The Road to Serfdom

31 March 2014

To what degree should the bureaucracy of the state intervene in economic matters? Every other century, economists come up with new doctrines where this question seems to be the central issue. Consensus seems to swing like a pendulum; Strong state intervention was the method of Mercantilism; later, in the 19th century the pendulum swings back towards liberalism/Laissez-faire economics; during much of the 20th century state intervention was very popular up until the eighties.

“The Road to serfdom” by F. A. Hayek explains a particularly nasty turn of the pendulum, it analyzes the shift towards totalitarian forms of government in the twentieth century; the book is available for here . Hayek argues that Germany was leading the way here, and that Britain would be following along the same path (the book was written in 1944)

Much of the book shows how a centrally planned economy leads towards a totalitarian political system. The alternative to economic regulation by means of free market pricing is socialist coercion. The book shows how Germany did slide into Nazi totalitarianism, it is argued that the switch was well prepared.

It follows that: (well I added some details from other sources)

  • A financial crisis, the panic of 1873 was followed by a long depression ; Germany introduced protectionist measures in 1878. Hayek argues that these measures were the cause of the formation of monopolies/cartels - here it says that due to a long period of deflation prices were at a low level, and that cartels became instruments of prices fixing, later these cartels would push for anti-competitive measures, industry would become concentrated in the hands of a few firms. In Germany such a state of affairs would later be regarded as the natural result of progress.

One remaining question that is not answered is why protectionist measures adopted in France did not lead to the same result, here industry remained more diverse; additional factors like a different structure of industry and finances probably did have some role here.

Another interesting aspect is that the long depression gave rise to a new kind of antisemitism, the novelty was that this was one was based on nationalism and its own racist interpretation of the theory of evolution.

  • The first world war saw the introduction of elements of a centrally planned war economy in Germany. Strict control over raw materials became necessary due to the allied Sea blockade , the Raw materials section/Kriegsrohstoffabteilung of the war ministry was a planning body tasked with control over and distribution of strategic raw materials. German industrialist Walther Rathenau created this planning body; later he also wrote several essays that popularized the idea. The net effect was that a directed/planned economy became to be seen by many as the model remedy for peacetime woes. (Interesting that the whole schema could not have worked without Fritz Haber’s Nitrogen synthesis)

This planning body had its peculiarities; companies and raw materials of German owners were not nationalized, the owner of raw materials was restricted in his rights and was obliged to use his property as ordered by the authorities. (however in occupied countries they did loot a lot, later they also started the very nasty policy of abducting foreigners as slaves - to a limited extend as compared to the Nazi regime). The Raw materials sections had the task of control over the global picture: it had to estimate demand of materials vs existing stocks; organize transport capacities; fix prices and organize research of substitute materials; However this body did not assign materials to firms; here industry formed War Economy Corporations/Kriegswirtschafts-Gesellschaften; these non state entities were concentrating materials in one hand and also had the task of assigning specific resources to associated firms; the state had its representatives who would oversee things and who could veto decisions; The state did not centrally plan the production process in all detail, rather it would dictate the ends and means. (Rathenau / Die Organisation der Rohstoffversorgung ) ; The same principle of government controlled capitalism was later adopted by the Nazi’s.

It is both an irony and tragedy that Walther Rathenau, the author of this scheme, was killed in 1922 by extreme nationalists who, among other things, did not like that fact that he was Jewish.

  • The seeming contradiction between the anarchy of the market and the ‘scientifically organized’ workplace. Technological progress created expectations for social progress, all this called for state intervention or state control. State intervention was seen as a remedy for problems created by the market; The free market did not offer any solutions to problems such as Social security and inner city tenements. Social expenditure rose significantly during the golden years of the Weimar Republic (1924-1929). By 1928 about half of the GDP of Germany was distributed by the state. Hayek argues that such a heavy role of the state in economic matters prepared the ground for an order where the state turned into the sole dictator on every matter. Also a shift in popular attitudes that favored stability over opportunity created a strong preference for jobs in government; Beamtenstaat/civil service state. Liberalism was finished in Germany, long before the Nazi’s took power.

The book does not mention several additional facts explained in these lectures that a high level of public expenses had its reasons, around 8% of the GDP was spent on reparations and payments for debt accrued by the state during the Great War; pensions for invalids and war widows had to be paid; since 1927 they had Social Security guaranteed by law (this measure was enacted by a centrist government, go figure) ;

A big problem of the Weimar Republic was to come up with reparation payments; these had to come from an export surplus, export business became difficult as many European countries introduced protectionist measure after the Great War. Also an export oriented industry requires a large scale of foreign investments (to few savings at home); German central bank set interest rates to 9, against 5 in other countries; (an interesting detail is that the Young Plan obliged Germany to maintain interest rates of at least 5%). High interest rates somehow imply a high level of internal debt.

