Big Economic Theory Underpinning Libertarian Economics Is Total Baloney
Friedrich Hayek argued that centralized economic planning would lead to totalitarianism, but that's totally wrong.
By Michael Coblenz / AlterNet February 2, 2015
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Since the 2014 midterm elections, Democrats have been trying to figure out what happened. There are probably dozens, if not hundreds, of reasons for the Democratic bloodbath. But one reason, in my opinion, is that Democrats never discuss, much less analyze, the fundamental theories of modern conservatism. As a result, erudite-sounding nonsense is passed off as wisdom, and sways an electorate grasping for answers. Republican calls for limited government find fertile ground with workers whose wages are stagnating.

One of the intellectual foundations of this idea of limiting government comes from an Austrian émigré economist named Friedrich A. Hayek, in his 1944 book The Road to Serfdom. Conservatives use that term as shorthand for the idea is that socialism and centralized economic planning don’t work and ultimately lead to totalitarianism, which ends up enslaving the people and impoverishing a nation. That idea taken alone isn’t necessarily wrong, but the theory actually takes a step back and says that any form of centralized economic planning, including government regulation of business, is the first step on the road to serfdom.

Hayek argued that government intervention almost always creates more problems than it fixes, and many current Republicans believe this as a matter of faith. Rand Paul mentions Hayek as one of the intellectual forefathers of his economic ideas and former vice-presidential candidate Paul Ryan discussed Hayek frequently on the campaign trail. Ryan is also notorious for giving copies of The Road to Serfdom to his staffers.


At the time Hayek wrote the book in the early 1940s, governments around the world were engaged in central economic planning. Russia had been collectivizing and devising “five-year plans,” for nearly two decades, and a number of Eastern European countries were following Russia’s lead. Germany had created a massive war machine through central planning. Beyond that, many Western democracies, including the United States and Britain, had instituted various degrees of centralized economic planning to help deal with the economic collapse of the Great Depression and then with the emergency of the second world war.

Hayek didn’t like what he was seeing in the west because it was too close to what he’d seen firsthand in Eastern Europe. He wrote the book as a warning that even small efforts at government control of the economy could cause changes in society that would eventually lead to collectivism, dictatorship, and ultimately, widespread poverty and suffering.

The book was a hit among conservatives in the United States, more so than in England. It neatly encapsulated their worst fears about government and the behavior of liberals. Hayek noted that starting in the 1930s there was “a complete change in the direction of the evolution of our ideas and social order.…We have progressively abandoned that freedom in economic affairs without which personal and political freedom has never existed in the past.”

This may have accurately reflected the existing political changes in the 1930s, but Hayek acts as if this was the end product of some nefarious liberal takeover of the economy. He largely ignored the events that caused this change, most notably the Great Depression.

Hayek said that collectivism was replacing individualism, and that was dangerous because the development of individualism “is closely associated with the growth of commerce. From the commercial cities of northern Italy the new view of life spread with commerce” throughout Europe, “taking firm root wherever there was no despotic political powers to stifle it.” But over the years many in society forgot this lesson, and as social problems arose many began to look to collective action. As this happened there was a “decline of the understanding of the way in which the free system worked, [and] our awareness of what depended on its existence also decreased.”

And so, step by step, society changed, resulting in “an entire abandonment of the individualist tradition which has created Western civilization.” Command economies also “replaced the… mechanism of the market by collective and ‘conscious’ direction of all social forces to deliberately chosen goals.”

Hayek then describes some of the problems with collectivism and central planning. “The common features of all collectivist systems may be described, in a phrase ever dear to socialists of all schools, as the deliberate organization of the labors of society for a definite social goal.”

It is not possible, according to Hayek, to simply control the economy. Government will eventually control every aspect of life. That is because ultimately a “conflict arises between individual freedom and collectivism.” Collectivism differs from “liberalism and individualism in wanting to organize the whole of society and all its resources for the unitary end and in refusing to recognize autonomous spheres in which the ends of the individuals are supreme.”

This happens step by step. First economic plans are made, then education has to be controlled to ensure the population learns the necessary information to achieve the economic goal, then government has to engage in propaganda to ensure that the population agrees with the centralized goal, then a strong police state must be instituted to round up and silence the dissenters, then democracy must be abandoned to ensure that those hostile to the plan aren’t elected.

Hayek’s point is that once you start central planning you can’t stop. This is because people get in the way, they don’t cooperate, they object, and so this “people problem” also has to be controlled. Freedoms are slowly stripped away, and then all freedom is lost. The end result is that planning, according to Hayek, inevitably leads to dictatorships.


