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Thoughts on ‘The Road to Serfdom’: Chapter 3, “Individualism and Collectivism”

In Arts & Letters, Austrian Economics, Book Reviews, Books, Economics, History, Humane Economy, Humanities, Liberalism, Libertarianism, Philosophy, Politics, Western Civilization, Western Philosophy on September 16, 2013 at 7:45 am

Slade Mendenhall

Slade Mendenhall is an M.Sc. candidate in Comparative Politics at the London School of Economics, with specializations in conflict and Middle Eastern affairs. He holds degrees in Economics and Mass Media Arts from the University of Georgia and writes for The Objective Standard and themendenhall.com, where he is also editor.

This analysis is the fourth installment in a series of chapter analyses of Friedrich Hayek’s The Road to Serfdom. The previous analysis of Hayek’s introduction, Chapter I, and Chapter II can be found here, here, and here, respectively.

Hayek’s third chapter, “Individualism and Collectivism,” proves to be what our earlier analyses had anticipated: good on recognizing the economic benefits of liberalism, skilled at pointing out the flawed concepts and illogical thinking that facilitate and perpetuate socialism, and effective in arguing for certain basic fundamentals such as the necessity of an effective legal system, but slightly inadequate in its offering of better concepts, lacking in its defense of capitalism, and guilty of a borderline intrinsicist endorsement of ‘competition’, without treating that endorsement as premised upon the benefit rendered to man as an individual or, for that matter, any other more fundamental value.

The chapter begins with a valuable point as to the extent to which socialism has succeeded by distorting and disguising its own nature, with each socialist faction clinging to its chosen group or alleged beneficiary—a race, party, or class—and proclaiming that by virtue of its superficial differences in approach it is somehow different from all other varieties of statism. It thus exaggerates concrete matters of application, treating them as differences in fundamentals. Hayek repudiates this approach, pointing out that, regardless of the group they claim to represent, “the methods which [the socialists] shall have to employ are the same as those which could ensure an equalitarian distribution” (25). He goes on to acknowledge that “nearly all the points which are disputed between socialists and liberals concern the methods common to all forms of collectivism and not the particular ends for which socialists want to use them” (24), establishing that the basic objection of liberals to socialist policies apply to all socialist policies, not those of a certain type, as the conflict is fundamentally between individualism and collectivism.

Hayek’s shift of focus from political ideologies to the more fundamental dichotomy in all political theory is valid and much-needed in a world that so rarely thinks in terms of fundamentals anymore—both at the time of writing and today. What is lacking in this effort, however, is an explicit definition of ‘individualism’ and ‘collectivism.’ He implies, though does not expound upon, the idea that the collectivism is best thought of as a set of “methods which can be used for a great variety of ends,” seeing socialism “as a species of that genus” (25). While he is correct in viewing socialism as a subtype within a broader category of collectivist politics, collectivism itself is not fundamentally definable as a set of methods, but as an ideological framework.

The question that divides the two political philosophies of individualism and collectivism is one of standards of value. It asks, ‘Which is the primary unit for consideration in judging what is politically ‘good’?” Hayek’s failure to define the two concepts and their difference misses the opportunity to dispel the socialist misrepresentation of that dichotomy. Socialists, rather than seeing the question as one of standards of value and units for consideration, mischaracterize human affairs as a perpetual conflict between the individual and collective, accepting conflict as a necessary ingredient in social relationships, and, therefore, self-interest as fundamentally anti-social. They therefore view the question of individualism and collectivism as one of loyalty: “Individuals or the collective: whose side are you on?” Many defenders of socialism, having accepted this false notion of man’s life as perpetually in conflict, thus accept the morality of altruism that preaches that someone’s sacrifice is necessary and good for society to function, and accordingly defer to socialism for fear of being an enemy of an alleged ‘greater good.’

