we have to assume that the other facts are irrelevant or stable.

We can for instance prove by historical examples that the mass media have a big impact on public opinion. But if the technology changes and a new type of media shows up, the situation changes and it changes even more, if the culture and the education level changes. Two things that has at first glance has nothing to do with each other, a purely technical issue like the tcp / ip protocol and the impact of the mass media on public opinion were closely related. If the technology had not changed, historical examples would be useful.

The author is indeed in favour of considering economics as a transversal science. But in history we have to much things mixed up. In neoclassical theory, see methodological approach, the idea that economics is a transversal science is missing, but in the writings of Friedrich Hayek we have to much of it.

If we want to deduce a concrete message from the writings of Friedrich Hayek, we can possible say that any type of interference of the government, beside a basic economic order like the one described in the ordoliberalism, is a road to serfdom.

That would explain why he prefers a dictator to a a democratically elected president.

In an interview with the newspaper El Mercurio from 14th march, 1981 with the journalist René Sallas Hayek expresses in a few words his opinion. The quote is not directly taken from El Mercurio, but from the newspaper El País that has taken it for its part from an essay of J.Vallier with the title "Liberalismo económico, desigualdad social y pobreza en los países subdesarollados".

Recuerda este autor unas declaraciones de Hayek a El Mercurio (12-4-1981) en las que dijo: "Mi preferencia personal se inclina a una dictadura liberal y no a un Gobierno democrático donde todo liberalismo esté ausente". Creo que no son precisos más comentarios, aunque volveré más abajo sobre la preminencia del liberalismo sobre la misma democracia.

This author remembers some statements of Hayek in the newspaper El Mercurio (12-4-1981) in which he said: "I personally prefer a liberal dictator to a democraticly elected government where any kind of liberalisme is absent". I think that no further comments are needed, although I will come back later to the priority given to liberalism in comparison even to democracy.

Unfortunately it is not mentioned in the article where Hayek said that. It is to assume that the interview was given in Chile, where Pinochet ruled from 1973 to 1990.

[For those who are interested in this actually irrelevant figure, Hayek, it is very easy to find a lot of information about Hayek on the internet, especially the relationship between Hayek and Pinochet, see for instance The Hayek-Pinochet Connection: A Second Reply to My Critics. The author would say, that it is enough to deal with Hayek for three hours. Not because he is relevant, but because he is famous. The vague and imprecise theories are not really relevant when it comes to resolve or analyse concrete problems.]

The author in the article mentioned above assumes that Hayek was completely aware of what had been going on in Chile since 1973 and gives good proofs for that, however it is possible that Hayek was so stupid that he was not aware what was going on.

[No need to furnish any further information about the chilean history between 1973 and 1990 and the Pinochet Regime. There are thousands of website, videos on youtube etc. about this topic on the internet covering any aspect.]

In 1981 Hayek, at the time when Argentina was ruled by Videla, he said that he only knew one totalitarian system in South America, the government of the democratically elected Salvador Allende.

By contrast, Alan Ebenstein, Hayek’s biographer (sympathetic doesn’t quite capture the tone), does not mention the connection at all. Ebenstein does, however, quote Hayek making the rather astonishing claim in 1981 that there were not “any totalitarian governments in Latin America. The only one was Chile under Allende.”

Reading the texts of Hayek one can become philosophical. We can see in Wealth of Nations as well that economists are in general miserables historians. That can be explained. Historians try to understand a specific historic situation as a singular phenomenon. They don't look for eternally valid laws. Economists look for regularities in the economic development and use a historic situations to illustrate their thesis. That normally doesn't work. The problem is the same as with statistics. Statistically it can be proved that Christmas is the result for an increase in the demand for gifts. Everytime there is an increase of the demand for gifts follows Christmas. Year after year. That's a very stable statistical relationship. The same way we find for any thesis an example in history that prooves any thesis. It can be prooved for instance historically that the consumption of potatoes underpins monarchies. The prussian monarchy in the 18 th century for instance would have been destabilized without potatoes.

Another "technique" of Hayek is to assume a "public opinion" that actually doesn't exist and that he then refute. This "technique" allows him to present himself as the lonesome hero fighting against the majority on the way to totalitarism. The problem is, that this public opinion actually doesn't exist. This is a version of a Don Quijote. He is fighting against windmills due to the lack of real dangers where the strong arm of a errand knight can show his strengths.

Die Vorstellung, dass es für die Machtbefugnisse des Gesetzgebers kein Grenzen gibt, ist zum Teil ein Ergebnis der Lehre von der Volksouveränität und des Demokratismus. Sie ist durch den Glauben befördert worden, dass der Rechtsstaat erhalten bleibt, solange alle Staatsakte in der Gesetzgebung ihre ordnungsgemäße Grundlage haben.

Friedrich von Hayek, Weg zur Knechtschaft, München 2011, page 112

The idea that there are no limits for the power of the legislator is in part the result of the belief in the souveranity of the people and democraticism (sic!). This idea has been promoted by the idea that the constitutional state is maintained as long as all governmental interventions are based in a regular legislative process.

The first problem is, that there is no constitution in any democratic country that gives unlimited power the majority in the parliament to pass any kind of law. In Germany, France and the USA for instance there are two chambers that can bloque each other. In Germany the discussion is about a completely different problem. (France had a similar problem a few years ago.) The real problem is, that they can bloque each other to an extent that both are powerless.

Beside that in any democratic country there is a third institution, the federal court or similar institutions, that controls whether allow is compatible with the constitutions in other words whether there they are compatible with the fundamentals of the constitution that can't be changed. (In Germany the first 19 articles of the german constitution.)

In some countries, for instance in Germany, a law that is not compatible with the constitution has to be refuted by the president, who should, in Germany, not to be confused with the chancelor.

Last not least. There are a lot of very powerful social organisations able to oppose against any law aiming to restrict fundamental democratic right.

In other words. The author has no clue what Hayek is talking about. Nobody has ever said that is can be allowed to the parlamentary majority to pass a law incompatible with fundamental elements of the constitution. What he demands is already the norm in any democratic country since at least 150 years.

His problem is that he didn't really understand how the nazis or the italian fascist got to power. They didn't get to power by passing anti-democratic laws in a democratic elected parlament, as he assumes. They got to power by brute force and they simply didn't care about the constitution.

Hayek would say that if someone robs a bank the problem is the law. If the law interdicted that, he wouldn't do that. That's wrong. A bank robber doesn't care about the law. For Hayek totalitarism is constitutional problem. That's completely wrong. Totalitarism is a problem that occurs if a democracy can't defend itself against brute force.

