Hayek’s thesis in The Road to Serfdom is that one intervention inevitably leads to another. The unintended consequences of each market intervention are economic distortions, which generate further interventions to correct them. That interventionist dynamic leads society down the road to serfdom.
In perhaps the best chapter of The Road to Serfdom, Hayek details “Why the Worst Get on Top” in totalitarian societies. The chapter begins with a quotation from Lord Acton: “Power tends to corrupt, and absolute power corrupts absolutely.” Hayek then elaborates the Actonian insight.
There are strong reasons for believing that what to us appear the worst features of the existing totalitarian systems are not accidental by‐products but phenomena which totalitarianism is certain sooner or later to produce. 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. It is for this reason that the unscrupulous and uninhibited are likely to be more successful in a society tending toward totalitarianism. Who does not see this has not yet grasped the full width of the gulf that separates totalitarianism from a liberal regime, the utter difference between the whole moral atmosphere under collectivism and the essentially individualist Western civilization.
Remember, all that was written in 1944, at the height of the naive leftist faith in collectivist economic policy. Hayek dedicated his book to the “Socialists of All Parties,” never attributing malice or bad motives to them, only sheer intellectual error. He demonstrated, nevertheless, how attempts to do good can produce great harm. The thesis is the counterpart of Adam Smith’s famous dictum that self‐interested behavior can be the source of great societal good.
Hayek argued that, in the interventionist dynamic, liberty is lost piecemeal, one freedom at a time, always in the name of necessity and expediency. Hayek echoed the words of Lord Acton: “Liberty is not the means to a higher political end. It is itself the highest political end.”
Central planning not only robbed people of their basic freedoms but ruined their economies. The tragedy is that Hayek and others patiently explained not only the political, but also the economic, consequences of central planning. That system ignored its impossible informational requirements. It demanded that all the fragments of knowledge existing in different minds be brought together in one mind, a feat requiring that single mind to possess knowledge far in excess of what anyone could ever comprehend.
The argument is not merely a computational one that could be resolved in the computer age. As Hayek observed in “The Use of Knowledge in Society,” each person “has some advantage over all others because he possesses unique information of which beneficial use can be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active cooperation.” The only social system ever evolved for accomplishing the task is that of private property under a rule of law. That system provides individuals with incentives to use their informational advantages, a price system to efficiently convey dispersed bits of economic information, and a legal framework for appropriating and transferring property.
Many credit President Ronald Reagan’s defense buildup with the downfall of the communist countries. If Hayek’s analysis is correct, however, communism collapsed because of the inner contradictions of that economic system. I think the evidence shows that Hayek was correct, and it was Reagan’s free‐market economic policies, which transformed not only the United States but much of the rest of the Western world, that won the Cold War. Understanding that point has important implications for current debates over fiscal priorities.
The chief paradox of the post‐Cold War era is that the idea of central planning is discredited intellectually where it was actually tried, but it lives on in the West, particularly in the United States. Targeted‐tax credits and outright subsidies to favored industries are utilized to achieve desired mixes of employment at the local, state, and federal levels of government. Attempts to “save” manufacturing jobs are just planning in another guise.
In The Constitution of Liberty, Hayek included a chapter, “Why I Am Not a Conservative,” in which he argued the case for classical liberalism: the policy that leaves people alone in the bedroom as well as the boardroom. What is delightful about Hayek is that, as he aged, he became more radical. We celebrate today a clear‐sighted man, as well as the enduring quality of his intellectually radical work, Friedrich Hayek.