“Most planners who seriously consider the practical aspects of their task have little doubt that a directed economy must be run on more or less dictatorial lines.” And this slide toward dictatorship is the crux of conservatives’ worst fears:

“The authority directing all economic activity would control not merely the part of our lives which is concerned with inferior things; it would control the allocation of the limited means for all our ends. And whoever controls all economic activity controls the means for all our ends and must therefore decide which are to be satisfied and which are not. This is really the crux of the matter. Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends.”

So, according to Hayek, once you allow a little control, you will always need more to make it work. Small planning inevitably leads to big planning, and protecting people from the vagaries of life eventually leads to people becoming dependent upon government. That is the idea that many of Hayek’s conservative followers fervently believe. And that is why they so fear any government involvement in the economy.

It’s an interesting theory, and given the state of the world in 1940, certainly one worth taking seriously. But how did Hayek do? As he noted at the beginning of the book, “we can in a measure learn from the past to avoid a repetition of the same process.” So what does the past, which was Hayek’s future, teach us about Hayek’s predictions?

The book was published during a worldwide trend toward central economic planning. Some of it was due to the rise of communism, some was the Western response to the Great Depression, and some was the rise of Fascists and their drive to world domination. So the book certainly fit the times. And, in the immediate aftermath of the war, many western European nations embraced cradle-to-grave welfare, nationalized industries, and created employment boards, and government managed industrial cartels. Many others fell behind the Iron Curtain, and had communism and totalitarianism imposed on them. It was a dark time, and Hayek’s ideas seemed prescient.

But by the early 1950s, economic conditions began to improve, particularly in Western Europe, and nations began to weaken government control of their economies. Some nationalized industries were sold off, many countries abandoned employment boards, others removed government control over industrial cartels. The Western world was not following Hayek’s model, and so he had to adapt. In a new introduction to the book in 1956, he admitted that no country had apparently taken his road to serfdom, and suggested that it wasn’t some kind of iron rule (though he’d been pretty adamant that it was).

"It 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 says. What it contains is a warning that unless we mend the principles of our policy, some very unpleasant consequences will follow which most of those who advocate there policies will not want."

He modified his argument to fit the new reality. Now he said that the first step on the road to serfdom was a “soft” socialism, in the form of government regulation of aspects of the economy, wealth-transferring welfare programs and high taxes to pay for it all. Hayek said that these programs would protect people from the consequences of their actions, which would erode individual initiative and make people increasingly dependent on a paternalistic government. (If this sounds familiar it’s because it could have come from the stump speech of virtually any recent or present-day Republican candidate for president.)

So how did this revised theory pan out? Well, again particularly in the West, as economic conditions began to improve in the late 1950s, and increasingly in the 1960s and into the 1970s, governments continued to scale back on their government control of the economy. The wave of nationalization of industries crested in the late 1960s, labor boards eliminated in the UK, and a wave of deregulation began in the United States. The tide of “centralized planning” receded. A few countries, particularly the Scandinavian countries of Northern Europe, retained exceedingly generous welfare programs, and the necessary high taxes, and retained some aspects of centralized planning, but they never abandoned democracy.

The United States never nationalized industries, but did have the War Production Board during World War II, which helped manage and coordinate industry to supply material for the war effort. It was abandoned in 1945. The United States did have a number of government management boards for various industries, like airlines and trucking, but those were eliminated during a wave of deregulation in the late 1970s. Banking and financial regulations were also scaled back in the 1990s (with a minor effort to re-regulate after the crash of 2008).


A number of countries in South America have lurched from incompetent socialist states to equally incompetent fascist and right-wing police states. And with recent examples of Venezuela and Bolivia, the lurching continues. But none have followed Hayek’s road from soft socialism to hard socialism to totalitarianism. Many Mideast countries have strange hybrid economies, with many large industries, particularly the petroleum industry, controlled by the government. Some provide government support for their citizens based on oil revenue, but they don’t have Western-style welfare systems. And they are largely autocratic, but none have embraced communism or even socialism.

Quite a few countries became communist at the end of the second world war, but that was a product of geography, not political or economic philosophy. Many nations in Eastern Europe fell behind the “Iron Curtain” and had communism and totalitarianism forced upon them. Essentially the same thing happened to North Korea and North Vietnam. And a few countries did become communist, particularly China, Cuba and Vietnam, but this was only after violent upheaval and civil war. So while these countries ended up as communist and totalitarian, they didn’t get there on Hayek’s "road."