To give a drastic example: It was never allowed, not even under the nazi regime to kill millions of people without any reason. There was no legal basis for the extermination camps, but the nazis killed millions of people there anyway. Totalitarian regimes don't care about constitutions and for them there is no need to change them. Hayek assumes that totalitarian regimes will pass laws that give a legal basis to their totalitarian regimes. The truth is, that they don't care about the legal basis. The race laws of Nuremberg where needed for propaganda reasons, but not for the actual installation of extermination camps.

If the people of Chile had been unhappy with Salvador Allende they had, if the democracy were not abolished by Pinochet, the had the possibility to elect another government and after this another one. This is the normal process. But there was no chance to get rid of Pinochet. We don't know if Hayek was simply mad or stupid. Perhaps he was both.

There is no doubt that democracies have a problem and that participation in elections is descending everywhere. The problem is due to a lack of transparency. The publicly discussed issues are not the relevant issues and due to lack of access to the data it is not possible to form an idea of the discussed issues, see preliminaries.

The tyranny of the mayority is actually possible, but not in the form of a parliamentary majority, but in the form of a social majority. This problem, actually more important, is addressed by John Stuart Mill.

The quality of a democratic decision making process depends obviously on the intellectual level of the society. If the result of democratic election is problematic, what is for instance the case if the majority is given to a party that wants to abolish democracy, the problem is not the democracy, but the electorate.

To put it short: The problems addressed by Hayek, a majority dominates a minority can happen and happened in any form of political order, but it happens less frequently in democracies.

We can only speculate about the reasons for that. First of all authoritarian or totalitarian regimes have more possibilities to brain wash the mind of the people, given that they controll the mass media and the education system and second they have an interest in finding a scapegoat that distracts social unrest away from the real reasons.

Democracies don't have the control over the mass media and it is therefore more difficult to make someone responsible for all the problems of the world. We don't say that this is impossible, immigrants for instance are an ideal group to play the role of a scapegoat, but it is more difficult, because there will be always people who oppose the opinion of the majority.

Hayek is not really a theory. It is a conglomeration of confuse associations. Democracy is something he regarded with suspicion, but he doesn't tell us, by which political order he wants it to be substituted or how to resolve the problems presented in a confusing way.

Collectivism is a word Hayek is very fond of, although he never really defines it. The problem is, that Hayek addresses philosophical issues without being a professional philosopher like Adorno or Bloch. He considers collectivism as opposed to individualism, but this opposition actually doesn't exist. As John Stuart Mill or Alfred Marshall already stated, individuals are always formed by the society they live in.

This regards everything. What they are able to do, what they think, what they know and what they feel and even very subtle feelings, the reception of a novel, is mediated by the environment. The more we go back in history, the less individualism we find. The first novel for instance where we have an individuum with individual, though simple, feelings, is Lazarillo de Tormes, first published in 1554.

He discusses individualism only in the context of personal / economic freedom granted by the political order. The author has no intention to discuss this topic here or to give an overwiew of all the philosophical position taken concerning this issue from the ancient greeks, Friedrich von Humboldt, Johann Wolfgang von Goethe, Immanuel Kant, Marcel Proust, Th. W. Adorno etc. etc.. That would be a really very thick book. It is enough to remember what has been already said in the chapter about John Stuart Mill.

It is not enough that the political order guarantees personal freedom passively as Hayek assumes. Personal freedom exists only if the individual is aware of alternatives in thinking, acting and feeling. That is something he has to LEARN. A democratic society not only allows therefore personal freedom passively, but promotes it actively for instance through its education system.

That may sound very philosophical for some people, but actually it is trivial. Nobody would expect from a five year old child to make use of personal freedom. Even his preferences for food is something he or she will learn, provided that the parents don't offer him the same thing every day.

However in other areas things are not so trivial. Mass media can restrict personal freedom. Not buy opressing it actively, but buy not offering alternatives. That is the issue addressed by Neil Postman in the book We amuse ourselves to death. We will return on the topic when talking about Th.W.Adorno. To resume the problem in a view words: The culture industry argues, that they offer only what people actually wants, but they don't mention that they never induced people to want something different. It has an interest to produce standarized products for the maximum of people. They are not interested to produce specific offers for a small different groups.

The today's discussion in industrialised democratic countries is very different from what Hayek supposes. In some countries, for instance in Germany, some mass media are under governmental control and are financed by compulsory fees. The reason for this is that mass media are needed that can offer alternatives to the private mass media because they don't depend on the immediate economic success. The concept can be questioned, because the governmental run mass media resemble more and more to the private media, but at least in theory the government can as well promote personal freedom, if we understand by personal freedom that people know alternative ways of thinking, acting and feeling.

The notion personal freedom is often used by Hayek, but remains actually completely undefined. The only thing we now for sure is that Hayek assumes that a restriction in economic freedom leeds to a restriction in personal freedom, although we doubt that this is a really convincing theory. It can be questioned, whether poor chileans in the time of Pinochet, perfect economic freedom, felt more free than frenchmen in the time where France where govered by the Parti Socialiste and François Mitterand. At least we can assume that the thousands of people who had been tortured to death under the regime of Pinochet didn't feel very free.

The problem with Hayek is that he had a very low level of education and knew almost nothing about history. Totalitarian or authoritarian regimes never got to power with the help of a collective and where never the result of a "collective" ideology. In Germany (Hitler), Spain (Franco), Italy (Mussolini), Russia (Stalin), Argentina (Videla), Kuba (Castro) etc. etc. a small group took over the power by brute force and once got to power, they controled social live, at different degrees, at all levels. The brain washing of the minds and the control of the economy was a RESULT of this taking over of power, not the cause.

The term collectivism can be used in two different ways. Collectivism can be understood as a "passive" oppression of the individuum. In this sense individualism is not actively oppressed, but the individuum is not able or not willing to go "his own way". This is the problem addressed by John Stuart Mill in 'On Liberty'. The reproach of Th.W. Adorno against the culture industrie, especially television and cinema, is not that freedom is actively oppressed. The reproach is, that the market mechanisms leads to a reduction of the offer. Under these perspectives, especially if individuals are a little bit "lazy", the government can promote freedom by offering, even compulsory, alternatives. That what actually happens in the education system of all modern democracies. Students are not asked if they want to study John Locke, Thomas Hobbes, David Hume, etc., if they want to learn a foreign language or if they want to read Shakespeare. It is simply assumed that a choice is only possible, if the alternatives are known. The government can even offer more alternatives to the students than the parents want. Some parents don't want, that the theory of Charles Darwin is taught at school. The government can offer the christian version about the origin of man and the version of Charles Darwin and it is up to the students which of both versions they believe to be more plausible.

