Episode #139 - Transcript

Hello, everyone! I’m Stephen West. This is Philosophize This!

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Today’s episode’s on the philosopher Friedrich von Hayek and his influential work The Road to Serfdom. I hope you love the show today.

So, all the way back in the late 19th century -- shortly after the work of Marx, shortly after the economic changes associated with the Industrial Revolution -- there were several groups of thinkers that began to create what would eventually become an all-out movement towards centralization, the central planning of economies. Let me explain what central planning is by explaining why the thinkers felt compelled to start a movement in the first place.

So, in the late 19th century, the Western world was primarily made up by market economies. People like Marx and several others come along and start throwing around critiques of capitalist market economies: they create enormous inequality; they lead to the alienation of the worker; they fragment economic efforts and create waste because people can be engaged in so many different incompatible tasks at once. But not the least of these criticisms was the claim that these market economies, based on a flaw in design, inexorably lead to massive ebbs and flows within the market, booms and crashes, crashes that end up negatively affecting the lives of potential billions. The late 19th century was rife with thinkers looking for replacements for market economies and waiting for their inevitable demise.

Well, time went by. And along came August of 1929, the beginning of the Great Depression, global economic collapse. And it seemed to many of these thinkers that this was the day of reckoning for capitalist, market-based systems. This was Marx’s prophecy finally coming true. When trying to figure out what caused this global meltdown, there were many theories, but one of the more common ones was that the technological advances of the Industrial Revolution produced so many more goods at such a more efficient rate that market economies couldn’t handle it and became flooded. There was a real feeling at the time that our market economies of the past were an outdated way of doing things that just can’t keep up with the sort of economies that are going to have to exist in a post-Industrial-Revolution world.

The solution for so many of these countries affected by the Great Depression was to have the government step in and try to prop up the economy in various ways until it was functional again. This is where central planning comes into the picture. The idea is that we would remove markets from the equation altogether and instead rely on a central body, like the government, to come up with a plan for how they want the economy to look. And then they control aspects of the economy and do their best to ensure that plan is executed. Markets weren’t getting the job we wanted done, so let’s call upon the government to make sure it gets done. This was the logic behind central planning or centrally planned economies.

So World War II comes along during the Great Depression, and on display are multiple world powers that have moved towards central planning. By the way, certainly not the only kind, but the most popular version of central planning at this time was socialism. But, during World War II, there were all types of centralization on display. You had Soviet Russia. You had National Socialism in Germany. You had more marginal versions of socialization in the United States through FDR’s New Deal or in the UK stemming from the Fabian Society. You had what was going on in Italy. Once again, major world powers were turning towards central planning. And, especially during the war effort, you saw that governments of these countries controlled giant sections of the economy in an effort to make sure things kept going. Not to mention, even prior to the extreme cases of the war, you had labor cartels emerging in socialist countries, where they would set up arrangements between the government, businesses, and labor unions, and they’d use price fixing; they’d determine how many products would be made, determine how many people could work, who could work, and more.

During the war, central planning had staked the claim to the world, which brings us to one of the most significant economic events of the 20th century, the end of World War II. Because now that nations weren’t facing an existential threat where they needed the government to step in and ensure economic order, what do they do? Do they return back to the market economies that were so popular before all this chaos broke out? Do they take this as a sign and stick with central planning? Many nations did stick with central planning.

So it was right at this snapshot in time, right after World War II, that the philosopher we’re going to talk about today wrote one of the most influential books of 20th-century economics. He is Nobel Prize-winning economist Friedrich von Hayek. And, to put it very simply, Hayek thought that all these societies that were using the government to control aspects of their economy were making a huge mistake and that economists and philosophers of his time didn’t even realize just how much market systems were accomplishing for the world until they weren’t there anymore.

Hayek was a fan of the Austrian School of economics which, if you remember from our episode, set their sights on refuting many of the ideas that were core to socialism. So it’s impossible to divorce a critique of socialism from his work entirely. But it would be equally impossible to understand the scope of Hayek’s work without also considering that he was ultimately critical of the primary idea behind socialism, which is the central planning of economies. It should also be said, in a clarification later on in his life, he said that he defined socialism as any system where the government exercises significant control over the economy.

Hayek would probably want to start out by talking about this movement towards centralization that began in the late 19th century. These people were, no doubt, trying to solve problems they saw with market economies. But let’s really take a look at what their solution was. We have a way that we want the economy to be, so let’s make a plan and then use this really powerful tool we have called the government to execute that plan. Which was essentially to say let’s have a meeting, get all the smartest people we can find, put them in a room, and plan what our entire economy is going to look like. Now, on one hand, that sounds like one of the most arrogant things you’ve ever heard. But, then again, we do have this long tradition within philosophy of optimism towards this idea of being able to come together, have rational discussions about things, and come up with the best solution. Why shouldn’t we be able to come up with a plan or design for the entire economy?