How many countries in the last half-century have moved, as Hayek suggested, from soft socialism to totalitarianism? Precisely none.

Another aspect of Hayek’s theory was that once the communists or the collectivists take over, all is lost. They will institute totalitarianism and control the populace with an iron fist. And how has that worked in the intervening 60 years? Well, the vast majority of formerly communist countries have abandoned communism. And far from abandoning it in a bloody fight, with the commissars holding onto power with a bloody grip, as Hayek seems to imply, most of these countries sloughed it off with a shrug.

Russia did so in the late 1980s and early 1990s. The Berlin Wall came down in 1989 and most of the former Soviet Bloc countries behind the Iron Curtain abandoned communism. China allowed private ownership of property and businesses in 1978 in a move at market reform, and now it is one of the largest economies on earth. The government still exerts enormous economic control, and total political control, but it resembles nothing like what Hayek suggested. It is now more of a mercantilist country, like England in the 18th century. And most of the formerly communist countries of Asia, particularly Cambodia and Vietnam, have abandoned most of the economic aspects of communism, though they are far from free market capitalist economies, and certainly not democracies.

The last few remaining communist and totalitarian holdouts are North Korea, Cuba and Burma, though Cuba and Burma are slowly scaling back government control of the economy. Despite these efforts, the economies of both are complete basket cases, which is an insult to baskets. That leaves North Korea as the last communist dictatorship. But it had communism imposed on it at the end of WWII, so even it did not follow Hayek’s road.

In fact, around the world the road ran in the exact opposite direction as Hayek prophesied. Countries certainly did become socialist and communist, but it wasn’t the slow march Hayek predicted. A few countries elected socialist governments, but those never took over in the way Hayek predicted. And most of the countries with various forms of “soft” socialism—much of Europe—scaled many of these programs back. Certainly most European countries still have generous welfare programs and a high degree of government regulation of the economy, and many have government-controlled healthcare, but few still have widespread nationalized industries. And they are among the oldest democracies and the freest nations on earth.

There is no other way to say this: Hayek was wrong. He swung, and he missed. Nice try, though. Yet despite this, conservatives still bring him to the plate. He’s Paul Ryan’s lead-off hitter. Despite the fact that Hayek was completely wrong, conservatives still claim that liberal economic policy will lead us down the road to serfdom. Republican politicians say it, libertarian activists hold panel discussions about it, and conservative commentators allude to it.

So what does it mean that Hayek was so wrong in his predictions of the future? I know it’s easy for us to look back and criticize those from the past who get their predictions wrong. But let me suggest that the issue isn’t really fairness. The inability to predict the future indicates a flaw in the underlying theory. That’s how it works in science. A scientific theory is only considered valid to the extent that it accurately predicts future behavior. Galileo’s theory of gravity, for example, was that gravity applies equally to all bodies regardless of their weight or density, and that a falling body will speed up over time. Subsequent experiments proved Galileo correct. Newton based his gravitational theories on Galileo’s work, and scientists ever since can reliably predict the effect of gravity. NASA landed men on the moon with little more than calculus, slide rules and Newtonian physics. They were able to do it because Galileo and Newton were right, and the underlying theories were sound.

Shouldn’t political theories be subject to the same criteria? Shouldn’t they be judged based on how well they predict future events? Perhaps the test shouldn’t be as rigorous as in the physical sciences, because we’re dealing with messy and imperfect human affairs, but there should be some correlation between a prediction and actual events.


In The Road to Serfdom Hayek said that embracing socialism—government ownership of the means of production, pervasive social welfare programs—was the first step on the road to serfdom. And what happened? Not a single country has gone that direction. In fact, in the past 50 years almost exactly the opposite has happened. So what does that say about Hayek’s theory? In a word: wrong. But, more importantly, what does that say about modern conservatives who quote a fool and call him a sage? And what does it say about the liberals who let them get away with it?

What do you think/believe that those who agree with you can actually do about it? Republicans are currently emphasizing the wide income inequality by mentioning how it has continued to grow during the Obama administration, as if it is somehow a consequence of his policies and/or actions...



The saddest part is that many will hear that, and it's true by the way, and then infer that it is somehow Obama's fault, or think that Obama and other democrats haven't been attempting for years to get that exact issue addressed with legislation and/or out in the public arena. The duplicitous nature of the Republicans suddenly and purportedly 'taking a stance' against the growing income inequality and lack of mobility is sickening to anyone who knows about all of the different legislation that republicans have been involved in that essentially widens the gap and/or dismisses and rejects legislation that would help to close it.

ever stop to think it's something behind them both?