Personal freedom is something that for Hayek exists by nature. That is in contradiction to almost the whole philosophical literature since the Renaissance and beside that any teacher would be astonished if he learned that he is oppressing his students by teaching them alternative ways of thinking. Democracies not only have to passively allow different opinions, democracies has to actively promote them.

The second possible meaning of the notion collectivism, and that is the meaning Hayek refers to, is the active oppression of personal freedom. For logical reasons that can only happen, if a small group took over the power by force and uses this power to oppress any kind of opinion they don't agree with. If they were brought to power by a collective, different opinions wouldn't exist and there would be therefore no need to oppress them. Collectivism is the result, not the cause.

It is unclear, why such an amount of meaningless nonsense could had become so famous. The only explanation for this kind of phenomenon is that everybody who is unhappy with the government and who doesn't see any democratic alternative can identify himself with the "Road to Serfdom".

The whole theory of Friedrich Hayek is based on the assumption, that "socialist" mouvements, by socialists he understands everything from communists, fascists, social democtrats to keynesianists and liberals in the tradition of John Stuart Mill, take slowly over the power by attracting more and more economic resources. His problem is, that this never happened in history. He is discussing an inexisting problem.

He assumes that a "collective society" can legitimate governments to pass totalitarian laws. This laws would therefore be compatible with a constitutional state, because they have a legal basis, but the power of the government would be unlimited. The problem is, that there is no need to discuss this scenario, because there is no historical evidence that this happens. His Pinochet took over the power by brute force, elimininated all opposition by brute force. The collective society was the result, not the cause. If he stated afterwards that Chile is a free country, as he actually did, it is because all kind of opposition has been extinguished and in this collective society there was indeed no limit for the use of force and were indeed not bound to any previously established norms.

The whole theory of Friedrich Hayek is based on a wrong interpretation of historical facts, especially the seizure of power of the nazis in 1933 in Germany. He assumed that the nazis took over the power by slowly attracting more and more economic resources. That didn't happen that way. Not at all.

As long as a law passed by the parliamentary majority can be revoked, if the parliamentary majority changes, it is a normal process that some people might be negatively affected by this law.

Wenn wir also sagen, dass in einer kollektivistischen Gesellschaft das Prinzip des Rechtsstaates nicht länger aufrecht erhalten werden kann, so behaupten wir nicht, dass die Akte einer solchen Regierung nicht legal seien, oder dass eine solche Gesellschaft notwendigerweise gesetzlos sein müsse. Es heißt nur, dass jetzt der Anwendung der staatlichen Zwangsgewalt keine Grenze mehr gesetzt ist und sie nicht länger durch im voraus festgelegte Normen bestimmt wird.

aus: Friedrich von Hayek, Weg zur Knechtschaft, München 2011, página 113

If we therefore say that in a collective society the principles of a constitutional state are no longer respected, we don't mean that the acts of this government are illegal or that they lack a legitimation. We only mean that in this case there is no limit for the application of force and that it is no longer bound to preestablished norms.

If we want to find any sense in this nonsense it can be this. It can happen that a government passes as a law that Friedrich Hayek don't like and if this law is never revoked, because even changing majorities has no interest in doing so, than we have a clear signal that collectivism had gained the overhand. It can't be otherwise. It is not possible that a law that is not approved by Friedrich Hayek makes sense. Any governmental measure not approved by Friedrich Hayek is a Road to Serfdom.

If for instance a government grants free access to education at all levels and the education system is publicly financed this is a Road to Serfdom, because people with a higher income contributes more than people with low income, given that they pay higher taxes. However this can be looked at a completely different way. Free access to education is the condition for freedom.

Hayek would argue as well that compulsory schooling is a road to serfdom and some children would even agree. However without compulsory schooling the freedom of these children would be very restricted in the long run.

Until there is no clear definition what he actually understands by coercion, collectivism, personal freedom all his theories are actually completely meaningless.

The same thing is true for his previously fixed norms. Beside the fundamental rights granted in any democratic constitution which can't be changed by parliamentary majority, he is figthing against windmills, he sees a foe where there is none. The previously fixed norms were already established at his live time in any democratic constitution. The unalienable right were defined in the constitution of Weimar in the second part of the constitution. That the nazis didn't care about these fundamental rights, is another story.

We have no intention to make a course about history here, but it is not difficult to find on the internet summaries about the Republic of Weimar and why it failed, see for instance here: Weimar Republic.

The basic assumptions of Friedrich Hayek, that "collectivist" ideas led to an increasing interference of the government into the economy and that therefore more and more economic resources were attracted by the government giving the government that way more and more power what led finally to the totalitarian regime of the nazis is completely wrong. Total nonsense.

There may be reasons to interfere in the personal freedom of a certain group, for instance the owner of luxury cars, and there may be reasons to privilege a certain group, for instance handicaped people. The basic ideas of Hayek, that there shouldn't be any laws that discriminates a certain group in a positive or negative way is nonsense. Any law or regulation affects a certain group positively or negaitively.

Beside that the previously established norms falls from heaven in the logic of Hayek. They are something like the The Ten Commandments brought from the Mount Sinai by Moses. We don't know what should be the exact content of these previously established norms and Hayek is not willing or able to tell us that, but for an unknown reason these norms fallen from heaven fits better with the ideas of Hayek than laws passed by the majority of democratic elected parliament. Perhaps this can be explained. If Hayek assumes that his preestablished norms will never find the approval of the majority, what seems to be plausible if we think on his sympathy for dictators like Pinochet, the only way to establish them is by force in other words by the oppression of the majority. However the oppression of a minority is a problem and all democratic constitutions protect minorities, but the oppression of the majority is still worse. In other words: Hayek is mad.

If we put all that together we get to this conclusion. Personal freedom is an argument put forward as a pretext, because it is completely unclear what Hayeks understands by personal freedom. It seems that he was aware that a market economy alone doesn't guarantee the most efficient use of resources and therefore another argument was needed to present this economic order as the ideal. If any kind of governmental intervention, for instance expansive monetary or fiscal policy is a road to serfdom, a free market economy is preferable even in the case that it is less efficient. Therefore we can summarize Hayek in one sentence.

What should be controled, should be controled and steered through the mechanisms of the market and what can't be steered by the mechanisms of the market, shouldn't be steered at all. Hayek is not about personal freedom, he did not even have a clear idea what he meant by that. Hayek is exclusively about economic freedom. That explains his sympathy for dictadors like Pinochet or Salazar.

It is actually strange that he considered the market as an exploring process, what is actually true, but never democracy, as Karl Popper dit. We don't know what happened at the conferences of the Mont Pélerin, but it seems that nothing really relevant happened there.