Hayek once said, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” Hayek is known as an anti-rationalist in this regard. Now, I get it, philosophically loaded term, but the best way to describe it in this context is to say that Hayek believes that a total understanding of how the economy should be structured is unknowable. And, even if it were knowable, it certainly wouldn’t be something we could arrive at by assembling a handful of thought leaders in a room just talking about stuff. The economy, to Hayek, is the sum total of billions of transactions, each one of them giving us crucial information.

The best comparison to understand how Hayek sees the functions of the economy is to think about how similar it is to language. You can’t sit in a room, come up with a bunch of new words, chisel them into stone, and say, “Here’s a new language, everybody.” No, that’s not how language or words work. You know, as we talked about on our Wittgenstein episodes, language is a living, breathing organism. Words derive their meaning from the way they are used by people within a particular linguistic community. So, in this way, language is a collective agreement between people that is constantly moving, constantly evolving based on the sum total of the choices of sometimes millions of people.

The economy, to Hayek, is a similar sort of collective agreement between people that can’t be planned, predicted, or ever fully known. The government should never be in the business of coercing the economy because the government can never have an exhaustive understanding of the billions of transactions that are going on. To Hayek, the only people you could say kind of have a sort of fragmented version of total knowledge of the economy is the aggregate of people that make up the economy and their local knowledge of their respective fields.

Let me explain. Say Grandma Beatrice owns a flower shop in the suburbs of Seattle, Washington. No matter how smart the people are that you could ever gather into a room, there is no way the government, or any centralized body for that matter, can ever know as much as Grandma Beatrice knows about her customers -- what flowers they’re going to buy, what prices they’re willing to pay for things, what decorations they like on their flowers, how many flowers they’re going to buy in a particular circumstance. The list goes on forever. Grandma Beatrice has what Hayek would call “localized knowledge” of her little section of the economy. By the way, in the same way, she has local knowledge of the way words are used around her in Seattle, Washington.

Markets allow for societies to have a decentralized approach to the way the economy evolves based on the choices of consumers and suppliers rather than on some plan a few people thought sounded good at the time. One of the big problems with having a centralized group that makes all the plans for the direction of society is that, whenever new problems come up, it always requires you to give more power to the state to be able to solve those problems. See, when you remove markets from the equation and instead say, “We’re going to plan everything,” you miss out on so much “localized knowledge” that actually makes understanding the economy even possible.

Take an example used in the work of Eric Mack. Let’s say you have a centrally planned economy. What is to stop any central planner from deciding one day that we should take all of our titanium resources and dedicate them to the production of license plates? What he’s getting at here is that when you remove markets, when you remove the “localized knowledge” of people like Grandma Beatrice and everything she knows about the supply and demand of her business, the price of something within a market system relays so much information to people about how much supply there is for something versus how much demand there is for something. How is the central planner to ever know what the true value is of anything? What, we’re just supposed to just trust they know everything and will keep things ordered like they’re God or something? Sounds a lot like God.

That idea that if we don’t have a designated group of people planning the economy that the alternative is that society’s going to collapse into complete disorder -- No, order within an economy emerges spontaneously, for Hayek, just as words derive a new meaning spontaneously. We don’t need a centralized body planning language. And we don’t need one for the economy either. Both are self-ordering systems. More than that, the knowledge we need if we want anything to work -- be it language or the economy or any other example; there are many kinds of these self-ordering systems all around us if you look for them -- the knowledge we need for those to work is fragmented across all individuals.

And this is probably where Hayek would want to introduce how important the concept of freedom is to him. Sometimes he also uses the word “liberty,” but his point is that we need everyone to be able to act freely if we can ever hope to have all the information their choices provide. Each person’s individual, varying choices embody yet another crucial perspective of “localized knowledge.” For example, apply the concept of central planning to the idea of social order. This is the equivalent of looking at everyone’s individual skill sets and then allocating them as resources that a cabal of people have chosen will best benefit the plan of society. Does that remind you of any examples of centrally planned societies in the 20th century?

Not only should we not want to live like we’re an ant colony, Hayek would say self-ordering systems like the economy have lesser potential when you limit a person’s liberty and, as such, one of our primary goals we should have is to maximize people’s liberty to choose. Once again, government should not be deciding the ends for people. It should be protecting our liberty so that we can choose the ends for ourself. Society should not be thought of as an organization; society should be a spontaneous, self-ordering system.