Before the crisis domestic demand was the engine of growth, during much of the crisis export industry continued to function; this worked until the Banks crashed in June 1931; Preceding events were the crash of the Austrian bank Creditanstalt in 1931 upon press leaks of details on a 100$ million dollar ; a run of investors in 27 June 1931 resulted in bankruptcy of several big German banks; the crashing banks sent the economy into chaos with 32% unemployment by 1932.

Still reparations had to be paid; the Bruehning government could not have devalued the currency, as this would have been a breach of international obligations; deflationary measures would keep prices and wages low (all this with the aim of furthering exports). The result was a deepening of the crisis ; at the same time they got into a habit of overriding parliament and ruling by decree ; the constitution of the Weimar Republic had the famous Article 48 - whereby the President/Reichspraesident could authorize decrees without the approval of parliament, the President was elected by Parliament and not by popular vote.

  • The established Socialist party switched towards representing organized skilled workers (all part of unions), who worked in factories owned by the big trusts. As a result the interests of Labour and industry did converge to a great degree. Now the interest of a few monopoly holders are served at the expense of competition, so some form of socialization would have been the ideal of both bodies; However the interpretation of planning by socialists and monopolists had its differences.

It is true that established Socialists became very agreeable, this might explain why the SPD leadership did not start an insurrection when their Prussian government was disbanded by decree on July 20, 1932; despite of them having been in command of the largest police force in Germany.

  • The Nazi party: The traditional unions/Socialist party achieved high salary for skilled workers, the lower middle class was left behind, the Nazi’s filled this electoral niche of a Socialist party for the middle class - now their ideology justified the naked privileges for it’s supporters. The Nazi’s worshiped naked force and propaganda, for they knew the limits of persuasion by argument and reason (these were previously established by the Socialists)

The economy of the Nazi state was based on exactly the same schema as that of the war economy during World War I: private ownership was maintained however the state curtails property rights; however Jewish owners were forced to sell their businesses for peanuts - in 1938 this became the official policy (also known as Aryanization)

In industry the tendency was towards weakening of market mechanisms and tightening of state restrictions; In 1933 dividends payments were restricted, profits were supposed to be re-invested. From 1934 the founding of new/extension of existing enterprises must be approved by the state; The state starts to distribute imported raw materials from 1934; Prices and wages were frozen in 1936, independent trade unions were repressed; the Central bank lost its independence in 1937 ;

While being in a state of default, the export oriented economy could not have worked (no means of financing, problem with buying raw materials). So instead the focus was on a buildup towards war, still i don’t understand how this was project was financed. Was it all financed internally?

Still central planning as exercised by the four year plan of 1936-1940 did not cover the whole of the economy; this plan had one specific objective, to prepare the economy for war by furthering autarky - independence from imported raw materials; Therefore it was more direction of investment into strategic materials ; also chemical industry received priority/subsidies for construction of synthetic fuel plants around Buna. There was no central planning office with overriding authority; there was constant conflict between Goehring’s office of the four year plan; Wehrmacht officials who would put prioritize armament production; and Schacht - the then president of the Central bank/Reichsbank.

It remained this way until 1942; that’s when the armament ministry under Speer would be responsible for the entire economy; at this moment they switched to full centralized planning.

So the Nazi system turned into a totalitarian one before they adopted centralized planning. Actually the whole system was exclusively geared towards war; by august 1939 the Nazi’s were bankrupt; foreign currency reserves were totally depleted; the whole construction program was financed by debt alone and the system would have collapsed without the outbreak of WW II.

However with the Soviet Union things were different; collectivization of agriculture and central planning were the point where they switched from an authoritarian system towards a totalitarian one.

My notes as i read the book

Idea of planned economy became fashionable In Germany after World War I ; in the UK this idea became popular during world war II; both instances the planned war economy was regarded as a positive example. The author says that these ideas lead to the creation of the Nazi system (also Lenin was very much inspired by the German war economy of WW I). “Few are ready to recognize that the rise of Fascism and Nazism was not a reaction against the socialist trends of the preceding period, but a necessary outcome of those tendencies.”

