F. A. Hayek (1899–1992)

Summary: An argument that collectivist, planned economies lead to the erosion of individual liberties, the rule of law, and result in the rise of totalitarian governments.

It is probably not insignificant that F. A. Hayek, an economist who grew up and was educated in Austria, emigrated to England in 1938 and wrote this work during World War Two. He later moved to the United States. This book, less a work on economics than political philosophy, is an argument for the classic (not contemporary) show more liberal ideal that emphasized the rights and initiative of the individual, a limited role for government, a relatively unrestrained marketplace, and the rule of law. His basic argument is that the shift he was seeing from this liberal ideal to socialist, planned economies in England reflected the same course that he witnessed in the rise of National Socialism in Nazi Germany and Communism in the Stalinist Russia.

He argues that planned economies can never plan for all the variables of the marketplace, that those who buy and sell goods and services can more nimbly respond to. Planning undercuts the initiative of the individual and leads to increasingly authoritarian forms of government, required to enforce the efforts needed toward economic plans. Instead of seeking equality in liberty, the collectivist system achieves equality through restraint and servitude. These increasing coercive efforts result in the arbitrary use of authority rather than the rule of law. Paradoxically, even the poor are less free under such a system.

The question is who ultimately occupies the role of planners. Hayek offers a telling critique of the idea of the “common good,” which often remains undefined. And often, this happens to be the worst among us, those who are not constrained by moral restraints or concerns about truth. Perhaps the most chilling chapter in this work is the one titled, “The End of Truth,” reminding one of the “Post-truth era” in which we live. Authoritarian rulers develop their own myths to justify their rise to power and rule. Instead, all the channels used to spread knowledge are pressed into service to “strengthen the belief in the rightness of the decisions taken by the authority” (p. 175).

Hayek does allow a role for government in a capitalist economy, not in restricting trade but in regulating methods of legal production, sanitary and safe practices, the protection of environmental resources, and preventing fraud. He also allows a basic level of economic and health security as a concern of government.

It strikes me that Hayek’s fears of planned economies have not been realized in the socialist countries of Europe. My own sense is that what has occurred instead is an enlarged role of government to protect us from recessions, economic cycles, the consequences of shifts in the marketplace, and even personal misfortunes. This diminishment of the individual and dependency does leave us vulnerable to Hayek’s feared authoritarianism and the eclipse of the rule of law.

What troubles me in Hayek’s liberal ideal of individual liberty is that such systems are often blind to the inequities baked into the system, protecting individual liberty for only some who are citizens. Furthermore, these systemic inequities leave capitalist economies vulnerable to being supplanted by more planned economies that offer a vision of equality for the disadvantaged.

Nevertheless, Hayek’s critique of “planning,” of the rise of coercion, of the justification of means to achieve ends, the rise of authority and the suspension of rule of law, and the jettisoning of truth are all important to consider in our day. Hayek’s concern in looking at Nazi Germany was the recognition that it could happen in socialist England. While I suspect that there are more variant roads to totalitarian, Hayek’s recognition of the important elements of liberal democracy are worth attending to, as is the recognition that should we neglect these elements, it can happen here as well. show less

Hayek is a difficult and controversial subject for review. He and Milton Friedman are heroes to advocates of free market economics, and they are villains to others. I’ll say a little more about contemporary relevance at the end, but I’ll do my best to stay focused on Hayek’s thought as expressed in The Road to Serfdom.

Hayek originally wrote The Road to Serfdom during World War II, for a British audience. He was warning his readers that the seeds of Nazi Germany were not exclusively show more German, that the danger was widespread throughout England itself and was coming to fulfillment in the Soviet Union, in a different form but still from the same seeds.

The seeds that Hayek identified have to do with “central planning.” Actually he uses three terms, “socialism,” “collectivism,” and “central planning” to identify different perspectives on what he regards as a dangerous way of thinking about and organizing a nation’s economy.

“Planning” is, I think, the core concept. Hayek views planning or “central planning” as essential to socialism. The insight behind socialism, as he discusses it, is that a rational economy is a planned economy, one organized efficiently toward some end by a central governing power. Coercion then becomes, in Hayek’s view, as essential as planning itself, in so far as the aspirations and activities of individuals must, for planning to succeed, be subservient to the decisions of the central governing power.