That said, Hayek isn’t against all organizations. He doesn’t think there’s zero room for planning, just not at the government level. He’s all for people starting businesses or synagogues or charities or sports teams or whatever you want. These things have specific, planned objectives they’re trying to bring about. The difference is, the people involved in those organizations volunteered to be a part of them. You can’t run a country like it’s a lemonade stand.

The role of government, to Hayek, is to enforce the rule of law -- this is an absolutely crucial thing to have if you’re going to have a market economy -- but then it’s also to do two other things. One, it should execute the projects the public needs that voluntary transactions don’t provide and, two, give assistance to “some unfortunate minorities, the weak, or those unable to provide for themselves.” Hayek strongly opposes the idea of equality of outcome because it is utterly incompatible with a society of free people. See, if you’re going to treat people fairly across the board when it comes to the legal system, you can never aspire to any sort of real equality of outcome, to Hayek, because, if for no other reason, people are different. People make different choices. They care about different things. People want different things out of their life, and that’s ultimately a good thing for us because giving people the freedom to choose gives society access to their unique set of “localized knowledge.” You either have to sacrifice equality of outcome or equality under the law. You can’t ever have both, to Hayek, so take your pick.

“But, Hayek, I live in a socialist society, and things are great here. I mean, you say socialism’s so bad. Shouldn’t the whole society have burnt to the ground by this point?” Socialism can work for long, long periods of time but only through the use of government coercion, sometimes extreme government coercion. You can be very happy living in a socialist country, but only as long as what you want to do with your freedom corresponds well with certain pre-planned aspects of your life that the government has already chosen. As long as you never want to stray from the pack too far, you’re going to be golden in a socialist country.

See, under a market-based economy people can agree and disagree and dedicate resources to things that are completely incompatible with each other. But under central planning the resources have to be used in a way that is planned by the government. The choices people make about the preferences of their lives so often need to be approved by the government. And, oftentimes, what both of these things require is the use of propaganda by the government -- to Hayek, sometimes incredibly subtle propaganda to keep people’s subjectivity and desires aligned with the goals of the central plan.

The use of central planning within economic systems puts the citizens of that country on what Hayek calls “the road to serfdom,” which is also the title of the book he wrote in that context immediately after World War II. What’s meant when he says “the road to serfdom” is, quite simply, that movement towards central planning or a socialist society is the first step for citizens on the road towards totalitarianism. He gives a ton of different reasons for this throughout The Road to Serfdom. Some of them are obvious just because of what we’ve already talked about so far. But let’s talk about a couple other ones.

One has to do with the nature of power structures within these socialist societies. Central planning requires that we give an extraordinary amount of power to a small handful of people that’ll be making decisions for planning society. How this has panned out historically is that sometimes this responsibility even ends up falling into the hands of a single person, be it some sort of dictator or even just a single person that dominates that group that’s making the decisions. Well, not only is this a dangerously narrow point of view to run a society from that in itself may run the risk of totalitarianism, consider additionally what Hayek says in a famous chapter from The Road to Serfdom titled “Why the Worst Get on Top.”

Hayek asks the question “What sort of person would be drawn towards one of those positions of power in a society with a centrally planned economy?” What sort of person, when you tell them at the job interview, “You’re going to be one of the very few that decide the plan for society,” what kind of person not only nods enthusiastically and is excited about that prospect but then is also willing to run an elaborate campaign just for the luxury to have that position of power? You’re campaigning to be in the business of government coercion. Hayek thinks all the people you’d ever want to be in a position like this -- the tolerant, the measured, the wise, the empathetic, etc. -- wouldn’t ever want a job like “central planner” where there’s such a disparity of power. And that’s probably healthy. The type of people that are attracted to positions like this, seemingly, are always the ones that stand to gain the most from the position, which also makes them the person motivated to campaign the hardest, most willing to exploit the office once they get it, most likely to use any means necessary to maintain that position, which for Hayek means that they’re often the politicians willing to take advantage of the uneducated, the gullible, and will even use hatred towards other groups as a way of generating support.

Hayek describes this person in The Road to Serfdom here: “He will be able to obtain the support of all the docile and gullible, who have no strong convictions of their own but are prepared to accept a ready-made system of values if it is only drummed into their ears sufficiently loudly and frequently.” Because these are effective tactics for getting elected, you’re always going to end up with the people willing to use those tactics in office. This person will always be able to beat the tolerant, measured, and wise person. To Hayek, the person that’s willing to act differently in the public sphere than they do in the private sphere will always have an advantage and, thus, that is “why the worst get on top.”

