the road to serfdom symposium.: comment on papers by rosser and by levy, peart, and farrant

Vol. 21 (2005) 1054–1059

www.elsevier.com/locate/ejpe

Discussion

The Road to Serfdom symposium.

Comment on papers by Rosser and by Levy,

Peart, and Farrant

Bruce Caldwell

Department of Economics, University of North Carolina at Greensboro, Box 26165, Greensboro,

North Carolina 27402-6165, USA

Received 30 June 2004; received in revised form 15 July 2004; accepted 1 August 2004

Available online 12 February 2005

Abstract

The paper reviews the history of the socialist calculation debate leading up to the publication of

Hayek’s The Road to Serfdom, and then uses that information to address various claims made by

Rosser and Levy, Peart, and Farrant in their symposium papers.

D 2005 Elsevier B.V. All rights reserved.

JEL classification: B25; B31

Keywords: Hayek; Socialism; Planning; Market socialism

I am pleased to join this discussion prompted by the 60th anniversary of the publication

of F.A. Hayek’s The Road to Serfdom. In my remarks I will dissent from some of the

positions taken by Rosser (2005) and by Levy, Peart, and Farrant (2005) (L–P–F) in their

papers. To set the scene, I will begin by providing some historical background on the

development of Hayek’s arguments regarding socialism.

Hayek’s first foray into the English-language debates over socialism and planning came

in 1935, when his edited volume Collectivist Economic Planning: Critical Studies on the

Possibilities of Socialism, appeared. The volume contained translations of various essays

on socialist planning, including Mises’ famous 1920 essay, and opening and concluding

essays by Hayek. In the former, Hayek carefully distinguished between planning and

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socialism, recognizing bthat it is possible to have much planning with little socialism or

little planning and much socialismQ (Hayek, [1935a] 1997, p. 62). The latter, titled bThePresent State of the Debate,Q was a nuanced and sophisticated discussion of a variety of

proposals, both real world and theoretical, that had been advanced by proponents of

collectivist planning: among others, the Russian bexperiment,Q H.D. Dickinson’s

bmathematical solution,Q Dobb’s proposals to abrogate consumer sovereignty, and various

forms of bpseudo-competition,Q which was Hayek’s term for market socialism. Though

Hayek was cognizant of a variety of market socialist proposals that had appeared in

German, he noted that in England bthought on these lines is still in a very embryonic

stage,Q so that to some extent he had to rely on bwhat one has learnt about them in

conversations and discussionsQ (Hayek, [1935b] 1997, pp. 99–100).This was remedied with the publication in 1936–1937 of Oskar Lange’s (1938) two part

paper, which later appeared in book form, On the Economic Theory of Socialism. Lange

acknowledged the efficiency characteristics of competition, but denied that under late

capitalism meaningful competition existed. He then provided a detailed blueprint for a

market socialist society, one in which there exists a free market for both consumer goods

and labor, but (because of public ownership of the means of production) no market for

productive resources. The Central Planning Board would provide prices, and adjust them

up or down (using a btrial and errorQ method) depending on revealed shortages or

surpluses.

Hayek reviewed Lange’s book in 1940. Having already criticized btrial and errorQmethods in 1935, Hayek wondered why Lange had neglected to answer how often prices

in his system would be adjusted. This was an important point, for even with relatively

quick adjustments (something Hayek thought would not happen) Hayek argued that an

extensive system of price fixing would still always be playing bcatch-upQ relative to the

adjustments that would automatically take place in a market system, so would be less

efficient. He then provided a number of additional queries about how the system would

work, raising questions about the nature of the firm and the industry under market

socialism, about how managers were to discover information about marginal costs, and

about their incentive structures in making investment and other decisions. In making his

points, Hayek wrote, famously, that bit is difficult to suppress the suspicion that this

particular proposal has been born out of an excessive preoccupation with problems of the

pure theory of stationary equilibriumQ (Hayek, [1940] 1997, p. 123). Hayek’s later and

much fuller development of how markets work to coordinate social and economic activity

in a world in which knowledge is dispersed–a world very different from that described by

the theory of stationary equilibrium–would become one of his central contributions to

economics.

In a letter dated 31 July 1940 Lange responded to Hayek’s review and tried to clear up a

misunderstanding: bI do not propose price fixing by a real central planning board, as a

practical solution. It was used, in my paper, only as a methodological device to show how

equilibrium prices can be determined by trial and error even in the absence of a market in

the institutional sense of the word. Practically, I should, of course recommend the

determination of the prices by a thorough market process whenever this is feasible. . .Q(Lange, 1994, p. 298). Hayek could be forgiven if he were to infer from this letter that

Lange had accepted his criticisms about the practical feasibility of market socialism.