Britain began to move away from a liberal order after WW I. “We have progressively abandoned that freedom in economic affairs without which personal and political freedom has never existed in the past”

Individualism (the basic foundation of capitalism) and collectivism are opposites ; Individualism grew out of the Renaissance “… essential features of that individualism which, from elements provided by Christianity and the philosophy of classical antiquity, was first fully developed during the Renaissance and has since grown and spread into what we know as Western European civilization-the respect for the individual man qua man, that is the recognition of his own views and tastes as supreme in his own sphere, however narrowly that may be circumscribed, and the belief that it is desirable that men should develop their own individual gifts and bents.” ? “Tolerance is, perhaps, the only word which still preserves the full meaning of the principle which during the whole of this period was in the ascendant and which only in recent times has again been in decline, to disappear completely with the rise of the totalitarian state”

“the general direction of social development was one of freeing the individual from the ties which had bound him to the customary or prescribed ways in the pursuit of his ordinary activities … The conscious realization that the spontaneous and uncontrolled efforts of individuals were capable of producing a complex order of economic activities could come only after this development had made some progress” (? but mercantilism was all about control. Adam Smith was a later development)

Individual liberty was prerequisite for growth of science; prior to that “a more extended industrial use of mechanical inventions … were promptly suppressed, and the desire for knowledge was stifled, so long as the dominant views were held to be binding for all”… “The result of this growth surpassed all expectations. Wherever the barriers to the free exercise of human ingenuity were removed man became rapidly able to satisfy ever-widening ranges of desire” At the turn on the 20th century, progress emboldened men; “With the success grew ambition … and the principles which had made this progress possible in the past came to be regarded more as obstacles to speedier progress”

Principle of liberalism “.. that we should make as much use as possible of the spontaneous forces of society, and resort as little as possible to coercion”

Liberalism - as associated with laissez-faire dogma became discredited; more gradual approach towards monopolies and financial system was needed, but development of these measures took to long for most people; “The attitude of the liberal towards society is like that of the gardener who tends a plant and in order to create the conditions most favorable to its growth must know as much as possible about its structure and the way it functions” ? “It might even be said that the very success of liberalism became the cause of its decline. Because of the success already achieved man became increasingly unwilling to tolerate the evils still with him which now appeared both unbearable and unnecessary”

Success of industrialization became to be taken for granted; interest in and appreciation of how the system worked declined, “habits of thought of the natural scientist and the engineer, how these at the same time tended to discredit the results of the past study of society which did not conform to their prejudices, and to impose ideals of organization on a sphere to which they are not appropriate.” As a result they did not trust ‘spontaneous forces and individualism’ - the new intellectual trend was ‘collective and conscious decisions/planning’;

From 1870 onward Britain became less of an ‘exporter of ideas’ (like liberalism) instead they ‘imported ideas’ from Germany; for example idea of Socialism became important in Germany before it came to England.

Early Socialist thinkers all had an authoritarian streak, (collectivism vs individualism). Tocqueville: “Democracy extends the sphere of individual freedom, socialism restricts it. Democracy attaches all possible value to each man; socialism makes each man a mere agent, a mere number. Democracy and socialism have nothing in common but one word: equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude”

During the revolutions of 1848, Socialists and democrats became allies (young Marx); many socialist speak of ‘freedom from necessity’ - but that is not the same as liberty and freedom of expression. Walter Lippmann: “… when men retreat from freedom to a coercive organization of their affairs. Though they promise themselves a more abundant life, they must in practice renounce it; as the organized direction increases, the variety of ends must give way to uniformity. That is the nemesis of the planned society and the authoritarian principle in human affairs.”

Points out similarities between Communism and Fascism; both recruited from among Socialists; for both the real enemy were the Liberals.

His definition of socialism: instance of collectivism that wants to abolish private ownership on means of production + introduction of central planning. Planning defined as “central direction of all economic activity according to a single plan, laying down how the resources of society should be ‘consciously directed’ to serve particular ends in a definite way”; wants to get rid of competition/markets. Ideal is that planning is just and egalitarian, the same means of management can be used to implement an order where the few benefit from the toil of the many.

Liberals want to “create conditions under which the knowledge and initiative of individuals is given the best scope so that they can plan most successfully”; tries to create legal framework so that competition will be beneficial to all (laws like limit to working hours, fraud prevention, prohibition of harmful substances); competition is the “only method by which our activities can be adjusted to each other without coercive or arbitrary intervention of authority” ; market is the only authority to set prices or quantities, price used as the method of coordination between individuals.

Both competition and central direction become poor and inefficient tools if they are incomplete (? maybe each of them has its scope?)

arguments for planning: competition is made expedient by technological change; (well another one was tendency towards big conglomerates/monopolies); large firms are supposedly better than small ones because of economies of scale/mass production; complexity of society requires planning for creation of coherent picture.

