The Road to Serfdom, now more than ever
6 February 2009
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11 February 2009
Government and Institutions
In recent months there appears to have been a resurgence of scholarly interest in F. A. Hayek’s classic of political economy, The Road to Serfdom. Academics have been focusing in particular on the validity of the book’s central argument regarding the instability of liberal democracy and the stability of totalitarianism.
Hayek argues that totalitarianism does not result from a dramatic or sudden change in the popularly accepted role of government. Rather, societies drift into totalitarianism as a result of a long series of seemingly minor, incremental expansions of government activity.
Step by step, well-meaning government interventions that may seek the amelioration of genuine social problems lead the citizens of a free society to accept an ever-greater role for the state until every sphere of human activity becomes government controlled. The more the logic of interventionism takes hold, the harder it is for that tide to be turned back towards freedom.
Despite the undoubted influence of The Road to Serfdom, it may seem that the book’s central argument has been refuted by the experience of the twentieth century. Certainly, many governments, the UK being one example, adopted substantial interventionist policies without sliding all the way into totalitarianism.
Indeed, it was totalitarian states, such as fascist Germany and Italy, that returned to market economies and democratic government. Contra to Hayek’s thesis, it would seem that a mixed economy can be sustained for many decades without a descent into totalitarianism, whereas totalitarianism appears to be inherently unstable.
However, recent data published by the Centre for Economics and Business Research should give pause for thought to anyone uncritically accepting this analysis. In large parts of Britain the economy is now dominated by government: the proportion of regional GDP derived from state spending in Northern Ireland is now 77.6%; in Wales it is 71.6%; in the North East of England it is 66.4%; and in Scotland the figure is 60.3%.
By comparison, spending as a proportion of GDP in Nazi Germany was 34% and in Mussolini’s Italy it was 31% (1937 figures). This is not to suggest that these societies were in any way preferable to contemporary Britain, but it does show that in terms of the growth of the state parts of the UK are in unprecedented territory by international and historical comparison.
What is remarkable is that this enormous expansion of the economic role of the state has been achieved without the creation of the kind of totalitarian apparatus that Hayek believed would be necessary for the government to control even a relatively small proportion of economic activity. It can be argued that he did not foresee that power would be exercised in much more subtle way in the modern state. People do not have to be forced to pay income tax at gunpoint, for example; rather income tax is automatically removed from people’s salaries, leaving many barely aware of its extraction.
The Road to Serfdom remains a classic of political economy. But whereas it is has become commonplace to argue that Hayek overstated the inevitability of the slide from the mixed economy to totalitarianism, when we take into account the changing nature of power in the modern state, it may be the case that Hayek under-estimated the precariousness of free societies. When whole sectors of economic life can be nationalised without the need to mobilise the means of organised violence then freedom is in a truly perilous state.
Hayek argues that totalitarianism does not result from a dramatic or sudden change in the popularly accepted role of government. Rather, societies drift into totalitarianism as a result of a long series of seemingly minor, incremental expansions of government activity.
Step by step, well-meaning government interventions that may seek the amelioration of genuine social problems lead the citizens of a free society to accept an ever-greater role for the state until every sphere of human activity becomes government controlled. The more the logic of interventionism takes hold, the harder it is for that tide to be turned back towards freedom.
Despite the undoubted influence of The Road to Serfdom, it may seem that the book’s central argument has been refuted by the experience of the twentieth century. Certainly, many governments, the UK being one example, adopted substantial interventionist policies without sliding all the way into totalitarianism.
Indeed, it was totalitarian states, such as fascist Germany and Italy, that returned to market economies and democratic government. Contra to Hayek’s thesis, it would seem that a mixed economy can be sustained for many decades without a descent into totalitarianism, whereas totalitarianism appears to be inherently unstable.
However, recent data published by the Centre for Economics and Business Research should give pause for thought to anyone uncritically accepting this analysis. In large parts of Britain the economy is now dominated by government: the proportion of regional GDP derived from state spending in Northern Ireland is now 77.6%; in Wales it is 71.6%; in the North East of England it is 66.4%; and in Scotland the figure is 60.3%.
By comparison, spending as a proportion of GDP in Nazi Germany was 34% and in Mussolini’s Italy it was 31% (1937 figures). This is not to suggest that these societies were in any way preferable to contemporary Britain, but it does show that in terms of the growth of the state parts of the UK are in unprecedented territory by international and historical comparison.
What is remarkable is that this enormous expansion of the economic role of the state has been achieved without the creation of the kind of totalitarian apparatus that Hayek believed would be necessary for the government to control even a relatively small proportion of economic activity. It can be argued that he did not foresee that power would be exercised in much more subtle way in the modern state. People do not have to be forced to pay income tax at gunpoint, for example; rather income tax is automatically removed from people’s salaries, leaving many barely aware of its extraction.