But also consider, even if you were to get a decently well-meaning person in office for a period of time, that whenever you give someone a position of power in the world -- whether it’s the dictator of a country or the assistant manager at Dairy Queen -- whenever there’s power involved, there’s a sort of self-reinforcing nature about it. People tend to think, “If I’m not using this power that’s been given to me, can I really say that I’m doing my job?” Not to mention the need to justify your position of power to the people that gave it to you so often resulting in making pointless choices mistaking movement for progress. This is just one reason of many why otherwise perfectly well-meaning people, whose intentions were just to come up with a plan for how we want society to look and then get busy on executing it -- this is one way totalitarianism can take hold. But this is just one “road to serfdom.” There are many others. Sometimes it happens gradually over the course of hundreds of years.

You know, the famous economist Milton Friedman, who was a friend and colleague of Hayek’s and knew his work very well, was asked once to do an interview in part talking about Hayek’s book, The Road to Serfdom, and what he was trying to convey with it. During the interview, he gives an anecdote describing the effects of this type of gradual centralization in the United States throughout the course of his life.

This is taken from the interview:

“I’m a very old man. And I was graduated from high school in 1928. That’s a long time ago. Now, if you looked at the situation in 1928, we were much poorer in terms of physical goods. We didn’t have microwaves; we didn’t have washing machines. You can go down the line. There’s no question that we’re enormously wealthier today, in that sense, and enormously have a higher standard of living from that point of view. On the other hand, we were safer, more secure, freer in 1928 than we are now. As of that time, government was spending something like 10 to 15 percent of the national income, the private sector 85 to 90. Today, government controls over half the national income, and private enterprise controls only the rest. Where have all these good things come from? Can you name any of those additions to our well-being that have come from government? It wasn’t the government that produced the microwave. It wasn’t the government that produced improved automobiles. It wasn’t the government that produced computers that led to the information age.

“Now, on the other hand, consider our problems. Our major problems are not economic. Our major problems are social. Our major problems are the underclass in the center cities, the development of crime so that today we’re much less safe than we were when I graduated high school. We have much less feeling of security, much less optimism about what the future’s going to be like. And all the problems have been produced by government.

“Consider the schools: the quality of schooling I got in a public school in 1928 was almost surely a great deal higher than you can get in any but a small number of schools now. You have the dropouts; you have the decline in scores of the SAT and the like. Why? Because education is the most socialized industry in the United States. Ninety percent of our kids are in public schools, ten percent in private. And education is a completely centralized, socialized system. And it behaves just the way every other socialized system does. It produces a low-quality output, benefits a small number of people -- currently, mostly those who are associated with the National Education Association -- and harms, does a great deal of harm to other people.”

You know, a few episodes ago I gave the example of it maybe being possible that instead of treating other members of society as though we’re in competition with them, maybe we could start thinking about them more like members of one giant family. Well, Hayek is a great example of someone who would have heard me say that and smacked me right in the mouth because one of the bigger ideas that Hayek offers up in his work is the idea that society is not a family, nor can it ever be like a family, or it would completely collapse. Hayek says that life in this modern world forces us to live two very distinct, parallel lives. On one hand, we are members of a family, a group of friends. And, when we’re in that setting, we think of those people and treat them in a very specific way.

The example from the episode was that everybody goes over to Grandma Beatrice’s house for the holidays and, because she’s getting older, all the kids cook the holiday meal for her. But Hayek would ask, just imagine if we really did extend that way of treating Grandma Beatrice to the rest of society. Because the other life we’re constantly living in parallel is our life as an economic agent, a person trying to provide value to people in exchange for a living. Let’s say you’re a chef. Do you cook thanksgiving dinner free of charge for every Grandma Beatrice that decides to walk through your doors? Of course not. You’d be out of business almost instantly. But it’s not just you; we all would be out of business. Society would be out of business.

The same way it may sound ridiculous for someone to go to their grandma’s house and not give her any food because she didn’t pay for it, Hayek would say it’s equally ridiculous for people engaged in markets to treat customers like members of their family. Living in the modern world requires you to play both roles, and things would not be good if either of these spheres tried to act like the other.

The work of Friedrich von Hayek went on to become some of the most influential work in economics in all of the 20th century. But, even if you’re not convinced, even if you’re totally unconvinced by the economic arguments -- forget the rule of law, couldn’t care less about markets -- Hayek, after listening to his case, at the very least would want you to remember one thing. It’s something he saw as one of the sharpest differences between what we call a free society and a centrally planned society. He says it in a famous quote. “While the last resort of a competitive economy is the bailiff, the ultimate sanction of a planned economy is the hangman.”

Thank you for listening. I’ll talk to you next time.