The following paragraph is directed about governmental interventions based on the keynesian theory. [See the little book downloadable from the start site of this website.]

Wenn hingegen das Gesetz der öffentlichen Hand die Möglichkeit bieten soll, den Wirtschaftsprozess zu lenken, so muss es ihr die Befugnis geben, Entscheidungen unter nicht vorauszusagenden Umständen und nach Grundsätzen zu treffen und durchzusetzen, die sich nicht allgemein formulieren lassen.

aus: Friedrich von Hayek, Weg zur Knechtschaft, München 2011, page 112

But if the law allows to the government to steer the economic process we get to the logical consequence that decisions must be made under unpredictable circumstances and based on assumptions, which can be formulated in a general way.

We have the same problem we already had with the statement that governments tend to restrict personal freedom. Without a clear definition what should be understood by personal freedom the statement is meaningless. It is as useful as statements of the type "the government should avoid problems", "the government should promote economic growth", "the government should to the best" etc. etc..

If he doesn't specify the type of governmental intervention, the statement is meaningless. Obviously it would be nonsense if the government starts baking bread. However it can be very useful, if the governments constructs roads and bridges. It can be questioned if it is a brilliant idea if the government increases the amount of public employees in order to boost aggregate demand. However under certain circunstances it can be a good idea to subsidize the purchase of new cars. (For instance in order to reduce the amount of CO2 emissions.)

We assume that he is talking about interventions motivated by the keynesian theory. It is indeed true that a possible conclusion that can be drawn from keynesian theory is that under certain circunstances the government or the monetary authorities should intervene in a discretionary way, spending more money in infrastructure or lowering the interest rates.

The statement of the paragraph assumes something that actually should be proved. In Germany for instance exists actually a law that allows the government to intervene in order to realise price stability, reasonable growth, low unemployment and a balanced balance of payment, the so called Law on the Promotion of Stability.

(Since twenty years Germany infricts violates the last goal having a heavy surplus in the balance of payment, but this is another story.)

However this law is based on a theory, the keynesian theory to be precise. If Hayek wants to show that governmental intervention is based on assumptions that can't be formulated in a general way, he must prove that the theory behind the law is wrong and not simply state it.

His statement would be true if the government would do just anything he "likes". Increasing the wage of the public employees in an arbitrary way, baking cakes, constructing swimming pools for the parlamentarians, building castles for generals etc. etc.. There is no doubt that they do thinks like that, but normally they don't do that eternally, because the tax payer is not willing to pay that eternally and will therefore deselect them in the next democratic elections.

The case of expansive fiscal or monetarian policy is different. It can indeed, at least if it well done, stabilize the economy and the voters won't see any reason to deselect the government.

There are actually no real arguments in the whole "theory" of Hayek beside that what has been already said by Adam Smith and what is actually true. Decentral information processing by the signal of prices is more efficient and flexible than central planning, see homo oeconomicus. The problem is, that nobody questions that and especially Keynes didn't questioned it.

The problem with the freedom fighters of the Hayek style, there are a lot of them, most of them, stunning fact, public employees in publicly financed "research" institutions, where they pass their time writing never discussed discussion papers, is that they are fighting against inexisting foes.

During his whole life Hayek had one big project. Convincing people of things they were already completely convinced, but he did it in way that went well over the target. There is no need to convince anybody that the public sector is less efficient than the private sector. It is obvious that an entrepreneur whos income depend completely on his performance is more efficient than a public employee, who gets his money independently from its performance. However it is not correct to say that there is no way to control the public sector by mechanisms similar to the mechanisms that steers the markets, see governmental activities.

Although Hayek tried to convince us that he was telling something very new, his insight are older than the green hills of Africa. Converning bureaucracies there is even a funny law, the law of Parkinson: "Work expands so as to fill the time available for its completion". And that is true. Whatever the amount of public employees, they will always find something to occupy themselves.

(Actually all the laws of Parkinson are true. The law of triviality for instance states that bureaucracies will spent more time to resolve irrelevant problems they understand, than relevant problems which would require an effort to be understood. Small companies without a professional tax consultant for instance have a bigger chance to get controlled by the tax office than large companies with 100 employed professional tax consultants. In the first case the risk for the employees of the tax office to discrace themselves is low, in the second case the risk is very high, because in this case they are in front of people who do nothing else than studying the tax laws.)

The triviality of the book "Roads to Serfdom" explains perhaps the success, especially if all these trivialities were written by a nobel price of economics. People got the impression that they are learning something new and very sophisticated, although they learned only things they knew already. Nobody became ever aware that the theories of Hayek are completely irrelevant when it comes to analyse concrete problems.

Hayek mixed up everything with everything in a cascade of vague associations. It is for instance true that "keynesian policy" intevenes in the economy an therefore Keynes, although "keynesisan policy" is nothing else than some possible conclusions people draw from keynesian theory, became the personification of the evel for Hayek, see Hayek on Keynes's Ignorance of Economics.

(What Hayek says about Keynes is actually true. Keynes was not all interested in classical capital theory, because the whole classical capital theory is simply nonsense, see interest rates. What Hayek, the wild opponent of marxism didn't understand, is the fact that marxism is based on the classical capital theory. The only real opponent of marxism is keynesianism.)

Keynesianism is at the other hand for Hayek something like socialism and socialism as well as marxism and fascism a variation of collectivism. To put it short: Hayek was mad.

Hayek is a curious case. He reduces all economic problems to an opposition between collectivism, a notion he actually never defines, but we assume that everything he didn't like is collectivism, and freedom. This is actually not the problem. Even in the time of living of Hayek these radical positions, at least in the West, had been sustained by nobody. However even the publicly financed academic teacher of economics who passes his live writing irrelevant and publicly financed never discussed discussion papers can identify himself with that. His personal freedom is at stake if the government closes a "research" center.

If we reduce all the problems described by Hayek in a very abstract and confusing way and if we put apart all the mystizism the core of the problem is described already by Adam Smith. If there is no systemic, automatic, objective and resounding control by the market mechanisms any kind of system will end up on the wrong path. However Hayek made three big errors: The first error, this is the most complex one from a theoretical point of view and that is the problem all the keynesian theory is about, is to beliefe that market economies tend to equilibrium. That this is not true we can read every day in the newspaper. The second problem is, that some sectors, education, jurisprudence, research and development cannot, for different reasons, be steered by the mechanism of the markets. The third error is the belief, that the market mechanism are the only way to control a system. This is not true. Transparency can have an impact. That is nothing as secure than the market mechanism, because suppliers and demanders of information are needed, see preliminary, but it can work as well.

