The Road to Serfdom - Chapter 4 - The "Inevitability" of Planning
Posted by LionelHutz 10 years, 11 months ago to Books
Hayek makes a point that Socialists like to tell a story about WHY they espouse their central planning viewpoint.
So the story goes, they really don't want to take away individual freedom, you see. It's just that the world has gotten so much more complicated than it was many years ago, and all countries are now unfortunately FORCED into going down this path of centralized control. The populations are just too big. New technologies disrupt old politics. He calls this a lie.
According to the story, it is natural that monopolies developed during the industrial revolution. A company that first implemented industrial/mechanical means of production was able to drive unit costs down before their competitors. As competitors lost their customers to the first company, they also lost the revenue that would enable them to tool up and compete. In the end, a natural monopoly that socialists were happy to either direct the affairs of, or nationalize.
Hayek makes the point that others have looked at the "inevitability of monopoly" question and concluded:
P51
Monopoly is frequently the product of factors other than the lower costs of greater size. It is attained through collusive agreement and promoted by public policies. When these agreements are invalidated and when these policies are reversed, competitive conditions can be restored. An investigation of conditions in England would lead to very similar results. Anyone who has observed how aspiring monopolists regularly seek and frequently obtain the assistance of the power of the state to make their control effective can have little doubt that there is nothing inevitable about this development.
Just because a company is large and dominates their industry, it is no guarantee they will be at a competitive advantage for long. Anyone who has worked for a Fortune 100 company can tell you stories about amazing INEFFICIENCIES. A company may grow their business to the point of peak efficiency, and then keep growing into sub-optimal.
So, Hayek charges, the development of monopoly is not inevitable. Rather, it is simply desired (and often encouraged) by the Socialist. When one desires to plan out the national economy, there are thousands of variables at play. If the country just has ONE company in charge of an operation, it reduces the variables. An impossible situation appears managable. He points out England was a leader in the industrial revolution of the 1700s-1800s, and did not have a monopoly problem. Germany began a policy of economic planning with their industrial revolution in the late 1800s, and monopolies soon appeared. England, as it began to adopt German economic planning policies, soon had the same monopolies. The "inevitability of monopoly" has more to do with whether the country is run by Socialists then by disruptive technology.
Capitalism came first, and then Socialism. Out of the old Feudal order, Capitalism built up an economic system that is so complex Socialism cannot manage it unless it makes the system "simpler", by reducing the producers. He argues if Socialism were to come after Feudalism, it COULD NOT have produced the economy Capitalism already did, so why does one think its implementation will move a country forward? Capitalism simply allows more producers than Socialism. They coordinate their activities with optimal efficiency not because they are being directed. They simply go to the Market and look at the current price of goods and services. The market updates pricing, and producers adjust their behavior way faster than a planning committee can issue pricing or production dictates.
He then states why he thinks so many intelligent and scientific people advocate for Socialism.
P59
There is little question that almost every one of the technical ideals of our experts could be realized within a comparatively short time if to achieve them were made the SOLE AIM of humanity. There is an infinite number of good things, which we all agree are highly desirable as well as possible, but of which we cannot hope to achieve more than a few within our lifetime, or which we can hope to achieve only very imperfectly.
In other words, impatient visionaries see the force of government collecting taxes and spending them on THEIR singular goals as a fast way to realize dreams that may otherwise go unachieved in their lifetime. We see people pointing to the German Autobahn in Hayek's time, and the Moon Landing in ours. I can't tell you how many Billions we've spent on space telescopes and particle accelerators. Hayek admits: if a Socialist country devotes massive amount of taxpayer money to a goal, impressive goals are going to be reached. But he argues there has been a misdirection of resources. Everyone looks at the one thing that was accomplished. It is very hard to imagine the dozens of other things that may have been accomplished, but cannot be now. What was the lost opportunity cost of going to the Moon? Who can say?
So the story goes, they really don't want to take away individual freedom, you see. It's just that the world has gotten so much more complicated than it was many years ago, and all countries are now unfortunately FORCED into going down this path of centralized control. The populations are just too big. New technologies disrupt old politics. He calls this a lie.
According to the story, it is natural that monopolies developed during the industrial revolution. A company that first implemented industrial/mechanical means of production was able to drive unit costs down before their competitors. As competitors lost their customers to the first company, they also lost the revenue that would enable them to tool up and compete. In the end, a natural monopoly that socialists were happy to either direct the affairs of, or nationalize.
Hayek makes the point that others have looked at the "inevitability of monopoly" question and concluded:
P51
Monopoly is frequently the product of factors other than the lower costs of greater size. It is attained through collusive agreement and promoted by public policies. When these agreements are invalidated and when these policies are reversed, competitive conditions can be restored. An investigation of conditions in England would lead to very similar results. Anyone who has observed how aspiring monopolists regularly seek and frequently obtain the assistance of the power of the state to make their control effective can have little doubt that there is nothing inevitable about this development.
Just because a company is large and dominates their industry, it is no guarantee they will be at a competitive advantage for long. Anyone who has worked for a Fortune 100 company can tell you stories about amazing INEFFICIENCIES. A company may grow their business to the point of peak efficiency, and then keep growing into sub-optimal.
So, Hayek charges, the development of monopoly is not inevitable. Rather, it is simply desired (and often encouraged) by the Socialist. When one desires to plan out the national economy, there are thousands of variables at play. If the country just has ONE company in charge of an operation, it reduces the variables. An impossible situation appears managable. He points out England was a leader in the industrial revolution of the 1700s-1800s, and did not have a monopoly problem. Germany began a policy of economic planning with their industrial revolution in the late 1800s, and monopolies soon appeared. England, as it began to adopt German economic planning policies, soon had the same monopolies. The "inevitability of monopoly" has more to do with whether the country is run by Socialists then by disruptive technology.
Capitalism came first, and then Socialism. Out of the old Feudal order, Capitalism built up an economic system that is so complex Socialism cannot manage it unless it makes the system "simpler", by reducing the producers. He argues if Socialism were to come after Feudalism, it COULD NOT have produced the economy Capitalism already did, so why does one think its implementation will move a country forward? Capitalism simply allows more producers than Socialism. They coordinate their activities with optimal efficiency not because they are being directed. They simply go to the Market and look at the current price of goods and services. The market updates pricing, and producers adjust their behavior way faster than a planning committee can issue pricing or production dictates.
He then states why he thinks so many intelligent and scientific people advocate for Socialism.
P59
There is little question that almost every one of the technical ideals of our experts could be realized within a comparatively short time if to achieve them were made the SOLE AIM of humanity. There is an infinite number of good things, which we all agree are highly desirable as well as possible, but of which we cannot hope to achieve more than a few within our lifetime, or which we can hope to achieve only very imperfectly.
In other words, impatient visionaries see the force of government collecting taxes and spending them on THEIR singular goals as a fast way to realize dreams that may otherwise go unachieved in their lifetime. We see people pointing to the German Autobahn in Hayek's time, and the Moon Landing in ours. I can't tell you how many Billions we've spent on space telescopes and particle accelerators. Hayek admits: if a Socialist country devotes massive amount of taxpayer money to a goal, impressive goals are going to be reached. But he argues there has been a misdirection of resources. Everyone looks at the one thing that was accomplished. It is very hard to imagine the dozens of other things that may have been accomplished, but cannot be now. What was the lost opportunity cost of going to the Moon? Who can say?