Also narrow specialist will be under the illusion that their own concern will get higher priority with a planned economy; that makes a lot of people, as there are many narrow specialists.

They argued that “only choice left to us is between control of production by private monopolies and direction by the government.” Argues that the rise of monopolies was not inevitable - it was due to policy decisions; collusive agreements and pressure by big big firms that resulted in decisions that shut out smaller competitors. In Germany since 1878 cartels were encouraged (is he is referring to the protectionist measures of Shutzzoll - this lead to large cartels fixing prices among themselves; also he forgot to mention the Gruenderkrach ?) He says that Britain introduced protectionist measures in 1931 - and that this also lead straight toward the creation of monopolies.

Argues that decentralization becomes important because of complexity of modern society, as central planning of each detail becomes impossible (too much information processing); only competition/market mechanism remain as coordination mechanism of decentralized system.

Common feature of collectivist system: want to employ planning in order to concentrate resources on one strategic goal (aka ‘common purpose’) (refuse to “recognize autonomous spheres in which the ends of the individuals are supreme”) ; movements differ in the definition of that strategic goal. However one goal can’t satisfy them all - “The welfare of a people, like the happiness of a man, depends on a great many things that can be provided in an infinite variety of combinations. It cannot be adequately expressed as a single end, but only as a hierarchy of ends, a comprehensive scale of values in which every need of every person is given its place”. So planning presupposed a complete ethical code binding for all, so that planners can determine priority of task; so far ethical codes were limiting in their nature, not prescribing what to do in a total sense. Constraints of information processing limits make it impossible to valuate all multitudes of things objectively according to such an ethical code, even if it exists.

Individualism is based on assumption that there is nobody suited better than the individual to decide about priorities/valuations;

Social action starts where the interest of individuals coincides (it can direct positively only consensus can be achieved by discussion) still the aims of the individual remain the end and measure, individual does not dissolve within the collective. The state becomes oppressive, when the state forces its hands in matters on the matter here the common aims end. “Once the communal sector, in which the state controls all the means, exceeds a certain proportion of the whole, the effects of its actions dominate the whole system.” example: Germany in 1928 more than of the GDP (53%) He argues that with such a state of the economy it was impossible to govern Germany democratically; that was long before the Nazi’s.

Society with central planning will have to decide upon the common objective of the plan; parliament would be unable to reach agreement (parliamentary process can’t be used for administrative tasks), pressure would mount and put technocrats in charge of decisions, taking the place of elected officials) - this would be the end of democracy. Parliament has no problem with complex laws - these are rules that a majority can reach agreement for or against; with economic planning interests are much more divergent and harder to reconcile. Argues that parliament at its best could only replace the chief planner; however it cannot direct this mechanism.

the “point .. is not that dictatorship must inevitably extirpate freedom, but rather that planning leads to dictatorship because dictatorship is the most effective instrument of coercion and the enforcement of ideals, and as such essential if central planning on a large scale is to be possible” ? “it is not the source but the limitation of power which prevents it from being arbitrary “ => democracy without limit of its power becomes arbitrary.


“government in all its actions is bound by rules fixed and announced beforehand-rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances, and to plan one’s individual affairs on the basis of this knowledge”

“discretion left to the executive organs wielding coercive power should be reduced as much as possible”

If the state tries to limit interference into economic activity, it will work with general laws that do not prescribe everything. “if the actions of the state are to be predictable, they must be determined by rules fixed independently of the concrete circumstances which can neither be foreseen nor taken into account beforehand: and the particular effects of such actions will be unpredictable. If, on the other hand, the state were to direct the individual’s actions so as to achieve particular ends, its action would have to be decided on the basis of the full circumstances of the moment and would therefore be unpredictable.”

If the state now directs economic activity directly to specific ends, it will also tend towards the idea of arbitrary government; the government will have to decide between conflicting interests, and decide which request has more merit (should a nurse or a doctor earn more ?); this can only be done by arbitrary decision. Distinction of rank will guide these decision and become part of the ‘law of the land’ ; these choices will create discrimination (one man is allowed what another man is forbidden), this is counter to the idea of formal law.

With planning “the use of the government’s coercive powers will no longer be limited and determined by pre-established rules … If, however, the law is to enable authorities to direct economic life, it must give them powers to make and enforce decisions in circumstances which cannot be foreseen and on principles which cannot be stated in generic form”

Even an ideal form of planning inevitably restricts freedom “If the state is precisely to foresee the incidence of its actions, it means that it can leave those affected no choice.” If the state decides upon everything, then everything becomes a political decision.


