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The Two Roads to Serfdom

Updated: Apr 15

…and, finding The Road Out of Serfdom.  Metaeconomics points to the need to temper the excesses.  


The Essence


The current political economic turmoil here in the 2020s raises the question of What Comes Next. With the 2024 election just a few months away, the question needs serious consideration.

 

It is not a new question.  It was especially a concern as WWII ground-on into the early-1940s.  It was a war against fascism. It was also a time of concern about communism.  Hayek (1944) pointed out that the (classical) liberalism that had been around northwestern Europe as well as the US at the earlier time starting in the late-1700 through 1800s was in effect under attack. It was not only WWII but also WWI had been fought to preserve liberalism characterized by lots of freedom and liberty for the ordinary person, made possible in a Market based political economy. Hayek (1944) saw the dangers of totalitarian states, which Hayek believed were inherent in any move toward the extremes of communism and socialism, and, unfortunately, it is also true for any move toward the extremes of liberalism when in the form of laissez faire capitalism. For the latter, cronyism sets in, extreme wealth buys power, often shorn-up by religion.  Ordinary people want something done, with the predictable result that an authoritarian often with a fascist frame of mind steps forward to fix everything.  Liberalism (classical) goes down.

 

Hayek (1944) pointed to the extremes of communism, socialism, and fascism taking the system down The Road to Serfdom.  As the following makes clear, Hayek (1944) seemed to also understand that the move to extreme liberalism represented in the laissez faire variety of capitalism in effect does the same thing: That move had led to the other isms in the first place, so why go back to it. So, the Blog is titled The Two Roads to Serfdom.  By seeing it is the extremes that lead to Serfdom, it becomes possible to find The Road Out of Serfdom, the line and bed of the road made clear using Dual Interest Theory (DIT) in Metaeconomics, which is about Tempering the Excesses (after Lynne 2020).

 

Unfortunately, only the part of Hayek (1944) that goes after the extremes of communism, socialism, and fascism are remembered in current rhetoric about What Comes Next.  In particular, The Neoliberal Order -  who claim Hayek as the brainchild of Neoliberal Thought - that took hold of the US economy over the period of 1970-2020, with lingering elements, claims no reasoned role for the Government in the Market:  Hayek is misrepresented.  In fact, The Neoliberal Order has done everything possible to undo (and continues aggressive moves to undo it some more) The New Deal Order that operated from 1930-1980. It was The New DealOrder that brought a bit of reasoned Socialism to bear in tempering the Scroogism inherent in laissez-faire capitalism. The New Deal Order was in play a close form to what Hayek (1944) actually had in mind.   Well, Adam Smith has been distorted and misrepresented by The Neoliberal Order, too, so, here we go again. And, bottomline, as DIT in Metaeconomics makes clear, What Comes Next needs to be a good balance in Scroogism & Socialism (also see several other Blog posts herein about the matter).

 

For the details, read on!


The Details


One of the most often cited economists of all time is F. A. Hayek.  Most cites are of The Road to Serfdom (Hayek 1944), wherein the claim is made for individual liberty and freedom in a Market Forum to bring about a spontaneous order giving efficiency in the economic system. Rules of morality – the ethical code, the ethic - also arise spontaneously.  The claim was the Market was the only process capable of bringing the best information to bear in making the best decisions. Overall, it was a call to bring some form of classical liberalism akin to the laissez faire of the 1800s back into play.  The 1944 book has become important once again as it played a substantive role in framing The Neoliberal Order that operated during 1970-2020, with remnants still around. The Neoliberal Order served to dismantle The New Deal Order that operated from 1930-1980. See the details in the Blog What Comes Next (https://www.metaeconomics.info/post/what-comes-next ).

 

Hayek (1944) is writing about the economic situation in the 1930s to early 1940s, a situation that worked to stimulate the form of The New Deal Order in the US and similar initiatives in other countries. Claiming the frame outlined in Hayek (1944) would favor it, the Neoliberal Thought Collective (as named by Mirowski and Plehwe 2015) has worked relentlessly to undo The New Deal Order while putting in place and continually building The Neoliberal Order. The effort has focused on dismantling The New Deal Order which provided for such things as social security, bank and other financial regulations, progressive income taxes, medicare and other public health initatives, civil, and human rights legislation, and generally worked to temper the excesses of an unfettered laissez faire.  The effort to go back to laissez faire without bounds – including the questionable claim by the Neoliberal Collective that Hayek would support it - continues.