B. Caldwell / European Journal of Political Economy 21 (2005) 1054–10591056

At the end of his review Hayek acknowledged that market socialists like Lange bshow a

reassuring awareness of the dangers to personal freedom which a centrally planned system

would involve and seem to have evolved their competitive socialism partly in order to

meet this dangerQ (Hayek, [1940] 1997, 136), but he also pointed out that, even under their

systems, a substantial amount off decision-making would still be centrally directed.

Central planners by making capital decisions would directly decide the allocation of goods

between present and future consumption, and would also have to decide the allocation of

resources for the production of goods destined for communal versus individual

consumption. Even under market socialism, then, public ownership of the means of

production (which is the defining characteristic of socialism) already commits one to a

considerable amount of planning. Furthermore, to get market socialism to work, additional

interference by the central authority would doubtless be viewed as necessary: constraints

on capital flows and on imports and exports is one example, and controls on the wage rate

to ensure that equal wages are paid for work of equal skill, responsibility and difficulty is

another.

Hayek concluded his review with an argument that he had developed in 1938 in

bFreedom and the Economic SystemQ (Hayek, [1938] 1997), a precursor to The Road to

Serfdom, that whenever planning on such a scale is introduced, if it is to have any chance

of succeeding, ba much more extensive agreement among the members of society about

the relative importance of the various needs will be required than will normally exist, and

that in consequence this agreement will have to be brought about and a common scale of

values will have to be imposed by force and propagandaQ ([1940] 1997, p. 138). Hayek,then, felt that though the market socialist proposals sounded good, they would not work. If

one implemented the socialist program of full public ownership of the means of

production, more central planning would be necessitated than its architects envisioned; and

for central planning to work, propaganda and force would become necessary.

A final point about the times in which Hayek wrote: market socialists and other

economists constituted only a small portion of the people writing about planning. To put

it bluntly, everyone in the 1930s was. Some detested competition and thought of

planning as a means of restraining it. Others thought that, in an age of cartels and

monopolies, planning was necessary to constrain big business. Still others announced

that it was a new age altogether: the age of scarcity was over, and the age of plenty was

upon us (that was why there was widespread unemployment of resources). Again,

planning was the appropriate response: once resources were redirected, full production to

satisfy the people’s needs could be attained. The planners would use the latest scientific

techniques in accomplishing their task. Indeed, science itself was to be planned, at least

if the bsocial relations of scienceQ movement had its way. The popular press and the

intelligentsia shared the common assumption that planning was the way of the future

(Caldwell, 2004, pp. 232–241). Economists writing about socialism were only a small

part of Hayek’s audience.

Unlike the economists, most advocates of planning had not tried to think through what

it meant to have a planned society. For them, planning was a panacea. It was, I submit, this

general sentiment for which The Road to Serfdom was meant to be an antidote. Hayek was

trying to show his readers that planning, the word on everyone’s lips, sounded good in

theory but in fact had a lot in common with systems against which they currently were


fighting. Those systems despised the classical liberal tradition that was part of Britain’s

legacy, so another part of his goal was to remind his British readers of their heritage.

All of this helps to explain why Hayek did not lay out the argument against market

socialism in his book. He felt that market socialism was only a theoretical dream, one that

he had already criticized, and in any event, the details of the argument against it would be

out of place in a general book. His economist readers, he doubtless presumed, were

already aware of the arguments he had made in 1940, arguments he felt had succeeded. If

they weren’t, he reminded them with his footnote about it on page 40.

Given this background, what might we say about the views of Rosser and L–P–F?

1. Comparing what Hayek said in the last chapter of Collectivist Economic Planning

to what they read in The Road to Serfdom, L–P–F assert that bin The Road to Serfdom,

Hayek’s position apparently changed and all socialists are treated as planning socialists

for whom the plan may be imposedQ (Levy et al., 2005, p. 10). This also seems to have

been Evan Durbin’s (1945) view, whose review they cite. That Hayek deals so little with

bliberal socialistsQ like Durbin, Lange, and Lerner, socialists who value consumer

sovereignty and freedom of choice in the workplace, leads them to conclude that he had

a blind spot, that by the time he wrote The Road to Serfdom he could no longer

recognize that market socialists should not be lumped together with outright planners.