Planners want to maintain democracy - if it does not interfere with economic planning; lack of worry about economic matters is supposed to free the mind to things of higher importance; This argument ignores the fact that money is an instrument for choice; if all choice is done by planners then there will be nothing to choose by the rest of us. “And whoever controls all economic activity controls the means for all our ends, and must therefore decide which are to be satisfied and which not.”

“The so-called economic freedom which the planners promise us means precisely that we are to be relieved of the necessity of solving our own economic problems and that the bitter choices which this often involves are to be made for us.”

The state monopoly would put consumers at the mercy of that monopoly, as there would be no choice left. Also choice of workplace would be severely limited; all determined by planners. An individual would have no way to challenge this assignment; less respect for individual choices.


choice is between “system where it is the will of a few persons that decides who is to get what, and one where it depends at least partly on the ability and enterprise of the people concerned and partly on unforeseeable circumstances.” However the author does admit that private property + inheritance does create unequal opportunities ;-) still the poor have more choices than the rich under a dictatorship.

“in transferring all property in the means of production to the state they put the state in a position whereby its action must in effect decide all other incomes”

“It is only because the control of the means of production is divided among many people acting independently that nobody has complete power over us”

“It may be bad to be just a cog in an impersonal machine; but it is infinitely worse if we can no longer leave it, if we are tied to our place and to the superiors who have been chosen for us. Dissatisfaction of everybody with his lot will inevitably grow with the consciousness”

“As soon as the state takes upon itself the task of planning the whole economic life, the problem of the due station of the different individuals and groups must indeed inevitably become the central political problem. … There will be no economic or social questions that would not be political questions in the sense that their solution will depend exclusively on who wields the coercive power, on whose are the views that will prevail on all occasions.”

“socialists everywhere were the first to recognize that the task they had set themselves required the general acceptance of a common Weltanschauung, of a definite set of values. It was in these efforts to produce a mass movement supported by such a single world view, that the socialists first created most of the instruments of indoctrination of which Nazis and Fascists have made such effective use.” ? “The idea of a political party which embraces all activities of the individual from the cradle to the grave, which claims to guide his views on everything, and which delights in making all problems questions of party-Weltanschauung, was first put into practice by the socialists”

Traditional socialist parties represent the skilled workers, were dominated by Marxist dogma that society is divided into captialists and industrial workers; trade unions achieved relatively high salary for its support base. They ignored the envy of those left behind, the army of clerks, administrative workers, small officials, teacher - the new middle class, these became the focus of the Nazi’s. Labour parties converged with/accepted features of the liberal order, aggressive Nazi’s won because their ideology would justify the privileges of its support base. They “knew that the strongest group which rallied enough supporters in favor of a new hierarchical order of society, and which frankly promised privileges to the classes to which it appealed, was likely to obtain the support of all those who were disappointed because they had been promised equality but found that they had merely furthered the interest of a particular class”

Social security

“It has been well said that while the last resort of a competitive economy is the bailiff, the ultimate sanction of a planned economy is the hangman”

Social security of socialism comes at the price of loss of freedom/subordination - similar to the army. Security of the producer means security against underbidding by competition; the consumer will have to pay for the security of the producer; security for some is traded against insecurity for others.

Regulation and protectionist measures benefit the few and make them more secure, while making the multitude less secure. In such a setting the certainty of entitlement is chosen over freedom/chance of success. Attitudes change, and so does society. “The younger generation of to-day has grown up in a world in which in school and press the spirit of commercial enterprise has been represented as disreputable and the making of profit as immoral, where to employ a hundred people is represented as exploitation but to command the same number as honourable.”

Example of Germany: organized top down as a Beamtenstaat/civil service state; “not only in the Civil Service proper but in almost all spheres of life income and status were assigned and guaranteed by some authority.” In Germany “where the alternative to security in a dependent position is a most precarious position, in which one is despised alike for success and for failure, only few will resist the temptation of safety at the price of freedom. Once things have gone so far, liberty indeed becomes almost a mockery, since it can be purchased only by the sacrifice of most of the good things of this earth. In this state it is little surprising that more and more people should come to feel that without economic security liberty is “not worth having” and that they are willing to sacrifice their liberty for security.”

Ben Franklin: “Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.”

prevalent morals

“Just as the democratic statesman who sets out to plan economic life will soon be confronted with the alternative of either assuming dictatorial powers or abandoning his plans, so the totalitarian dictator would soon have to choose between disregard of ordinary morals and failure.”