 

The claims in Hayek (1944) are considered using the rigorous analytical system from Dual Interest Theory (DIT) in Metaeconomics, after Lynne (2020).  The isocurves of excess illustrated in Figure 1 point to The Two Roads to Serfdom, one represented by Extreme Liberalism - as in laissez faire Scroogism - on road 0G, which can easily lead to fascism, and the other one by Extreme Socialism on road 0M, the road pointed to by Hayek (1944). In both cases, a kind of totalitarianism comes into play, most often in league with authoritarianism and sometimes with fascism.



Figure 2 also illustrates serfdom as it was prior to about 1780 at the point Boo, with the possibility frontiers of Figure 2 derived from moving along RR lines in Figure 1.  The value V curves come out of Other Forums in Community: Government, which work to temper the price P reflected the Market Forum represented in Figure 1.  The Humane Liberalism based Road Out of Serfdom, at least in parts of the Spaceship where the move was toward a more humane (classical) liberalism – especially when the excesses of laissez faire were tempered - led to income now more on an order of magnitude of 16 upwards to 100 or more since 1800, as illustrated at Bo (after McCloskey’s 7-books, see the Review in Lynne 2023; and, in Lynne in process).





  

Preface and Forward to the Various Editions

Hayek (1944, p. 37) claims it is a political book, so, in DIT terms, it is about finding the best point on the ideological spectrum from pure communism to pure capitalism.  Hayek is on a mission to make the public of 1944 aware of how classical liberalism had been under attack by  communism, socialism, and fascism that especially takes hold in Europe, and to some limited extent in the US, in the 1930s. By 1948, Hayek had helped form both the Mont Pelerin Society and the Chicago School of Economics, on the way to giving content to Neoliberalism (again, see Mirowski and Plehwe 2015), all ostensibly focused on bringing some form of classical liberalism back into play.


By the time of the 1956 edition which was directed at the US reader, Hayek claims that “… directed (socialism) —that organized movement toward a deliberate organization of economic life by the state as the chief owner of the means of production— is nearly dead in the Western world. The century of socialism in this sense probably came to an end around 1948 (p. 44)… (Yet, Hayek claims) Attempts will no doubt be made to rescue the name for movements which are less dogmatic, less doctrinaire, and less systematic. … (and)… though hot socialism is probably a thing of the past, some of its conceptions have penetrated far too deeply into the whole structure of current thought to justify complacency (Hayek 1944, p. 44).”  


The book proceeds with 16-chapters covered in 269-pages, natural groupings here:  Chapters 1-3:  abandoned road, great utopia, individualism and collectivism.  Chapters 4-9:  inevitability of planning, planning and the rule of law, economic control and totalitarianism, who and whom, security and freedom.  Chapters 10-13: why the worst get to the top, the end of truth, the socialist roots of Naziism, the totalitarians in our midst.  Chapters 14-15: material conditions and ideal ends, the prospects of international order.  Chapter 16: conclusion


Chapters 1-3:  Abandoned Road to Collectivism


Using DIT, the abandoned road refers to leaving road 0G and moving to road 0M in Figure 1. Unfortunately, Hayek never explains why ordinary people abandoned road 0G, which clearly was because of excesses in Scroogism, especially made clear by the time of the 1929 crash in  the Spaceship-wide economy. It actually all starts around 1848:  Charles Dickens published the first version of the Scrooge Story (A Christmas Carol) in 1843, with Scroogism in full season.   Hayek does recognize the problem in one sense, with:  “Individualism has a bad name today, and the term has come to be connected with egotism and selfishness (p. 68).”  DIT clarifies it is ego-based self-interest represented in extreme selfishness that what drives the excesses on road 0G.


Utopia is in reference to the allure of socialism on road 0M.  It would temper the excesses of road 0G. Apparently some saw a utopia of  “individualist socialism (p. 82)… (still others saw) … … democratic socialism, the great utopia of the last few generations (p. 83)” which Hayek (1944) claimed unachievable. So, what does one make of the successes in Norway and Sweden to the current time? 