Given the importance of planning as the object of Hayek’s thinking, we need to know what “planning” means. Hayek distinguishes two types of economic rules or legislation on economic matters. “Formal rules” are instrumental. They have to do with that system of laws that establish and maintain the playing ground of economic activity, rules of competition for example. In one illustration, Hayek refers to such instrumental rules as “rules of the road” analogous to rules for highways — speed limits, rights of way, etc.

By contrast to rules of the road there are rules that would prescribe destinations — call them rules pertaining to ends rather than means or instrumental rules. As opposed to rules regarding speed limits and rights of way, these would be rules regarding where one should travel.

The latter rules would constitute “planning” or “central planning” if they have to do with the direction of the economic activities of a state toward a chosen particular goal or a set of goals.

Note that the means of legislation is not the crux of the matter for Hayek. Although he certainly favors democratic institutions, rules can be legislated by democratic bodies, or they could be set in place by dictatorships. In either case, for this discussion what matters is their scope and whether they constitute planning. Hayek is not blind of course to the greater likelihood that a dictatorship (or a select group of decision-makers) will pursue ends of its own choosing as opposed to a democratic body reaching agreement on those ends. But he expresses his opposition to democratic bodies engaging in planning, just as he does for dictatorial governments doing so.

In understanding this point, keep in mind that Hayek is writing this book during the reign of Hitler in Germany, and that the question of whether Hitler’s rise to power and securing of broad governmental power was achieved legally and even democratically was in debate. It's also worthwhile to keep in mind that Hayek’s objections to planning may override the value he places on democratic self-determination when we consider his much later embrace of non-democratically established governments like Pinochet’s in Chile (and its overthrow of a democratically elected socialist government).

Overstepping formal rules to engage in planning could happen in lots of ways. The most straightforward, and the one that Hayek gives most attention to, is when governments take it upon themselves to plan, to organize economies toward particular goals. This is “state socialism.” He criticizes both the very idea of a government organizing the economy toward specific goals and what he regards as the emptiness or vagueness of goals such as “the common good” or “the general welfare.”

Other ways, though, in which central planning might develop involve exertion of influence by particular individuals or entities in their own interests, to serve their particular economic ends. Thus corporations or wealthy individuals who exert influence over the legislative process to further their own advantages and ends would be guilty of “planning.” That sort of corruption (or “crony capitalism”) isn’t Hayek’s concern so much in this book, but it does fit his conception of governmental overstepping, or ‘planning” by his terms, and results likewise in coercion of some to support the goals of others.

Of course, all government is in some sense coercive. Laws coerce behavior. But a contrast between central planning and how Hayek understands “liberalism” will help.

Remember that “liberalism” for Hayek is meant in its nineteenth century use, not in its current popular use, especially in American politics. “Liberalism” is an organization of economic behavior in which Individuals are left free to pursue their own ambitions in a competitive environment. It is not an entirely unplanned economy — that competitive environment is maintained by “a carefully thought out legal framework.”

The key elements are individualism and competition. Hayek is proposing a legally maintained arena of competitive individuals each pursuing their own ambitions and plans, as opposed to a centrally planned economy, rationally organized to some end (e.g., general welfare, a high standard of living, or, I suppose, simply an egalitarian distiribution of goods).

Hayek is not a proponent of laissez faire economics. In rejecting that term, he says, “An effective competitive system is an intelligently designed and continuously adjusted legal framework as much as any other.” The role he allots to government and the legal system is to assure that “competition should work beneficially.” Laws to regulate monopolistic power, barriers to entry to markets, manipulation of prices, etc. are all fair game, in so far as they promote competition as a “beneficial” engine of economic activity.

Nor does he exclude from that legal framework provisions for minimum wages and other labor-facing protections so long as they do the same, that is, promote competition as a beneficial force.

He also does not think that prices (and here he may disagree with Friedman) provide a universal mechanism for preventing and controlling such things as environmental damage (Hayek specificaly calls out deforestation) or other harmful effects of economic production. These, he says, do require other mechanisms, namely legal authority and regulation.

It’s worth pointing out some of these points on which Hayek favors government action, not only just to get his position correct, but also to dissociate him from others who may take more extreme positions. Hayek is not an opponent of the welfare state per se. As he says, “ . . . there can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everyone.” He would also include the provision of something he terms “social insurance” — “Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision.” He includes “sickness and accident” as examples.

He also discusses, in the same passage, the damages to individuals that arise from economic fluctuations. Hayek after all was writing in the aftermath of the Great Depression. He considers monetary policy interventions as well as large scale public works programs as measures that do not reach into the kind of planning he believes a threat to freedom, although he regards public works programs as experiments to be watched carefully.