The term collectivism addresses a more sociological / psychological problem that has little to do with economics. It is crystal clear that rich people have more possibilities to avoid social pressure of any kind than poor people and that therefore less possibilities exist to avoid oppression if the government controlls the economy. However this is irrelevant. If we address the problem of freedom, no distinction is to be made between rich and poor people.

Beside that, it is very hard to see why the poor a free in a ricardian world. A very unequal distribution of income, a very possible result in free market economies, leads to complete lack of freedom for the vary vaste majority of the people. Hayek assumes that a dictator is only needed for a certain time, see paragraph below. The author assumes that the economic ideas of Hayek needs eternal dictatorship and is not very plausible to believe that the power needed to eliminate the opposition against the economic order will not be used to oppress any kind of oppostition.

That is actually something we have already seen very often in the transcourse of history. Social unrest due to economic problems and unequal distribution of national income and fortune leads to dictatorship and this dictatorship oppresses any kind of freedom.

The logic of a market economy is simple. It is assumed that people react on incentives. High prices for instance are a signal of sccarcitiy and incentive to diminish this scarcity, because it is awarding produce the products needed. The duty of governments consists therefore, that's the precision contributed by the ordoliberalism to the theory of Adam Smith, to establish an order where the individual interests is not opposed to the general interest. (What is for instance the case, if the producers agrees on prices eliminating competition. That's why this kind of agreement is forbidden.)

If we apply the same logic to authoritarian or totalitarian system it is not very plausible that the right incentives are set. Privileges are not obtained by producing better products or services, but by using brute force.

Hayek assumes that minorities will be surpressed in democracies, because for political parties it becomes interesting to majorities at the expense of minorities. However in authoritarian regimes this is not even needed. The majority and the minorities can be surpressed by brute force. As long as an authoritarian system has enough resources it needs only a small group, the armee, the police or the secret police to stay in power.

It may be that democracies oppresses minorities, although this is, see above, not very plausible, because majorities are a changing and inhomogenous group. However this is a risky strategy. Because if the majority loses its power, they can be made responsable for their acts.

Authoritarian or totalitarian systems don't take into account this possibility and normally they don't give up power voluntary. Dictators die, Salazar, Franco, Stalin etc., are killed, Somoza, Gadafi etc. or sent in exile Duarte, Batista, Marcos etc.. There is no "normal" way to get rid of them.

However we have no intention to run into the same error as Hayek or Friedman trying to illustrate "eternally valid" economic or social "laws" with example taken from history. Historical situation are always an encounter of incidental circumstances at no historical situation can be compared with another.

We just want to say that the paragraph below is pure nonsense. Hayek assumes that a dictator can govern in a liberal way and a democracy with a complete lack of liberty. He prefers therefore a liberal dictator to a despotic democracy. This is understandable, but that is not the question. The question is what is logically plausible and what is the historical evidence and from this perspective it is to assume that in 99 per cent of the cases Hayek would have prefered to live in a democracy than in dictatorship, because in 99 percent of the cases democracies are more liberal.

Social or economic problems that a democracy can't resolve, a political system that depends on compromises to form a majority or to reach a compromise between several parties has a bigger chance to resolve a problem than a dictator, who doesn't depend on compromises. In the best case, dictators impose the will of one group, but in general they pursue, as any bureaucracy, most of all their own interests.

Hayek assumes that democracies can be less liberal that dictators and he prefers the liberal dictator to the unliberal democracy, see paragraph below. However there is not even one example in history of a liberal dictator or a liberal absolute monarchy and it is not very plausible that something like that exists. As long as a government can be unselected by democratic elections, the democracy is more liberal.

What has actually happened in history is that a more or less liberal absolute monarchy has been substituted by a "democracy" with a complete lack of freedom, that has happened for instance in Iran when the Shah of Persia was overthrown. But this is another story. The Islamic Republic of Iran is not a democracy. Elections are controlled by the guardians of religion.

We have seen very often throughout history that a democracy becomes a dictatorship. But we have never seen that a dictatorship give up his power voluntarly.

[Hayek states that Pinochet gave up his power voluntarly. That's only true formally. First of all he remained chief of the armee, second it was granted that the crimes comitted during the dictatorship couldn't be persecuted, third there was a strong pression from foreign countries to return to democracy and forth Pinochet would have been overthrown much earlier, if democratic elections would had been allowed.]

In the paragraph below he assumes that even in the transition period some kind of dictatorial power would be neede, what is actually true. Otherwise Pinochet and his regime would had risked to be brought to trial and sentenced.

However Hayek doesn't tell us why this transitional dictatorial power is needed. A logical answer would be that he assumed that only Pinochet is a guarantor for the order Hayek assumed to be the best and that dissenting opinions should be oppressed. That what dictators in general believe. To present Hayek as a defender of freedom is really a joke.

However the problem is not Hayek, there are lot of fools on earth. The problem is, that he has such a huge amount of adepts.

As long-term institutions, I am totally against dictatorships. But a dictatorship may be a necessary system for a transitional period. At times it is necessary for a country to have, for a time, some form or other of dictatorial power. As you will understand, it is possible for a dictator to govern in a liberal way. And it is also possible for a democracy to govern with a total lack of liberalism. Personally, I prefer a liberal dictator to democratic government lacking in liberalism. My personal impression. . . is that in Chile . . . we will witness a transition from a dictatorial government to a liberal government . . . during this transition it may be necessary to maintain certain dictatorial powers, not as something permanent, but as a temporary arrangement.


The main problem is, that he is not arguing from the perspective of goals to be achieved under dictatorship or more precise, he implicetely assumes that his ideas about economic freedom should be imposed.

In rare cases a dictatorship can indeed be useful. If for instance a majority doesn't recognise universal human rights, dictatorship is the only way to bring a society back on track. That was for instance the case in Afghanistan. In some areas of Afghanistan half of the population, the women, didn't have any rights and the intervention of the Soviet Union in 1979 would have been useful, if the United States had not supported the taliban. Only a strong central power would have been able to impose the acceptance of universally accepted values and would have saved a lot of money to the United States, because it wouldn't have been necessary to fight the taliban previously supported by the United States.

But whenever a country accepts the basic rules of democracy, not only in a passive sense, that dissenting opinions are accepted, but in an active sense, that dissenting opinions are spread by the education system, and as long as it is possible to unselect a government through democratic elections, dictatorship is not a viable way.

The term "democracy with a total lack of liberalism" is a contradiction in itself. A democracy with a complete lack of liberalism is not a a democracy. If we analyse the sentence " ...I prefer a liberal dictator to democratic government lacking in liberalism..." logically, Hayek wants to say that he prefers a liberal dictator to a tyrannical dictator, because a democracy with a complete (!!) lack of liberty is a tyranny. That's something we can agree with, but this is the basic problem of Hayek. The terms use a imprecise and the result nonsense.