Other flaws punctuate Hayek’s challenge of socialism. The first is his failure to challenge socialists’ ends as goods to strive for. He describes their ends as a desire for “social justice, greater equality, and security” (24), but then sets upon his argument as to the impossibility of separating socialists’ means from the system itself, implicitly suggesting by his omission that their ends are indeed desirable. He writes, “There are many people who call themselves socialists although they care only about [the ideals of social justice, greater equality, and security], who fervently believe in those ultimate aims of socialism but neither care nor understand how they can be achieved, and who are merely certain that they must be achieved, whatever the cost” (24). The error in their reasoning that Hayek seems to imply lies in socialists’ disregard for the means by which they hope to achieve their ends. He does not, however, challenge the ends as such.

Hayek fails to challenge the concepts offered by socialists or to insist that they properly define their terms—what they mean by the bromides they use: social justice—by what standard of justice? equality—of rights or of results? security—from force, or from the facts of reality? Hayek leaves these questions unasked, thus leaving the socialists’ values uncontested and the socialists themselves with more apparent justification than they could ever deserve.

In tandem with this omission, he describes it as “unfair to use the term socialism to describe its methods rather than its aims, to use for a particular method a term which for many people stands for an ultimate ideal” (25). Though he does not elaborate upon this, it can easily be interpreted as a suggestion that some more peaceable socialists’ ends are well-intended—at least “for many people,” but that it is their means which are flawed. Despite his earlier insistence upon the essential connection between different apparent varieties of socialist, he apparently further accommodates the socialists’ ultimate values without challenge.

Hayek’s approach to the subject of planning offers some valuable insights that go to the heart of modern mainstream misunderstandings of liberal thought. “’Planning’”, he writes,

“owes its popularity largely to the fact that everybody desires, of course, that we should handle our common problems as rationally as possible, and that in so doing we should use as much foresight as we can command. In this sense everybody who is not a complete fatalist is a planner, every political act is (or ought to be) an act of planning, and there can be differences only between good and bad, between wise and foresighted and foolish and short-sighted planning” (26).

This distinction—that liberal policies advising against intervention are no less a deliberate form of planning than interventionism and no less based in a conscientious logic—is an important one in today’s world, as libertarian and capitalist ideas are moving more into the mainstream, being discussed more frequently in publications throughout the Western world, but still remain largely misunderstood by those who see liberals’ insistence upon letting the market work as some mysticist assumption ungrounded in empirical observation. Hayek highlights that they are indeed based in a strategic logic, but one that maintains a belief in the ability of markets to provide man’s needs.

From there, however, Hayek proceeds down a shakier path, again criticizing those who advocate laissez-faire capitalism and defining liberalism along strictly economic lines, making no reference to the fundamental values of liberals and showing his own liberalism as based primarily on a pragmatic approach. He writes,

“It is important not to confuse opposition against this kind of 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 co-ordinating human efforts, not an argument for leaving things just as they are. 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” (27).

He further argues that “where it is impossible to create the conditions necessary to make competition effective, we must resort to other methods of guiding economic activity” (27), supporting our understanding of his earlier defense of antitrust regulations.  His warning of the dangers of a mixed economy and the destructive effects of trying to combine liberalism and socialism is valid. However, he doesn’t clearly or adequately address the fact that the destructiveness of a mixed economy stems from its statist, coercive elements, and that while the leaders of private industry may use the coercive power of government to enrich themselves in such an economy, it is ultimately the force of government and the political principles it follows that allow the system to exist, enabling such injustices.

Instead, he poorly allocates the ultimate responsibility for a mixed economy, writing that

“the universal struggle against competition promises to produce in the first instance something in many respects even worse, a state of affairs which can satisfy neither planners nor liberals: a sort of syndicalist or ‘corporative’ organisation of industry, in which competition is more or less suppressed but planning is left in the hands of the independent monopolies of the separate industries… By destroying competition in industry after industry, this policy puts the consumer at the mercy of the joint monopolist action of capitalists and workers in the best organized industries” (30).

True though this description may be in some respects, its emphasis on private businessmen as the primary drivers of the process evades the fact of which side makes the whole collusion possible. Private businessmen of a certain kind—the kind that thrives not on productivity but on political pull—can and do act as the accelerants and perpetuators of a mixed economy. They cannot, however, bring it into being. The responsibility for that lies with a country’s political officials, whether in the legislative, executive, or judicial branch. It is through an abandonment of the legal principles of capitalism that businessmen and legislators have either the occasion or the cause to collude.