Hayek (1944) is concerned with collectivism because it leads to central planning, and is especially to be avoided in dealing with income distribution. Yet, on a cautionary note:   “It is important not to confuse opposition against … planning with a dogmatic laissez faire attitude. The  liberal argument is in favor of making the best possible use of the forces of competition as a means of coordinating human efforts, not an argument for leaving things just as they are (p. 85) …  (even admitting)  a carefully thought-out legal framework is required and that neither the existing nor the past legal rules are free from grave defects (p. 86).”  Well, it seems the best legal framework would point away from extreme inequality, as DIT makes clear is essential for the best economic performance.


Chapters 4-9: Planning and Freedom


Hayek (1944) saw classical liberalism style competition among the many as the solution, that the technological progress generally pointing to the bigger the better, the inherent move to monopoly was not inevitable:  “The assertion that modern technological progress makes planning inevitable… argument is based on a complete misapprehension of the working of competition (p. 94).” And, the reason for it was dispersed information among the many, among all the ordinary people, with prices evolved by the many, not in a concentrated industry with an organized labor force within it. A central planner withing a private or public monopoly simply cannot find and transmit all the relevant information. So, enabling the ordinary person, the masses, to bring information into the Market Forum  was key. Unfortunately, Hayek goes to an extreme position on the matter of dispersed information, not allowing for the fact it can also arise in, and come out of Other Forums in which people engage, e.g., out of public research in Land Grant Universities.  Not all the information in the Market is inherently correct, either, as it often takes joint science & humanities (human sciences), systematic and serious inquiry in both STEM & Humanities, to do the hard scientific work to find the facts & ethics.


Hayek points to how some central planning can produce good things, as in  “The magnificent motor roads in Germany and Italy are an instance often quoted—even though they do not represent a kind of planning not equally possible in a liberal society (p. 98).”   Yet, Hayek (1944) denies any thing resembling a “.. ‘social goal,’ or ‘common purpose,’ for which society … usually vaguely described as the ‘common good,’ the ‘general welfare,’ or the ‘general interest.’ It does not need much reflection to see that these terms have no sufficiently definite meaning to determine a particular course of action  (pp. 100-101)… It presupposes, in short, the existence of a complete ethical code in which all the different human values are allotted their due place. … The conception of a complete ethical code is unfamiliar, and it requires some effort of imagination to see what it involves (p. 101).”  In DIT terms, Hayek (1944) denies the existence of a widely shared other-interest, that which holds the ethical code the other can go along with. 


As Hayek (1944, p. 118) says it:  “The question whether the state should or should not ‘act’ or ‘interfere’ poses an altogether false alternative, and the term ‘laissez faire’ is a highly ambiguous and misleading description of the principles on which a liberal policy is based. Of course, every state must act and every action of the state interferes with something or other… (and the) Rule of Law was consciously evolved only during the liberal age and is one of its greatest achievements, not only as a safeguard but as the legal embodiment of freedom (p. 118).”  As DIT makes clear, the Community: Government needs to play a role, and, as long as it evolves in the frame of what reasoned people can go along with, it works. 


Chapters 10-13:  Why the Worst Get to the Top, and, the Totalitarians


Hayek (1944, p. 160) claims that any kind of centrally planned system, as in extreme socialism, ensures the most unethical and immoral - who also tend to be authoritarian - make it to the top and take totalitarian control because “ … we have to descend to the regions of lower moral and intellectual standards where the more primitive and ‘common’ instincts and tastes prevail… (said) lower intellectual and moral standards in what will become the totalitarian party, said inclination will eventually be engaged by a totalitarian leader who will then need to bring more into the fold in order to have sufficient numbers… (said totalitarian leader) will be able to obtain the support of all the docile and gullible … seems to be almost a law of human nature that it is easier for people to agree on a negative program—on the hatred of an enemy, on the envy of those better off— than on any positive task. The contrast between the ‘we’ and the ‘they,’ the common fight against those outside the group, seems to be an essential ingredient in any creed which will solidly knit together a group for common action. It is consequently always employed by those who seek, not merely support of a policy, but the unreserved allegiance of huge masses.” Hayek goes on to point out that anti-Semitism and anti-capitalism came to be the same thing in Germany, as many Jews had been successful in the form of capitalism at play in the earlier years.