Actually we have no clue why Hayek has become so famous. The basic idea, that in democracies the majorities dominates minorities, underlying his whole theory, is completely wrong. Something like a majorities or minorities doesn't exist. In practise is happening the exact opposite from what is supposed by Hayek. Even a governing political party risks desintegration. Political parties are normally a fragile compromise between several tendencies. The rich in the poor may disagree about the redistribution of income through taxes, but the can agree concerning the question whether same sex partnerships should be given the right to adopt children.

They may disagree as well concerning the heritage tax, but agree on the question whether more nuclear power plants should be build or if it were not better to shut down even the existing ones.

Similar to Marx he assumes that the rich and the poor are homogeneous groups. That not the case, not at all. An entrepreneur for instance is probably against an increase of the health insurance contribution, but a dentist has good reasons to be in favour of that.

The rich and the poor can even have the same interests. Producers of cars and the stockholders of car companies as well the poor can be in favour of a decrease of the tax on petrol. The first ones because they want to sell their cars, something more difficult if the price for petrol is hight and the last ones because want to reduce their transportation costs.

Mistakenly Hayek assumes that political parties can "form" majorities by trimming their programms. If it were as simple, there is no doubt that political parties would do that and there would never happen a change in the government.

If we follow the logic of Anthony Down and his theory about democracy there should only exist two parties presenting alternating the parliamentary majority. In other words one parte would get 51 per cent and the other party 49. In other words they will always try to convince a "minority" in the other party to swith. But in this situation it is hard to believe that the majority will oppress a minortiy.

It is always critical to summarise a certain line of thinking represented by several authors under a common term. We have already discussed this issues in relation with the classical and neoclassical theory. Hayek can be attributed to the austrian school, neoliberalism or the ordoliberalism. He shares with Walter Eucken the concept of the market as an exploring process. However if we consider his business cycle theory he belongs more to the austrian school and if we consider the radical refutation of any kind of governmental intervention he belongs more to neoliberalism.

The real problems of democracies are not addressed by Hayek. Hayek gets lost in abstract "philosophical" statements without any relevance for real live. If we consider democracies as an exploration process or a learning process, de quality of democratic decision making depends on the qualification of the voters.

If they vote again and again for means that has already shown that they are not suitable to resolve or certain problem or if they vote alternatingly for two different means which both doesn't work. If people are unhappy, they vote for a means previously proposed and that revealed unsuitable for resolving the problem and not for an alternative means.

This is due to the fact that either the underlying data are unknown or the people lack the theoretical framework to interprete the data. However at least after world war to people have learned, if we put aside people like Hayek, that the extreme positions, socialism or market radicalism don't work. Progress is slow, very slow, but exists.

[However in times of crises even very old ghosts, like marxism, reappear and some countries, like Germany, don't understand that now country can have year after year a surplus in their balance of payment of 200 billion euros. That leads nowhere, but people are proud of it.]

In contrary to the imprecise and vague ideas of Hayek, which are almost useless when it comes to concrete problems, this is very precise and not vague at all and concrete measures are the logical consequence. If we know that the quality of a democratic decision making process depends on the qualification of the voters, it is clear what has to be done. The government has to public all the data necessary for an evaluation of a situation, for instance the whole public budget at all levels and what the money is actually spent for. Something they normally don't do.

It is often said that Hayek is in favour of social assistance. The original version sounds like that.

Es ist kein Grund vorhanden, warum in einer Gesellschaft, die einen Wohlstand wie die unsrige erreicht hat, nicht allen Menschen die erste Art von Sicherheit ohne Gefahr für die allgemeine Freiheit gewährleisten sollte. Das wirft natürlich schwierige Fragen über die genau Höhe des zu garantierendens Standards auf, insbesondere die wichtige Frage, ob diejenigen, die sich auf diese Weise von der Gesellschaft erhalten lassen, alle unbeschränkt die gleichen Freiheiten genießen sollen wie die anderen.

Friedrich Hayek, Weg zur Knechtschaft, München 2011, page 157

There is no reason why a society that reached a living standard as high as ours should not grant this first kind of security [=> social assistence] to all people as long as this is compatible with general freedom. This obviously raises the question about the level of this granted standard, especially the important question, whether the people who are that way maintained by society should have the same liberties as the others.

It is really stunning that 300 pages of pure gossip has become so famous and has been sold 600 000 times. Statements like that are completely useless when it comes to resolve concrete problems. Beside that the statement is not compatible with any democratic constitution. Restricting liberties because a lack of money, for instance compulsory labour, restricting the right to vote or withdraw other civil rights is completely incompatible with any democratic constitution.

Beside that the incapacity to earn a living can have very different causes. Some people are disabled by birth, some felt ill, some lost their jobs because a change in the economic structure and need some time to adapt themselves to the new structure etc..

In this case for instance, structural change in the labour market, the government can start a qualification campaign. The concrete experiences with these kind of measure are very negative, Germany tried that after the fall of the wall in 1989, however if it is better organised, it can work.

[The problem is, if it is not possible to organise campaigns of this kind inside the country, it is impossible to organise it in foreign countries, where it is urgentliy needed. To analyse what went wrong, would be a job for economists, but these people are a bunch of idiots.]

Modern social system take into account all these very different situations and react with different measures. Social legislation is one of the biggest part of the whole legal system, beside tax legislation. Some truits and pseudo philosophical nonsense cant contribute anything to the analysis of real world problems.

Most of the social systems are kind of an insurance and the word "social" is actually not the right term. It is as little a "social" system than the car insurance. The idea of an insurance is to insure an average risk, which is low, instead of providing for a maximal risk, what is impossible.

The idea that freedom can be restricted if someone is not able to earn a living would make some sense, if it could be proved that the individuals are resonsible for this inability. However that is not sure and most freedom fighters of the Hayek type are public employees and the author has serious doubts that public employees, especially economists working in public financed institutions, have any change to find a job on the market.

An economist with pretensions to be historian should be aware as well that it is very critical to make freedom subject to the economic situation and most of all he should define of what kind of restriction of freedom he is talking about. Throughout history we have already seen almost anyting. Restriction to vote, restriction to marriage, restriction to change one's residence etc..

Implicetely the whole theory or "philsophy" of Hayek is based on some basic economic assumptions. The assumption that inequality promotes economic development. To a certain extent that is true and justified, beyond a certain limit, this is neither true nor economically useful.

Redistribution becomes for Hayek a question of freedom: "There is no reason why a society that reached a living standard as high as ours should not grant this first kind of security to all people as long as this is compatible with general freedom." What he means is obvious. To the extent that social transfers increase, taxation has to increase as well and this is an encroachment on freedom.