The Road to Serfdom remains a classic of political economy. But whereas it is has become commonplace to argue that Hayek overstated the inevitability of the slide from the mixed economy to totalitarianism, when we take into account the changing nature of power in the modern state, it may be the case that Hayek under-estimated the precariousness of free societies. When whole sectors of economic life can be nationalised without the need to mobilise the means of organised violence then freedom is in a truly perilous state.
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What Hayek did not – and could not – foresee was the impact of technology and how this can be used by governments to control and monitor individual action.
What Hayek did not – and could not – foresee was the impact of technology and how this can be used by governments to control and monitor individual action.
Germany and Italy were defeated in a devastating world war; they did not just gradually get fed up with totalitarianism. Hayek said: ‘Where, as was … true in Germany as early as 1928, the central and local authorities directly control the use of more than half the national income … they control indirectly almost the whole economic life of the nation.’ Our political leaders seem to have few principles to guide them; hence ‘emergencies’ such as the War on Terrorism or the current Financial Crisis are used as excuses for very serious restrictions on individual freedom — which may turn out to be virtually impossible to reverse.
Germany and Italy were defeated in a devastating world war; they did not just gradually get fed up with totalitarianism. Hayek said: ‘Where, as was … true in Germany as early as 1928, the central and local authorities directly control the use of more than half the national income … they control indirectly almost the whole economic life of the nation.’ Our political leaders seem to have few principles to guide them; hence ‘emergencies’ such as the War on Terrorism or the current Financial Crisis are used as excuses for very serious restrictions on individual freedom — which may turn out to be virtually impossible to reverse.
David, I take your point, though the circumstances of the fall of Nazi Germany and Fascist Italy may still be examples of the intrinsic instability of totalitarianism if such regimes provoke military conflict that leads to their collapse – indeed, Mises makes this point in Liberalism. Having said that, the collapse of totalitarian/authoritarian regimes in Spain, Portugal, the former USSR, most of Eastern Europe and Argentina, inter alia, in the twentieth century would seem to give support to the general argument that totalitarianism is less stable than liberal democracy. The point of my post – and here I think we agree – is that the reality is more complex than what may appear at first sight.
David, I take your point, though the circumstances of the fall of Nazi Germany and Fascist Italy may still be examples of the intrinsic instability of totalitarianism if such regimes provoke military conflict that leads to their collapse – indeed, Mises makes this point in Liberalism. Having said that, the collapse of totalitarian/authoritarian regimes in Spain, Portugal, the former USSR, most of Eastern Europe and Argentina, inter alia, in the twentieth century would seem to give support to the general argument that totalitarianism is less stable than liberal democracy. The point of my post – and here I think we agree – is that the reality is more complex than what may appear at first sight.
“This is not to suggest that these societies were in any way preferable to contemporary Britain”
Surely “This is not to suggest that these societies were preferable to contemporary Britain” or “This is not in any way to suggest that these societies were preferable to contemporary Britain”?
“This is not to suggest that these societies were in any way preferable to contemporary Britain”
Surely “This is not to suggest that these societies were preferable to contemporary Britain” or “This is not in any way to suggest that these societies were preferable to contemporary Britain”?
“What is remarkable is that this enormous expansion of the economic role of the state has been achieved without the creation of the kind of totalitarian apparatus that Hayek believed would be necessary for the government to control even a relatively small proportion of economic activity.”
Not really. The new settlement is that people will be mostly free to operate their businesses (subject to regulation), but rather than trying to run businesses, the state uses their productivity to fund its projects. New Labour embrace capitalism (well, regulatory corporatism) to generate wealth so they can collect it as taxes.
“What is remarkable is that this enormous expansion of the economic role of the state has been achieved without the creation of the kind of totalitarian apparatus that Hayek believed would be necessary for the government to control even a relatively small proportion of economic activity.”
Not really. The new settlement is that people will be mostly free to operate their businesses (subject to regulation), but rather than trying to run businesses, the state uses their productivity to fund its projects. New Labour embrace capitalism (well, regulatory corporatism) to generate wealth so they can collect it as taxes.
They’re not setting prices or planning the part of the economy that remains free.
They’re not setting prices or planning the part of the economy that remains free.
The comparison between the extent of the state in the UK’s poorer regions at present and fascist countries 70 years ago is misleading.
The point of fascist economics is that, while de jeur private ownership of businesses continues, in practice all business decisions are dominated by the state: price controls eliminate competition and signals about demand, supply and scarcity; outputs are dictated by government; employment is centrally planned etc. As such all entrepreneurial functions are eliminated and the owners become mere managers, operating on behalf of government.
Mises made this point in Socialism, and in Interventionism he explained why government meddling cannot save capitalism
The comparison between the extent of the state in the UK’s poorer regions at present and fascist countries 70 years ago is misleading.
The point of fascist economics is that, while de jeur private ownership of businesses continues, in practice all business decisions are dominated by the state: price controls eliminate competition and signals about demand, supply and scarcity; outputs are dictated by government; employment is centrally planned etc. As such all entrepreneurial functions are eliminated and the owners become mere managers, operating on behalf of government.
Mises made this point in Socialism, and in Interventionism he explained why government meddling cannot save capitalism