This leads L–P–F to the further, truly bizarre, claim that Robbins, Hayek’s companion in

the fight against planning, should also be included among Hayek’s opponents, for

Robbins (unlike, they claim, Hayek) recognized that liberal socialists should not be

lumped together with planners.

L–P–F should have read Hayek’s review of Lange’s book. His very explicit claim there

is that Lange’s blueprint already contained quite a bit of planning, and furthermore, if one

insisted on carrying through with socialism, even more planning would be necessary,

which starts one down the road to serfdom. Hayek (like Robbins) recognized that bliberalsocialistsQ valued freedom of choice. What he denied was that they could maintain those

values and still carry out their proclaimed program. As he succinctly put it, bsocialismcan be put into practice only by methods which most socialists disapproveQ (Hayek, [1944]1976, p. 137). Given that he had already provided a detailed analysis of market socialism

elsewhere, Hayek must have felt sandbagged by Durbin’s ungenerous review. Unfortu-

nately, 60 years later we have L–P–F repeating the error.

2. Rosser briefly mentions bindicative planningQ as a counterexample to Hayek’s claim

that all planning must be central planning by command. L–P–F argue that market

socialism is a counter-example to Hayek’s claim that socialism leads to central planning by

command. Some may wish to draw the conclusion that the two papers, taken together,

must eviscerate Hayek’s arguments completely, for they imply that neither socialism nor

planning requires central planning by command. Both papers acknowledge that central

planning by command, when it has been tried, is both inefficient and inimical to freedom

of choice.

I do not think that these are effective counterarguments against Hayek’s position in The

Road to Serfdom. They are, rather, good illustrations of the truly daunting task that anyone

who wishes to make an argument against socialism confronts. If one makes an argument

against a specific form of socialism, say market socialism, as Hayek did in 1940, an

opponent can always offer an alternative version. But if one tries to make a general case,

B. Caldwell / European Journal of Political Economy 21 (2005) 1054–10591058

an opponent can always say that the general case does not in fact cover all possible

variants of socialism.

Rather than trying to fight the Hydra, I propose instead a simple and straightforward

test of Hayek’s thesis. How many actually existing, real world political systems have fully

nationalized their means of production and preserved both efficiency and freedom of

choice? Count them up. Then compare the number with those that nationalized their means

of production and turned to extensive planning and control. If one agrees that this is the

right test, Hayek’s position is vindicated.

3. Luckily, the countries that Hayek was most concerned about (the Western European

democracies and the United States) did not go to full nationalization. (For example, it was

begun in Britain directly after the war, but it hit its high point in the late 1940s, and even

then only about 20% of British industry was nationalized.) So the subsequent paths of the

western European democracies are not really tests of Hayek’s thesis. Many of them did

develop substantial welfare states, and Hayek wrote about the separate dangers of these in

his later writings. But the existence of such states, and whatever successes they may or

may not have had, does not undermine Hayek’s argument from The Road to Serfdom: a

welfare state is not socialism. Can we not by now take Hayek at his word when he states,

one more time (in 1976) and for the record, bIt has frequently been alleged that I have

contended that any movement in the direction of socialism is bound to lead to

totalitarianism. Even though this danger exists, this is not what the book saysQ (Hayek,[1944] 1976, xxi)? If we do, Rosser’s reporting on the state of the western democracies in

the post-war period is irrelevant for the present assessment.

4. A reader of this story who had dropped in from Mars might be forgiven if he

concluded that the intelligentsia of the western democracies must have applauded Hayek

for saving, through his warning, their countries from the fate that befell those east bloc

countries, and others, who tried public ownership of the means of production in earnest.

Were it only so. We non-martians know that the opposite was the case. Hayek was vilified

by the chattering classes for being a reactionary. This was in contrast to the reception given

his book among the dissenting intelligentsia in the east bloc countries, some of whom

risked their lives to see that samizdat copies of the book got published and distributed.

This certainly provides a reason for those who have not yet done so finally to read The

Road of Serfdom. Though many will find things to criticize in the book, it does not read like

the ranting of a lunatic. His criticisms of planning have been accepted even by those who

seek some form of social market economy. And the sort of classical liberal system that Hayek

briefly describes and defends–one that respects the rule of law, that provides a welfare

minimum for its citizens, and that seeks to overcome problems associated with such things as

monopoly and externalities–should also sound very familiar. That his book was viewed as a

reactionary screed when it appeared should give us some insight into the times in which he

was writing, and how distant we are from such times today. And a good thing too.

References

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