However it is actually impossible to discuss the issue, if it is not specified what kind of redistribution he is exactly talking about. Redistribution happens at the level of the education system. Everybody has access to it, but it is financed through taxed.

Some social transfers are organised like insurances, for instance the unemployment insurance. Some social transfers, for instance the appreciation of the upbringing of children in the pension system has a concrete goal. Reverse the demographic situation.

The macroeconomic effects of redistribution are unclear. A very unequal distribution of income can increase savings to an extent that it cannot be absorbed any more by real investments and leads therefore to an increase of highly speculative investments. To illustrate the problem with some examples.

That is something that distinguishes clearly Friedrich Hayek from Milton Friedman. Milton Friedman discusses concrete issues from the perspective of some fundamental principles. That makes a discussion possible. Friedrich Hayek is pure nonsense.

The common denominator of the austrian school, neoliberalism and ordoliberalism is decentral information processing through the price signals and competition, see homo oeconomicus. All of three lines of thinking shares the idea that free markets have an inherent tendency to abolish themselves, because the companies tends to avoid competition by forming trusts or monopolies and through agreement on prices. At different degrees they are therefore in favour of a governmental control of the intensity of competition, although the positions are not exactly the same.

However even concerning this issue, he has strange ideas about the historical development. We can even question that he has read his spiritual father von Mises.

Die Lösung der Aufgabe, einen passenden Rahmen für das ersprießliche Funktionieren der Konkurrenz zu schaffen, war jedoch noch nicht sehr weit gediehen, als die Staaten sich überall von ihr abwandten und an die Stelle der Konkurrenz ein anderes und mit ihr unvereinbares Ziel setzten. Man wollte nun nicht mehr den Wettbewerb wirksam gestalten und ausbauen, sondern ihn ganz ausschalten. Wir müssen uns unbedingt über eine Tatsache im Klaren sein: Die moderne Planwirtschaftsbewegung ist eine Bewegung gegen die Konkurrenz an sich, ein neues Banner, um das sich alle ihre alten Feinde geschart haben.

Friedrich Hayek, Weg zur Knechtschaft, München 2011, page 63

The solution of the task to find a right framework for the well functioning of competition didn't have advanced yet very far, when the governments started to disregard it by putting another goal, incompatible with competition. The aim was not longer to shape competition and enhance it, but to abolish it. It is absolutely necessary that we understand one thing: The modern mouvement of planification questions any kind of competition, it is the banner behind which all the foes of competition gathered.

It is indeed true that in marxism competition is irrelevant and it is indeed true, that a decentral information processing based on the price signals of the markets is the most effective and the most flexible way to steer an economy, see homo oeconomicus, natural price / market price and perfect market. It is even true, that marxism didn't address at all the question how an economy should be steered.

However this tendency started much earlier, actually with David Ricardo. David Ricardo assumes that the allocation of resources happens somehow automatically. Capital and labour moves alone, without any interference of an entrepreneur or any kind of human decision to the most profitable use. This tendency, which we can at a minor degree already find in Wealth of Nations, has been sharpened in the neoclassical theory. In the neoclassical theory, that's what we find nowadays in a simplified version in textbooks about microeconomics, the equilibrium can be find by some equations. It is admitted that the ceteris paribus clause is needed, what is actually not the case, because microeconomics is a short term analysis and in the short term nothing changes, but the goal is to substitute the market as an exploring process, what he actually is, by "economic laws", that allows to predict economic development with the same precision the position of the Venus on day X can be predicted, see methodological approach. An economy that can be predicted by economic laws, can be planned and should be planned. Something that can be planned, should be planned. The problem is, that something like universally valid "economic law" doesn't exist and if they exist, they exist because they are trivial. In social science only trivial relationships are universally valid.

The critics of von Mises is not only directed against marxism, it is directed as well against any line of thinking that assumes the predictibility of the economic developing based on "economic laws". Concerning this point, there is little difference between most of the classic and neoclassical authors and marxism and all the line of thinking based on these lines of thinking.

The best description of a dynamic economy, of an economy conceived as an exploration process, is Jean Baptiste Say, see entrepreneur.

The case of Adam Smith is ambiguous. At one side he assumes that the value is determined by the cost side only, by the amount of capital incorporated in a commody to be more precise. This idea is shared by all classical authors. At the other side he assumes that the value of an item is determined as well by the demand side. These two concepts are incompatible. If it is assumed that the value of a commodity depends on the labour incorporated only, we get finally, passing by David Ricardo, to the accumulation of capital and to Karl Marx. The accumulation of capital is not a exploring process in the sense of a market economy, but something that can be predicted by some equations.

It is however completely wrong to say that "the solution of the task to find a right framework for the well functioning of competition didn't have advanced yet very far, when the governments started to disregard it by putting another goal, incompatible with competition". That is something that started earlier, actually with David Ricardo.

Beside that: Competition alone is useless, without the other fundamental pillar of a market economy, the price signals. High prices reveal scarcity and are at the same time an incentive to diminish this scarcity. Therefore a change in the relative scarcity of commodities or productive factors will lead, given a certain intensity of competition, to a reallocation of the the resources.

In this paragraph he uses a strategy typical for all his writings. He affirms that a certain position is questioned by the public in order to present himself as the lonesome cowboy who defends the truth. Actually the role of competition and the decentral information processing throug prices was never questioned, not even by socialists.

The relevance of the question how an economy should be steered was perhaps underestimated or even completely ignored, because distribution was considered the relevant problem, but competition and decentral information processing was never actively questioned.

What we have seen in the last 150 years is the search of compromises between the obvious advantages of market economies and solutions for the obvious problems of market economies. The problems concerns fundamental economic problems addressed by Keynes and distribution problems. See the little book downloadable from the startsite of this website.

However Hayek takes another approach. He tries to explain phenomenons he summarizes under the term collectivism, marxism, socialism, fascism and even keynesianism, exclusively from an economic perspective. Therefore he was obliged to explain totalitarian socialism and fascism, actually ideologically opposed, as the result of the erroneous economic policy.

Governmental invervention leads to totalitarian regimes and therefore Road to Servdom is dedicated to "The socialists of all parties". It is to assume that nowadays most people would say that without some kind of governmental intervention and compromise seeking we would have a society as described by David Ricardo, where David Ricardo at the end would be hanged on a tree or shot dead in a spontaneous riot.

The truth is, that Stalins socialism and Hitlers fascism are indeed two totalitarian systems, but not because they share the same ideology, the content of an ideology is almost irrelevant, see Karl Popper, and still less because they have similar ideas about the ideal economic order. They were similar because the techniques used to stay in power, total controll of the individuum, elimination of all kind of opposition, total controll of all the spheres of social live, education, art, mass media, compulsory involvment in mass organisations were the same.