Also, the worst people running the totalitarian system bring the end of truth as Hayek (1944, p. 171, 172) frames it, using “… various forms of propaganda. Its technique is now so familiar that we need say little about it. The only point that needs to be stressed is that neither propaganda in itself nor the techniques employed are peculiar to totalitarianism and that what so completely changes its nature and effect in a totalitarian state is that all propaganda serves the same goal… destructive of all morals because (the propaganda undermines) one of the foundations of all morals: the sense of and the respect for truth.”

And, “… science has to serve, not truth, but the interests of a (the totalitarian) class … word ‘truth’ itself ceases to have its old meaning. It describes no longer something to be found, with the individual conscience as the sole arbiter of whether in any particular instance the evidence (or the standing of those proclaiming it) warrants a belief; it becomes something to be laid down by authority (p. 178)… led the Nazis to the persecution of men of science, the burning of scientific books, and the systematic eradication of the intelligentsia of the subjected people (p. 179).”   It is being done many places on the Spaceship, right now,  DeSantis and the Florida University system, Orban and the Hungarian University system, as cases in point.


Chapters 14-15: Material Conditions and International Order


Apparently the mood in 1944 was to bring about the “End of Economic Man (Hayek 1944, p. 210, 211) … it is no doubt true that our generation is less willing to listen to economic considerations than was true of its predecessors. It is most decidedly unwilling to sacrifice any of its demands to what are called economic arguments; it is impatient and intolerant of all restraints on their immediate ambitions and unwilling to bow to economic necessities…”  As DIT makes clear, the Hayek point has merit, while presuming the Econ will do it is questionable, as it needs the Human with the ethic within.


Hayek (1944) comes down hard on creating a Spaceship with many National Socialisms interacting with one another, as each would tend to go to excess with power and influence, large militaries being a big part of each, trying to dominate the Spaceship economy.  It instead needs to be about liberty and freedom for individuals, for ordinary people, and, for small nations: “The international Rule of Law must become a safeguard as much against the tyranny of the state over the individual as against the tyranny of the new superstate over the national communities (p. 235).” Makes sense. Hierarchy leads to tyranny.  The great leveler is ordinary people across the Spaceship being able to interact through a Spaceship-wide Market, as in free trade. DIT clarifies it also needs the Spaceship-wide Community of shared (with the other)-interest, as in sustaining the Spaceship system.


Chapter 16: Conclusion


Hayek wants a return to “…the liberal ideas of the nineteenth century, which, in fact, the younger generation hardly knows (Note: writing in 1944, keep in mind) … If in the first attempt to create a world of free men we have failed, we must try again …  that a policy of freedom for the individual is the only truly progressive policy remains as true today as it was in the nineteenth century (p. 237).”  Got it.   DIT makes clear what the claim means, pointing to the joint incentives & ethics based road 0Z. 


McCloskey Weaves a Story Similar to Hayek


A similar story to that by Hayek is weaved in the 7-books published by Deirdre McCloskey over the period of 2006-2022. The books are about the new Bourgeois Deal in full flower by about 1780, a deal representing liberty and freedom, dignity and equality accorded to the Bourgeoisie. The Deal led to the massive increases in per capita income from $3/day or less prior to about 1780 to upwards of $200 or more per day in places like Norway today (see Figure 2). It was the new ethic that produced the Factor 16 to 100 or more growth, referred to by McCloskey as the Great Enrichment. The ethic represented in the Bourgeois Deal drove the Factor by tempering the incentives in the Market. The economic history so reviewed, with the special role played by ethical liberalism in it, results in calling for a Humanomics, “an economics with the humans and their ethics left in (McCloskey and Carden 2020, p. 176).”  McCloskey, like Hayek, sees the key role of incentives for individuals in the Market. McCloskey highlights the key role of the ethic which is essential in tempering the incentives, in effect facilitating ordinary people having a go at betterment tested in the Market. It is both incentives & ethics that lead to what McCloskey refers to as individual innovism, a replacement for the notion of capitalism, and a key part of any other ism. McCloskey argues, much like Hayek, that the other isms cannot work because innovism by individuals is not facilitated.  For reviews of McCloskey’s books, see Lynne 2023; Lynne in process, as well as the other posts here in the Blog:  https://www.metaeconomics.info/post/an-economics-that-is-based-in-true-classical-liberalism-toward-a-humane-libertarianism ; https://www.metaeconomics.info/post/beyond-behaviorism ; https://www.metaeconomics.info/post/bettering-humanomics ; and, especially see https://www.metaeconomics.info/post/leave-me-alone-and-i-ll-make-you-rich .