Morals also serve to sanctify prevalent practices in a society; “The ruling moral views will depend partly on the qualities that will lead individuals to success in a collectivist or totalitarian system, and partly on the requirements of the totalitarian machinery.” Communist/fascists movement comes to power when society is in crisis; people seek a determined and strong leader who gets-things-done (against an inefficient parliamentary system). Here comes the new model party with its own paramilitary organization around it, one that stresses hirarchy and discipline; one that has no moral problems (where other socialist were reluctant to take power and introduce coercion, the new model army has no such problems).

“… question can no longer be on what a majority of the people agree, but what is the largest single group whose members agree sufficiently to make unified direction of all affairs possible; or, if no such group large enough to enforce its views exists, how it can be created and who will succeed in creating it.”

in recruiting this party you need a large number of like minded men;

  • among more educated people you find a too high differentiation of tastes, the party therefore tends towards a lower common denominator.
  • for large numbers they must “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. It will be those whose vague and imperfectly formed ideas are easily swayed and whose passions and emotions are readily aroused who will thus swell the ranks of the totalitarian party … “the desire of the individual to identify himself with a group is very frequently the result of a feeling of inferiority, and that therefore his want will only be satisfied if membership of the group confers some superiority over outsiders “
  • common feature: need an enemy to drum up support (negative program is more attractive than a positive one). The “Jew had come to be regarded as the representative of capitalism because a traditional dislike of large classes of the population for commercial pursuits had left these more readily accessible to a group that was practically excluded from the more highly esteemed occupations … The fact that German antisemitism and anti-capitalism spring from the same root is of great importance for the understanding of what has happened there”

The party defends the narrow interest of a select core, only natural because collectivism is only possible with small number of participants. In parallel a strong preference for narrow national interests evolves; this serves the defense of the inner parties realm.

“by concentrating power so that it can be used in the service of a single plan, it is not merely transferred but infinitely heightened; that by uniting in the hands of some single body power formerly exercised independently by many, an amount of power is created infinitely greater than any that existed before, so much more far-reaching as almost to be different in kind.” … “the ‘substitution of political for economic power’ now so often demanded means necessarily the substitution of power from which there is no escape for a power which is always limited. What is called economic power, while it can be an instrument of coercion, is in the hands of private individuals never exclusive or complete power, never power over the whole life of a person. But centralized as an instrument of political power it creates a degree of dependence scarcely distinguishable from slavery.”

End of morality: the ruthless Party adopts that ‘the ends justify the means’ - “there is literally nothing which the consistent collectivist must not be prepared to do if it serves ‘the good of the whole’, because the ‘good of the whole’ is to him the only criterion of what ought to be done”

Personality of politicians “must himself be prepared actively to break every moral rule he has ever known if this seems necessary to achieve the end set for him. Since it is the supreme leader who alone determines the ends, his instruments must have no moral convictions of their own. They must, above all, be unreservedly committed to the person of the leader; but next to this the most important thing is that they should be completely unprincipled and literally capable of everything.”

Propaganda and the end of truth

For efficiency of the system it has to persuade its subject to adopt its ends - by means of propaganda it tries to achieve the Gleichschaltung of all minds. “striving for equality by means of a directed economy can only result in an officially enforced inequality-an authoritarian determination of the status of each individual in the new hierarchical order; that most of the humanitarian elements of our morals, the respect for human life, for the weak and for the individual generally, will disappear”.

Totalitarian propaganda is “destructive of all morals because they undermine one of the foundations of all morals, the sense of and the respect for truth.” - truth can’t just be abolished, it has to be replaced by a new truth, it needs an official doctrine/a system that allows its subjects to rationalizes the ‘wise’ decisions of the leadership. “Plato’s “noble lies” and Sorel’s “myths” serve the same purpose as the racial doctrine of the Nazis or the theory of the corporative state of Mussolini. They are all necessarily based on particu1ar views about facts which are then elaborated into scientific theories in order to justify a preconceived opinion.”

Totalitarian propaganda assigns ‘new’ meanings to familiar words; ‘freedom’ becomes the freedom of the planners. “Gradually, as this process continues, the whole language becomes despoiled, words become empty shells deprived of any definite meaning, as capable of denoting one thing as its opposite and used solely for the emotional associations which still adhere to them.”

The system will have to suppress dissents and doubt, all means are “used exclusively to spread those views which, whether true or false, will strengthen the belief in the rightness of the decisions taken by the authority; and all information that might cause doubt or hesitation will be withheld. The probable effect on the people’s loyalty to the system becomes the only criterion for deciding whether a particular piece of information is to be published or suppressed”

the system will have to control every aspect of live; it will have to suppress every hint of a doubt, also it often does extend to neutral subjects as physics and mathematics, everything becomes politicized. “There must be no spontaneous, unguided activity, because it might produce results which cannot be foreseen and for which the plan does not provide. It might produce something new, undreamt of in the philosophy of the planner.”

