sociology of law

Hayek, Friedrich. 2001. The Road to Serfdom. Psychology Press.

https://cdn.mises.org/Road%20to%20serfdom.pdf

Read pages: 39-42, 45-46, 57-61

Learning goals:

1. Understand Hayek’s argument that liberal capitalist competition is the most efficient form of production and promoter of human individual freedom

a. central planning increases the power of the few over the many b. personal freedom is derived from decentralized production;

personal freedom is lost when production is centralized c. liberalism: where effective competition can be created, it is a

better way of guiding individual efforts than any other d. the state should “create conditions in which competition will be

as effective as possible, to prevent fraud and deception, to break up monopolies”

e. When liberal competition is combined with planning then competition loses efficiency

f. Socialism and planning promote arbitrary use of authority, which restricts freedom

g. planning is inefficient due to knowledge deficiencies of a central planner

Socialists = “They believe that our economic life should be ‘consciously directed’, that we should substitute ‘economic planning’ for the competitive system”

Planning and power

In order to achieve their ends the planners must create power – power over men wielded by other men – of a magnitude never before known.

Democracy is an obstacle to this suppression of freedom which the centralized direction of economic activity requires. Hence arises the clash between planning and democracy.

What is democracy for Hayek?

It is entirely fallacious to argue that the great power exercised by a central planning board would be ‘no greater than the power collectively exercised by private boards of directors’. There is, in a competitive society, nobody who can exercise even a fraction of the power which a socialist planning board would possess.

Point 1: central planning increases the power of the few over the many

To decentralize power is to reduce the absolute amount of power, and the competitive system is the only system designed to minimize the power exercised by man over man

Sidenote: ignores the possibility that “the central planning board” is democratically elected…

Point 2: personal freedom is derived from decentralized production; personal freedom is lost when production is centralized

Our generation has forgotten that the system of private property is the most important guarantee of freedom. It is only because the control of the means of production is divided among many people acting independently that we as individuals can decide what to do with ourselves. When all the means of production are vested in a single hand, whether it be nominally that of ‘society’ as a whole or that of a dictator, whoever exercises this control has complete power over us

The liberal way of planning

The dispute between the modern planners and the liberals is not on whether we ought to employ systematic thinking in planning our affairs. It is a dispute about what is the best way of so doing. The question is whether we should create conditions under which the knowledge and initiative of individuals are given the best scope so that they can plan most successfully; or whether we should direct and organize all economic activities according to a ‘blueprint’, that is, ‘consciously direct the resources of society to conform to the planners’ particular views of who should have what’.

Sidenote: the argument that all economic activity should be determined by the state is a strawman argument

Point 3: liberalism: where effective competition can be created, it is a better way of guiding individual efforts than any other

It is important not to confuse opposition against the latter kind of planning with a dogmatic laissez faire attitude. The liberal argument does not advocate leaving things just as they are; it favours making the best possible use of the forces of competition as a means of coordinating human efforts. It is based on the conviction that, where effective competition can be created, it is a better way of guiding individual efforts than any other. It emphasizes that in order to make competition work benefi cially a carefully thought-out legal framework is required, and that neither the past nor the existing legal rules are free from grave defects.

So what are the principles of this well thought-out legal framework for competition?

Point 4: the state should “create conditions in which competition will be as effective as possible, to prevent fraud and deception, to break up monopolies”

The successful use of competition does not preclude some types of government interference. For instance, to limit working hours, to require certain sanitary arrangements, to provide an extensive system of social services is fully compatible with the preservation of competition. There are, too, certain fi elds where the system of competition is impracticable. For example, the harmful effects of deforestation or of the smoke of factories cannot be confi ned to the owner of the property in question. But the fact that we have to resort to direct regulation by authority where the conditions for the proper working of competition cannot be created does not prove that we should suppress competition where it can be made to function. To create conditions in which competition will be as effective as possible, to prevent fraud and deception, to break up monopolies – these tasks provide a wide and unquestioned field for state activity.

Point 5: When liberal competition is combined with planning then competition loses efficiency

This does not mean that it is possible to find some ‘middle way’ between competition and central direction, though nothing seems at first more plausible, or is more likely to appeal to reasonable people. Mere common sense proves a treacherous guide in this field. Although competition can bear some mixture of regulation, it cannot be combined with planning to any extent we like without ceasing to operate as an effective guide to production.

Planning and competition can be combined only by planning for competition, not by planning against competition. The planning against which all our criticism is directed is solely the planning against competition.

Sidenote: this does not explain “the rise of China”

Point 6: liberalism and competition promote the rule of law (rule of law = absence of arbitrary authority; rule fixed and announced beforehand)

Planning vs. the Rule of Law

Nothing distinguishes more clearly a free country from a country under arbitrary government than the observance in the former of the great principles known as the Rule of Law. Stripped of technicalities this means that government in all its actions is bound by rules fixed and announced beforehand – rules that 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. Thus, within the known rules of the game, the individual is free to pursue his personal ends, certain that the powers of government will not be used deliberately to frustrate his efforts.

Point 7: Socialism and planning promote arbitrary use of authority, which restricts freedom

Socialist economic planning necessarily involves the very opposite of this. The planning authority cannot tie itself down in advance to general rules which prevent arbitrariness.

When the government has to decide how many pigs are to be raised or how many buses are to run, which coal-mines are to operate, or at what prices shoes are to be sold, these decisions cannot be settled for long periods in advance. They depend inevitably on the circumstances of the moment, and in making such decisions it will always be necessary to balance, one against the other, the interests of various persons and groups

In the end somebody’s views will have to decide whose interests are more important, and these views must become part of the law of the land.

…under central planning the government cannot be impartial. The state… becomes an institution which deliberately discriminates between particular needs of different people, and allows one man to do what another must be

prevented from doing. It must lay down by a legal rule how well off particular people shall be and what different people are to be allowed to have

The Rule of Law was consciously evolved only during the liberal age and is one of its greatest achievements. It is the legal embodiment of freedom. As Immanuel Kant put it, ‘Man is free if he needs obey no person but solely the laws.’

Point 8: planning is inefficient due to knowledge deficiencies of a central planner

Is planning ‘inevitable’?

There would be no diffi culty about effi cient control or planning were conditions so simple that a single person or board could effectively survey all the facts. But as the factors which have to be taken into account become numerous and complex, no one centre can keep track of them. The constantly changing conditions of demand and supply of different commodities can never be fully known or quickly enough disseminated by any one centre.

Under competition – and under no other economic order – the price system automatically records all the relevant data. Entrepreneurs, by watching the movement of comparatively few prices, as an engineer watches a few dials, can adjust their activities to those of their fellows.

Compared with this method of solving the economic problem – by decentralization plus automatic coordination through the price system – the method of central direction is incredibly clumsy, primitive, and limited in scope. It is no exaggeration to say that if we had had to rely on central planning for the growth of our industrial system, it would never have reached the degree of differentiation and fl exibility it has attained

In class activity:

Respond in 150 words:

Hayek asserts that the most free and efficient form of governance and law is a system that promotes capitalist competition. Why does he make this argument? In your opinion, to what extent is he correct or incorrect (i.e. is the only role of government and law to promote competition)?

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