[The author actually is not sure that Nazi Germany and the Soviet Union of Stalin can be compared. Nazi Germany would had extinguished the Soviet Union if they had a chance to do it. The Soviet Union under Stalin occupied Germany, but they had no intention to eradicate the "germanic" race. The Stalin Soviet Union was a totalitarian state, but a certain rationality was still there. In Nazi Germany that was missing completely.]

It is well possible that Hayek is one of the biggest imposters of all economists, if we want to consider him an economist and not kind of a "philosopher". He doesn't mention whom he refers to with "the foes" who gathered behind the banner of planification nor the country where these foes of planification are living. Therefore anybody who is unhappy with some kind of governmental intervention can see the reason for his unhappyness explained in this book. It is impressing that such a simple technique actually works and made a beststeller of Road to Serfdom.

It is obviously true that governmental intvervention is not submitted to any automatic control. To illustrate that with an example: A governmental run company can pay to its workers as much as it wants and increase the prices for their products and services or increasing the subsidies. That is not possible for a private run company if the intensity of competition is high enough. In a situation of competition companies pay the market price to their employees or disappear, because it will not be possible to pass higher wages to the price.

By nature governmental intervention depends on the moral integrity of the involved people and there no reason allowing to presume that public employees behave with more integrity than the rest of human beeings.

However for logical reasons it is to assume that majorities behave with "more integrity". Let's illustrate that with an example: If we ask someone if he wants to earn more money and if he deserves that, he will obviously answer with yes. But that's not the question asked in a democracy. In a democracy people will be asked if they think that public employees should earn money and if they are willing to pay the price. To this question people will answer no or at least they are only willing to pay a wage they consider fair.

The problem is, that most people simply don't know how much they pay for public employees and there is no automatic control. But this problem can be resolved by more transparency, see preliminaries.

The english version of Road to Serfdom was first published in 1945, in other words nine years after the General Theory of Employment, Interest and Money by Keynes. It is to be supposed that Keynes is part of the foes, although Keynes never questioned the fundamental pillars of a market economy, decentral information processing through the price signals and competition.

What Keynes questioned indeed is the classical / neoclassical concept shared by Hayek of interest rates, capital, savings and money and some possible conclusions that can be drawn from keynesian theory is that the government has to intervene in the economy in order to get the economy back on track. If Hayek wanted to criticise the keynesian theory, he should had criticised the underlying assumptions and not the conclusions that can be possibly drawn from these assumptions. This is a strange way of distracting the discussion from the real problem.

The foes of the market economy are a chimera, if he understands by the foes of the market economies political parties who favoured massive governmental intervention or even socialisation of productive means. Political mouvements of this kind existed before world war II and at the beginning of the twenties, but become weaker and weaker in the thirteens or fourteens.

[We simplify a bit. Actually a distinction is necessary between the different countries and a clear definition what he means by the "foes" of a market economy. The problem with Hayek is that he is a dilettante in everything, economy, history and philosophy and he has a strange way to mix everything with erverything. The author is indeed in favour of conceiving economics as a transversal science, but that should be done in a way that the statements can still be tested against reality or at least formulated in a way that we can analyse whether historical evidence is compatibel with the statement. Affirmation of the type "freedom was alway in danger", "people always struggled for freedom", "governmental intervention restricts freedom", "a very unequal distribution of income restricts freedom", "competition is the guarantor of freedom", "labour legislation guarantees freedom to the workers" etc. etc.. are actually nonsense. A concrete historical situation is the meeting of hundreds if not thousands of technical, social, economic, political circunstances. We can analyse some facts isolately and draw some isolated conclusions. But we can't assume that this isolated facts explains a concrete situation.

In order to illustrate that with a somehow abstract example with assumed extremely different initial situations: Let's assume that we have a very rich country where all parents can afford to pay for the schooling of their children and let's assume that all parents are well aware of the importance of education for the personal and professional development of their children and that all parents have a high level of education. Furthermore we assume that there is general acceptance of some essential values and we can exclude the possibility that parents send their children to schools which are not compatible with these basic values, for instance Koran schools or things like that. In this case it is really hard to see why the education system should be organised by the government. If they were organised on a private basis we would have more different types of schools and universities and a greater choice and competition would have a nice effect and we can assume that the whole potential would be developed.

Let's change now the situation. A lot of parents cannot afford to pay for the schooling of their children and still less for sending them to universities. Furthermore some parents considers education irrelevant and don't expect their children to do something different as what they have done themselves. Furthermore we assume a country with a population linguistically inhomogeneous and little consens about fundamental values. In this case it is questionable whether competition can exploit its strength. Some parents wouldn't send their children at school at all and would save this money. Others would send their children to schools with a curriculum incompatible with a free society and the segregation of the society in different linguistic groups would increase. The society would develop its whole potential and the freedom of the students would be dramatically restricted, because they wouldn't have the possibility to get acquainted with alternative ways of thinking, feeling and behaving.

Summarising that: We can analyse the impact of an isolated fact, in this case competition, in an idealized world we can predict the result of competition. (In this concrete case: Bad teachers would be fired, good teachers would benefit. That's the way market economies work. Companies with good product and services will grow, the others will disappear.) However afterwards we have to put together step by step the whole picture and that can change the results.

This is the problem of Hayek. He assumes that governmental intervention reduces freedom. That may even be true in an idealised world, but the more we take into account all parts of the picture, the less evident is this relationship. In order to know if the thesis is correct in a specific situation, we must precise the concrete situation.

The author of these lines has actually, between other things, studied history and he knows that historians have another problem. They assume for instance very often an economic causal chain that actually doesn't exist and get therefore very often to strange statements. It is therefore a good idea to analyse first the phenomenon isolately and add the other parts of the picture later.

Something that never works is however the approach of Hayek. Hayek insinuates that his theories can be illustrated with examples from history, but doesn't precise the concrete historical situation he referes to.]

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Liberalism or the dictator fighting for liberty

Given the fact that Hayek limited himself to a few general annotations about democracies without mention a concrete historical situation it is almost impossible to discuss about the text.

It is not very plausible, in contrary to what is supposed by Hayek, that democracies oppress minorities, because this would require that majorities are a homogeneous group. Actually majorities are nothing that exists "by nature". Majorities are formed by political parties. They will try to include as much people as possible into "their majority". In a normal situation political parties are more interested to get the minorities integrated in "their majority", they are voters, than to oppress them. This is still more true in the case that there are only two parties. In this case the minority is decisive for the outcome of elections.

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