“Once science has to serve, not truth, but the interests of a class, a community, or a state, the sole task of argument and discussion is to vindicate and to spread still further the beliefs by which the whole life of the community is directed. As the Nazi Minister of Justice has explained, the question which every new scientific theory must ask itself is: ‘Do I serve National-Socialism for the greatest benefit of all?’ The word truth itself ceases to have its old meaning” “The general intellectual climate which this produces, the spirit of complete cynicism as regards truth which it engenders, the loss of the sense of even the meaning of truth… are all things which one must personally experience-no short description can convey their extent.”

“The tragedy of collectivist thought is that while it starts out to make reason supreme, it ends by destroying reason because it misconceives the process on which the growth of reason depends” Principle of conscious control places some individuals into the position of absolute rulers (a position of hubris), whereas reason/rationality can only grow out of individualism (a position of humility)

The Socialist roots of Nazism

Bismark introduced protectionist measures after 1878 (as a consequence of the Gruenderkrach/Crash of 1873) ; Trusts/conglomerates formed as a result (for fixing prices !); Some German socialists (Lensch) see these conglomerates as a higher/socialist forms of organization.

Socialists in Germany of World War I : on one side were for organized/planned economy (in practice they had a planned war economy), on the other hand were supporting nationalistic aims. Walther Ratenau held important posts in the planning bodies (raw material dictator). Lensch interpreted WW1 as a conflict between socialist/organized Germany and liberal/individualistic Britain; Lensch - “The state has undergone a process of socialization, and Social Democracy has undergone a process of nationalization. “ Oswald Spengler “Old Prussian spirit and socialist conviction, which to-day hate each other with the hatred of brothers, are one and the same.” also identifies liberalism with Britain as opposed to Prussia; the Prussian idea of a corporatist state (Beamtenstaat) that subordinates the individual. Moeller van den Bruck “The fight against the capitalistic order, according to this view, is a continuation of the war against the Entente with the weapons of the spirit and of economic organization, the way which leads to practical socialism”

And in Britain … ?

By end of the 1930ies Liberalism has gotten into disrepute/perceived as old fashioned by most intellectuals in Britain (outdated/the old thing); very similar mood to what happened during WWI in Germany this was presented as an inevitable trend ! “The conviction that this trend is inevitable is characteristically based on familiar economic fallacies-the presumed necessity of the general growth of monopolies in consequence of technological developments, the alleged “potential plenty”, and all the other popular catchwords which appear in works of this kind”

Also in Germany they had “scientists agitating for a ‘scientific’ organization of society … Few people remember that in the modern history of Germany the political professors have played a role comparable to that of the political lawyers in France.” “The influence of these scientist-politicians was of late years not often on the side of liberty: the “intolerance of reason” … and the contempt for anything which was not consciously organized by superior minds according to a scientific blueprint, were phenomena familiar in German public life” .. many scientist (natural sciences) and engineers accepted the Nazi’s with enthusiasm; much more readily than social sciences !

Example of British commies/nazi’s E.H. Carr ; C.H. Waddington ; Laski - Ford in America. The author is alarmed that both organized capital and organized labour are pointing working toward the same end of ‘scientific organization’ and control. “They do this through their common, and often concerted, support of the monopolistic organization of industry; and it is this tendency which is the great immediate danger.”

Monopolies were pushing towards “corporative society in which the organized industries would appear as semi-independent and self-governing ‘estates’. Monopolistic capitalist got popular support by “letting other groups participate in their gains or, and perhaps even more frequently, by persuading them that the formation of monopolies was in the public interest” “the public generally nowadays accept the ability to pay higher wages as a legitimate argument in favor of monopoly”

Argues that state control over monopolies give better result than direct state management. This would also limit sphere of influence of monopolies, where these are required, and argues for to “stimulate the invention of substitutes which can be provided competitively”;

Labour movement got coopted by monopolies; a monopoly could offer higher wages (all at the expense of smaller competitors); convergence of interests between big business and Labour.

Argues that the current generation demands a rational explanations for every decision but that there are limits of what can be explained. Market pricing is a regulating entity: many decisions are guided by considerations of price (such as choice of occupation); therefore the mechanisms of how prices are exactly set is impossible to understand in exact terms; Same with planning: to explain a particular decision sometimes a great number of things beside the scope of that decision have to be considered, so that it can’t be effectively explained at all.