Hayek goes on to make several statements that will likely surprise strict adherents of liberalism, writing “Nor is the preservation of competition incompatible with an extensive system of social services—so long as the organisation of these services is not designed in such a way as to make competition ineffective over wide fields” (28), and endorsing the idea of naturally occurring market failures. “The functioning of competition,” he writes, “not only requires adequate organisation of certain institutions like money, markets, and channels of information—some of which can never be adequately provided by private enterprise“ (28), suggesting that such instances must be met by governments practicing “the very necessary planning which is required to make competition as effective and beneficial as possible” (31).

Ironically in the context of later debates between classical liberals and mainstream political culture, Hayek argues that roads offer an example of a good that cannot be provided by market forces. Thus, every liberal who has endorsed the potential for market provision of transportation services only to hear political moderates suddenly become crusaders for the transportation sector, passionately demanding “What about the roads?!” has Hayek to credit for endorsing this line of thinking.

Hayek goes on to even endorse broader regulations, with the sole cited criterion for judgment being whether the regulation distorts the market by treating producers differently, or whether it equally infringes upon all:

“Any attempt to control prices or quantities of particular commodities deprives competition of its power of bringing about an effective coordination of individual efforts, because price changes then cease to register all the relevant changes in circumstances and no longer provide a reliable guide for the individual’s actions. This is not necessarily true, however, of measures merely restricting the allowed methods of production, so long as these restrictions affect all potential producers equally and are not used as an indirect way of controlling prices and quantities” (27).

True, policies that apply equally across the board at least have the benefit of not being narrowly discriminatory in their oppression, but they also have the distinction of violating the rights of all producers. If an intrinsicist notion of “competition” and not rights, however, is the standard to be maintained, it is not surprising that Hayek lands at this conclusion.

If it can then be said, following the logic of Hayek, that some regulations are necessary, what is the standard for determining the conditions under which it is proper? He gives us an indication:

“Economic liberalism is opposed, however, to competition being supplanted by inferior methods of co-ordinating individual efforts. And it regards competition as superior not only because it is in most circumstances the most efficient method known, but even more because it is the only method by which our activities can be adjusted to each other without coercive or arbitrary intervention of authority” (27) [emphasis mine].

In this passage, Hayek reveals his defense of competition (and, thus, of economic freedom) as based on a belief in its superior abilities in coordination, its efficiency, and, almost tautologically, the fact that it does not involve coercive action. The last condition is an act of circular reasoning, as Hayek states, to word it differently, that a system not guided by coercive action is superior because it is not guided by coercive action, without referencing any particular standard of the good that would make such an argument functional. His other expressed standards, however, tell us something of his political values.

Elsewhere, he writes of the need for regulations “[t]o prohibit the use of certain poisonous substances, or to require special precautions in their use, to limit working hours or to require certain sanitary arrangements,” arguing that such use of preventive law “is fully compatible with the preservation of competition.”  One is then brought to wonder: if a regulation or any other use of preventive law can be said to promote competition, is there some other standard that it must meet, some other moral test it must pass to merit enforcement? Hayek would tell us there is not, writing that “The only question here is whether in the particular instance the advantages gained are greater than the social costs which they impose” (28) [emphasis mine].

We can thus see Hayek’s defense of liberalism as a largely pragmatic, utilitarian one and not one based soundly or primarily in a moral argument. In line with this, he pursues what can be interpreted as an intrinsicist approach to valuing “competition” and policies that promote it. Certainly, competition is a value agreed upon by all who value freedom in economics, but the failure to tie it back to what competition offers individuals and to root the defense of it in the political freedom and material well being it provides gives us only half a defense.

Competition is, after all, not a value in and of itself, but a process by which men can pursue their own self-interest, hindered only by their own limitations. In the words of Ayn Rand, “Competition is a by-product of productive work, not its goal.” Elsewhere, she elaborates

“The concept of free competition enforced by law is a grotesque contradiction in terms. It means: forcing people to be free at the point of a gun. It means: protecting people’s freedom by the arbitrary rule of unanswerable bureaucratic edicts… There is no way to legislate competition; there are no standards by which one could define who should compete with whom, how many competitors should exist in any given field, what should be their relative strength or their so-called “relevant markets,” what prices they should charge, what methods of competition are “fair” or “unfair.” None of these can be answered, because these precisely are the questions that can be answered only by the mechanism of a free market.”