Metaeconomics Postscript


As DIT makes clear, Hayek looks almost exclusively at the excesses of the isms of communism, socialism, and fascism. And, while expressing a bit of concern for the excesses of an unfettered liberalism as represented in the laissez-faire version of it, not enough attention is given to, demonstrated in The Neoliberal Order.  Said excesses of liberalism represented in laissez faire capitalism are often the very reason people turn to the other isms. 


Ironically, working to avoid The Road to Serfdom caused by excesses in liberalism results in moving down The Road to Serfdom caused by the excesses in the other kinds of isms, with said excesses predictably producing political economic chaos.  As DIT clarifies, the former road is characterized by Scroogism while the latter road identified by Hayek is characterized by Socialism. As DIT makes clear, one needs to temper the excesses in both realms, and strike a balance in Scroogism & Socialism, Market & Community: Government in order to move onto The Road Out of Serfdom. Said Road also minimizes political (economic) chaos. 


On Information


Also, another major oversight in Hayek (1944), propagated in the Neoliberal Thought Collective (again, see Mirowski and Plehwe 2015), is that the only valid, legitimate source of information is from people in the Market.  So, disinformation, misinformation, distortion, fundamental beliefs from religious books, all of  which are regularly brought into the Market, is somehow thought appropriate and preferred to any interjection information coming out of serious and systematic inquiry in Community: Government.  In fact, information brought by some of the most well-informed, as represented in investigative journalists and public sector researchers are disparaged and ignored.  What?  As DIT clarifies, it is about good balance in the joint private & public information, as in Market & Community: Government sources that makes for a viable system. Hayek and the Neoliberal Thought Collective (Ideology at Play) missed the point.  


Hayek Misrepresented in Neoliberalism


And, perhaps most importantly:  The Neoliberal Thought Collective, the major intellectual frame used in assertive, aggressive, relentless moves by The Neoliberal Order to dominate the political economy, regularly misrepresents Hayek (1944).   The 1944 book never says Government is to be relegated to the dustbin of history, never again having a role in tempering the favored laissez faire Market.  Hayek was legitimately, and correctly focused, on the potential dysfunction of an extreme version of socialism, with a Government as central planner implementing same, as in public ownership of the means of production as espoused in communism.  Hayek was also legitimately and correctly focused on the dysfunction of fascism, and extreme form of cronyism, with a few wealthy people buying politicians  (and often in cahoots with religionists).  Yet, Hayek never said Community: Government was not to temper the arrogance of self-interest, the arrogance of an unfettered laissez faire system. Hayek saw it was essential to temper the extremes, temper the excesses, in order to avoid The Roads to Serfdom, said roads paved by communism and fascism.


The Road Out of Serfdom also needed some Community: Government tempering the primal tendences in laissez faire capitalism to take and keep it all. Good for Hayek, and Bad for the Neoliberal Thought Collective who run on ideology while misrepresenting the serious and systematic inquiry of Fredrich Hayek.


References


Hayek, Fredrich A. 1944/2007. The Road to Serfdom: Text and Documents - The Definitive Edition. The Collected Works of F.A. Hayek, Volume 2.  Edited by Bruce Caldwell. Chicago: The University of Chicago Press.

Lynne, Gary D. 2020. Metaeconomics:  Tempering Excessive Greed, Palgrave Advances in Behavioral Economics. New York: Palgrave Macmillan.

Lynne, Gary D. 2023. "Review of McCloskey, Deirdre Nansen and Carden, Art.  Leave Me Alone and I'll Make You Rich: How the Bourgeois Deal Enriched the World. Chicago: The University of Chicago Press, 2020."  Journal of Behavioral and Experimental Economics (in press).

Lynne, Gary D. (in process). "Cargo-Cult Economics to Metaeconomics:  Toward a Humanomics With a Theory."  Review of Behavioral Economics.

McCloskey, Deidre Nansen and Art Carden. 2020.  Leave Me Alone and I'll Make You Rich:  How the Bourgeois Deal Enriched the World. Chicago: The University of Chicago Press.

Mirowski, Philip and Plehwe, Dieter (Editors) 2015. The Road from Mont Pèlerin: The Making of the Neoliberal Thought Collective .... Cambridge, MA: Harvard University Press.

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