“It was men’s submission to the impersonal forces of the market that in the past has made possible the growth of a civilization which without this could not have developed; it is by thus submitting that we are every day helping to build something that is greater than anyone of us can fully comprehend”. Speaks about limits of knowledge (in social sciences) - total social control would destroy western civilization.

Labour argued for continuation of WW2 planning in peace time, problem: “individual freedom cannot be reconciled with the supremacy of one single purpose to which the whole society must be entirely and permanently subordinated.” - exception is War.

Example: transition from War economy to peacetime would make many specialized jobs in armament industry redundant. This adjustment can be achieved by monetary means - or by socialist coercion. Changed requirements will create unemployment, that could be delayed, but paying people to work just for the purpose of working would lead to inflation. Instead of increasing the GDP this would amount to redistribution and who would loose out would be very embittered.

“It should never be forgotten that the one decisive factor in the rise of totalitarianism on the Continent, which is yet absent in this country, is the existence of a large recently dispossessed middle class.”

“morals are of necessity a phenomenon of individual conduct, but also that they can exist only in the sphere in which the individual is free to decide for himself and called upon voluntarily to sacrifice personal advantage to the observance of a moral rule ?. Only where we ourselves are responsible for our own interests and are free to sacrifice them, has our decision moral value.”

“Freedom to order our own conduct in the sphere where material circumstances force a choice upon us, and responsibility for the arrangement of our own life according to our own conscience, is the air in which alone moral sense grows and in which moral values are daily re-created in the free decision of the individual. That in this sphere of individual conduct the effect of collectivism has been almost entirely destructive, is both inevitable and undeniable. A movement whose main promise is the relief from responsibility cannot but be anti-moral in its effect”

“It is true that the virtues which are less esteemed and practiced now-independence, self-reliance, and the willingness to bear risks, the readiness to back one’s own conviction against a majority, and the willingness to voluntary co-operations with one’s neighbours - are essentially those on which the working of an individualist society rests. Collectivism has nothing to put in their place, and in so far as it already has destroyed them it has left a void filled by nothing but the demand for obedience and the compulsion of the individual to do what is collectively decided to be good.”

Planning and international relations; competition for economic resources on international level would now have to be negotiated among armed state actors; what once was the subject of trade would then be in domain of politics. some call for planning by super national planning authority; but “There need be little difficulty in planning the economic life of a family, comparatively little in a small community But as the scale increases, the amount of agreement on the order of ends decreases and the necessity to rely on force and compulsion grows.” Larger groups of people means that it is much harder to reach agreement; also harder to argue for sacrifices that benefit a group of people in a far away country.

Says that international planning would result in naked rule of coercion (Grossraumwirtschaft of the Nazi’s)

Planning on international scale would have to cope with differences in living standards - these must be ordered by some measure of merit these decisions will perceive as having been imposed by a hostile power (by those affected by the decision). The planners/new rulers would then resort to coercion. “it is impossible to be just or to let people live their own life if the central authority doles out raw materials and allocates markets, if every spontaneous effort has to be “approved” and nothing can be done without the sanction of the central authority.”

Who would be in charge, politician or planner? “Exclusive control of an essential commodity or service … is in effect one of the most far-reaching powers which can be conferred on any authority” No possibility of oversight would be left, everything can be justified by technical necessity. Control over raw materials such as petrol would make every country dependent upon decision of planners; nothing would move without approval of planners (with their own agenda) Predicts that the great powers will use planning bodies as tools of exerting their own agenda upon smaller countries. Planning would force all countries into one centralized state.

How to keep the peace? Hayek argues for political transnational federation (with limited powers) to keep each countries economic interest in check - instead of planning bodies designed to keep political interests in check. Political organization can seem to remain impartial - because it does not have a direct economical interest.

“Least of all shall we preserve democracy or foster its growth if all the power and most of the important decisions rest with an organization far too big for the common man to surveyor comprehend. Nowhere has democracy ever worked well without a great measure of local self-government, providing a school of political training for the people at large as much as for their future leaders” Local councils are less complex affairs - training grounds for democracy; also smaller countries have much to offer here, so better not push them into the corner. The international order based on law should limit both big and small countries from becoming tyrannical.

“It has always been my conviction that such ambitions were at the root of the weakness of the League of Nations: that in the (unsuccessful) attempt to make it worldwide it had to be made weak, and that a smaller and at the same time more powerful League might have been a better instrument to preserve peace.” Advocates a federation of western countries, with looser associations for more different parts of the world.