OP,you think you're qualified to tie Hayek's Shoelaces?
Or do you think that Hack on Alternet,Coblenz is?
You Guys lost!
End of Story!

Neither side has even taken a small sliver of Hayek's Advice,but are eager to blame their failed Policies on him!

BTW,what do you think Roosevelt and later Truman did with the Steelindustry,and luckily got foiled by SCOTUS?

Ah for Pete's sake...

What the hell is this supposed to mean? Looks like it's saying something meaningful but then when one stops to think, s/he realizes that nothing's really been said. The key term doesn't really have a referent. If I knew what "it's" was referring to, I would know what you're talking about, but as it stands the response doesn't make much sense at all.

I can only assume that "them both" is talking about the major American political parties(Republicans and Democrats).

If "it's" refers to...

1.)The wide gap in income, then what does it mean to say that the gap is "behind them both"? That makes no sense at all, so a charitable reader would grant the benefit of the doubt and conclude that that's not what you were saying.

2.)The (unspoken)cause of the income gap, and not the gap itself, then what exactly would it take for that to be the case? How could the cause of the income gap be "behind them both"?

So, if this is what you're saying, then by all means, help a brother out. I'm stopping to think about your reply, and the above pretty much sets it out.

Still can't make much sense of it. So, assuming that you have something more substantial to add here, I'd like to see you further explain what you're talking about.

lol, this is exactly the problem, and you don't want to see it... i hate liberals as much as you hate repubs, but i can see that both are wrong... you can waste your time blaming bush and all the other republicans, but until people can see that nothing changes no matter what party is in the white house, nothing will ever change for the better...


oh, BTW, I'll clarify "it" for you: the unseen, unnamed people/entities that do the controlling of the congress, president and senate... it's not about (R) or (D) anymore...

Wow. How you arrived at all that based upon what I've written here is beyond me. You'll just have to trust me when I say that you're wrong regarding everything you've said here about me and my mental ongoings.




That's all I asked. Not sure why you felt it appropriate to talk about me personally before you answered the question, but at least you eventually got around to it...

So, just so that I can be confident that I understand what you're saying, could you clarify for me? You are claiming that the widening gap in income between the uberwealthy and average everyday citizens is being caused by unseen, unnamed people that control congress and the president; that control what our government does concerning how to collect and redistribute money?

Prior to continuing, I'd like to ask, is that right thus far?

well, where is the money going? when corporations like exxon/mobile make roughly 30-50 billion dollars a quarter, and you blaming the republicans about it, doesn't seem to make a lot of sense to me...


your post: "The saddest part is that many will hear that, and it's true by the way, and then infer that it is somehow Obama's fault, or think that Obama and other democrats haven't been attempting for years to get that exact issue addressed with legislation and/or out in the public arena. The duplicitous nature of the Republicans suddenly and purportedly 'taking a stance' against the growing income inequality and lack of mobility is sickening to anyone who knows about all of the different legislation that republicans have been involved in that essentially widens the gap and/or dismisses and rejects legislation that would help to close it."

your blaming the republicans and saying how the democrats are trying so hard... Neither party gives a crap, and to try to glorify liberals is just sickening...

talking about you "personally"? i don't care about you, "personally", i care about people at least trying to have an open mind about things, but since you think everything is about you, i guess that is out of the question...

i just pointed out for you to stop playing the congress games, the right or left side, both are bad for the American people, as both only care about themselves and not me or you...

let me ask you this... what has changed since obama has been in office? what hasn't he lied about? are there jobs? has the economy improve visibly? percentage wise, everything is the same as when bush was in office...

and how much money is donated to campaign contributions? why would they donate that much money for nothing in return? democrat or republican, they both have to make good on their deals to the contributors, and i'm sure the banks, walmarts and exxon/mobiles have the peoples interest in heart...

I never mentioned Exxon/Mobile nor am I blaming Republicans, as if everything regarding the current income gap is their fault.




Again... Wow!

From what I've written, you've somehow concluded that I'm "blaming Republicans" and "glorify(ing) liberals"? While I suppose that that could be true of someone else who wrote exactly the same things, it isn't the only reasonable conclusion to draw and it most certainly does not count as an accurate summary of my own thoughts and/or actions here.

Some further considerations may help...

There's a big difference between "blaming" someone for the widening gap in income inequality and comparing what they say with their actions, especially when and if those actions influence the gap itself. That is basically what the paragraph in question was about. The current Republican talking points are emphasizing the income inequality gap and specifically pointing out that it has continued to increase exponentially during the Obama administration. That is a true statement about Republican behavior. It is also true that the income inequality gap has widened during Obama's time.