Alan Greenspan, writing in his early years, makes a similar observation on the subject that may point out from where Hayek is deriving this emphasis on “competition”:

“Competition” is an active, not a passive, noun. It applies to the entire sphere of economic activity, not merely to production, but also to trade; it implies the necessity of taking action to affect the conditions of the market in one’s own favor.

“The error of the nineteenth-century observers was that they restricted a wide abstraction—competition—to a narrow set of particulars, to the “passive” competition projected by their own interpretation of classical economics. As a result, they concluded that the alleged “failure” of this fictitious “passive competition” negated the entire theoretical structure of classical economics, including the demonstration of the fact that laissez-faire is the most efficient and productive of all possible economic systems. They concluded that a free market, by its nature, leads to its own destruction—and they came to the grotesque contradiction of attempting to preserve the freedom of the market by government controls, i.e., to preserve the benefits of laissez-faire by abrogating it.” (“Antitrust”)

Whether this is in fact the context of Hayek’s focus on “competition” as the ultimate goal to be pursued is uncertain, but it reveals both a misplaced focus and, yet again, the propensity to look at matters of political ideology through the lens of economic reasoning, failing to adopt the necessary concepts to make an effective, complete defense of capitalism.

Along those same lines, even in those instances where Hayek seems to be on the right track, there is a conspicuous absence of concepts that one would expect from a defender of liberalism. For instance, he offers a valid argument on the need for legal structure in functioning capitalist systems, writing that competition “depends above all on the existence of an appropriate legal system, a legal system designed both to preserve competition and to make it operate as beneficially as possible” (28).  As true as this is, what is striking is that his assertion of the need for appropriate laws rests entirely upon the question of competition and effective operation, and not on any more fundamental principles or political values of a higher order.

Such navigating around the task of making principled arguments appears to be a recurring theme in The Road to Serfdom thus far. It is intriguing and disappointing that after an introduction and three chapters of Hayek, dealing with questions and issues as fundamental as the intervention of government in economics, individualism versus collectivism, and the dangers of socialism to a society, we have not once read the word “rights” in any of Hayek’s arguments. It is difficult to fathom how one could effectively address subjects that deal with such fundamental questions without even mentioning what are and are not man’s rights.

That Hayek has not even mentioned rights once suggests that the notion is so far outside of his intellectual framework as to not have occurred to him (doubtful), or that he has some aversion to a rights-based argument to freedom, or does not have a certain view himself as to what man’s rights are. Indeed, were he to be consistent as a skeptic, Hayek would be unable to maintain a consistent and objective notion of man’s rights, and would thus have to either advocate rights as floating abstractions not grounded in man’s nature, or resort to arguing that rights are debatable and subjective.

Hayek’s third chapter proves to be roughly what we expected: stronger and less contradictory than chapter one, but not as successful as chapter two. He occasionally makes valid points that we can translate into the present day. “The dispute about socialism,” he writes, in a passage that could be applied as truly to the statist elements of both parties in the United States in 2013 as to England in the 1940s, “has thus become largely a dispute about means and not about ends” (24). However, the pragmatic, utilitarian approach Hayek takes to counter it sounds much more like the moderate defenders of capitalism in the US today, Republicans who argue for “free markets” because they “work” without the slightest mention of their ethical superiority, than like the paragon of liberal intellectual thought that Hayek is portrayed to be. Whatever Hayek’s abilities as an economist supporting liberal economic policies—and they are remarkable—his force as a political theorist and defender of liberalism is lacking. In tandem with the author’s reputation as an economist, this deficiency threatens to encourage those who seek to defend liberty to invest too heavily in the wrong kind of argument, potentially crowding out more worthwhile ones. Just as in monetary economics “the bad money chases out the good”, so in political philosophy a chiseled, fool’s gold defense of freedom stands the risk of jeopardizing that which it seeks to uphold.

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