It is quite simply not true that the bigger gap is in any way shape or form an unavoidable consequence of Obama's policies or actions. In other words, Obama's policies cannot be the cause of it. However, that is exactly what Republican cable 'news' channels hope that the American people think/believe. That much is clearly supported by the fact that the Republican talking heads are implying and openly saying exactly that.


Blaming someone for something is often done flippantly, and without the speaker offering good reason for placing blame. A prima facie example of that is the Republicans currently trying to blame the Obama for the widening gap. So, how is the average person supposed to know what to believe, given so many different opinions being bandied about concerning the same subject matter?

Here's what I say...

When one is looking into the matter, one must examine what causes and or caused the gap. To figure out that much we have to look at all of the parts that make up the situation. You know the employers, workers, available jobs, pay rates, benefits, and the laws which govern these things. Which brings me to the following...

We know that part of what has allowed the gap to grow involves laws in place that govern taxation and redistribution, laws that govern employment, regarding both terms thereof and employee wages, and laws governing how business can be done. This last bit would include all of the trade agreements and such things as closing down American companies with American workers in order to move the entire operations overseas where the same employment laws that govern how you can operate a business within the states do not have to be followed.

So as can be seen by what I've briefly layed out here, the matter isn't a simple one, nor am I, nor do I think that something so simple as "blaming Republicans" and "glorifying democrats" can effectively set out what the problems actually are. Doing that certainly will not help to decrease the income gap and put more money into more people's hands who will spend it instead of hoard it. The former is always helpful, whereas the latter is quite harmful to the overall well being of a populace who's livelihood depends upon a strong economy. All else being equal, the more money being spent in our country, the better off the whole country and it's economy is.

Now, getting back to the underlying point, in an attempt to figure out what folk and what things have been instrumental in the growing income gap, one must look at any and all relevant things that factor into it.

Legislation is one of those things. Those who pass and those who reject any piece of legislation that had or would have had a direct effect upon the income inequality gap must be examined with a very critical lense, so to speak.

So, it seems to me that an astute reader will clearly recognize that there's also a big difference between what I am saying and your report thereof.



Do you not clearly see, understand, and admit that you have been and continue to talk about me? The above serves as prima facie evidence of just that. And yet again, I'm not sure why you think it is appropriate to make negative remarks about me based upon what you think that I think, but I can assure you that your report on my thoughts is not only wrong(because I do not think everything is about me), but it is also inappropriate and completely beside the relevant points being made.




The above assumes that I am "playing the congress games". I'm not even sure what "playing congress games" includes, but I can garuantee one thing for sure:In order to help create the situations and circumstances necessary for more Americans to have a bigger piece of the pie(earn more disposable income), we - as the American people - need to stand together in order to elect officals who are willing to make the necessary changes(by virtue of drafting and passing pieces of legislation) that will result in closing the income inequality gap.

Now, our government includes both, the Republican and the Democratic parties, so if talking about and being involved in our government, if examining the different factors of income inequality and the players involved(regardless of political affiliation) counts as "playing the congress games" then I'm guilty as charged, and I will continue to be:Happily, I might add.




Sarcasm doesn't work well in a strictly written medium.

I'm not seeing how your questions are relevant to what has caused or how to fix the widening income inequality gap.

All kinds of things have changed since Obama has been in office. Rather than get into all of that, it's better to isolate the things that directly matter to the problem at hand; the income inequality.

If you believe that Obama has lied about everything, then I'm afraid there's probably not much ground to be gained here, because if that is the case, it is abundantly clear to me that we do not agree on what counts as a lie.

"Percentage wise"...

What is that supposed to mean? Percentages of what exactly, and what part of Obama's term is being compared to what part of Bush's. More importantly, what does this have to do with the income inequality gap?

all that babble, and you've said exactly nothing... no, your not a republican hater, it's not your fault they block everything obama tries to do to keep our country great... i'm glad you see just how difficult obama and the rest of the liberals have it, trying so hard to make things better for us all, and those damn republicans just keep getting in the way... your just to smart for me creative, you have all the answers... go sit in your democratic doghouse, i'm sorry i even responded to you, you clearly know exactly whats going on...

damn republicans, they just can't see anything like you liberals, huh...

As if that is an appropriate response...

Some folk can back up what they say. Others cannot. The former can be said to know what they're talking about, the latter cannot.

I've backed up my claims.