He specifically rules out any kind of insurance or security that would protect individuals from a competitive loss of value in their trade or their products. That kind of intervention, like price or wage controls, he believes, would imperil the function of competition as the engine of free economic activity.

The key criteria that Hayek leans on to distinguish a healthy economic structure from an unhealthy one are competition and economic freedom (as distinct from central planning and coercion in the senses we’ve discussed).

Given that, let’s look more closely at Hayek’s central claim regarding freedom and coercion.

Hayek’s claim that central planning (“socialism” in his understanding of the term) inevitably leads to political fascism or totalitarianism is a claim about the interplay of political and economic freedom and power.

Hayek (and others) distinguish political freedom, e.g., the freedoms protected by the American Bill of Rights, from economic freedoms. The former provide for participation in self-determination (voting), speech or expression, etc. The latter provide for participation in specifically economic activities — buying, selling, practicing a trade, etc.

It is critical for Hayek that the two, economic and political power, are kept separate. Where political power assumes economic power, you have central planning and coercion.

The two are certainly distinguishable, but they also interact, even are entwined in practice. Hayek’s attention is more strongly focused on political power crossing the boundary to assume economic power. But the reverse is also dangerous.

In our own American system, the influence of economic power on political power is obvious. Manipulation of the rules of competition via political power, based on economic power, is in play. As is a vicious cycle in which economic power drives political power to tilt competition in the favor of powerful economic players (large companies), which contributes to gains for those players in economic terms, which drives more political influence, and so on. The kinds of political influence that economic players may exercise, it should be unnecessary to mention, include lobbying to push favorable legislation, influence over appointments to executive government positions, campaign finance and its regulation or deregulation, etc.

That argument in fact suggests a similar tendency to Hayek’s own argument for the inevitability of coercion in socialist economies, a tendency toward corruption in economies where economic and political power are not kept separate. In an economy grounded on competition, competitive advantage is prized. And if economic power, once attained, can be used to gain political power and skew the competitive playing field in someone’s favor, that’s presumably what they will do — an argument for the “inevitability” of corruption unless prevented by adequate laws or political structures like checks and balances.

So far as I see, Hayek does not address that danger here in this book, although his insistence on the separation of political and economic power implies its presence.

Bringing Hayek’s thinking here into the context of our own contemporary concerns is going to require close attention to the finer points of political and economic power relationships.

The boundary between harmful and beneficial economic regulation, or intervention in general isn’t always going to be clear. Hayek thinks that the engine that drives healthy economic activity is competition. Interventions that limit competition are harmful, and ones that promote competition are healthy. But it’s not always going to be clear which is which.

It’s also not clear that he would rule out public management of some areas of economic activity, where competition does not serve a beneficial purpose. Although, relevant to our contemporary concerns, it is clear that he sees some role for intervention in healthcare, for example, it’s not clear what that role is, whether it should be confined for example to catastrophic “social insurance” or something broader. And of course that’s for us to debate.

He does not favor government management of parts of the economy where monopolies develop organically, as in utilities where infrastructure investments or other factors favor the emergence of a dominant player. In such cases, he favors what he calls the “American” approach to regulation rather than public takeover.

Hayek himself doesn’t focus on these finer points of political and economic power in this book. At the time of writing this book, he was less concerned with the finer points than the larger ones — his concerns were more directly focused on Nazi Germany and the centrally planned economy of the Soviet Union.

He does mention, in a preface written later, economies like Sweden’s that do contain some elements of what he would consider central planning, and he warns that such countries will find their way inevitably to a broadening of central planning and coercion. Whether that is true of Sweden, for example, is something we could debate as well, although it seems a stretch to claim that Sweden is, or is on a trajectory toward, a totalitarian state.

Hayek’s own later work will fill in some holes from The Road to Serfdom, in particular, his theory of local knowledge and self-organization as the basis for stability in a competitive economy. That theory is also historically interesting in the light of Hayek’s peripheral participation in the Vienna Circle prior to World War II. The Vienna Circle, especially as influenced by Ludwig Wittgenstein (a second cousin to Hayek), often took anti-theoretical positions, the kinds that would support a rejection of the kind of knowledge presumed by central planning economic models.

Hayek mentions in The Road to Serfdom the claim that the kind of knowledge necessary to central planning is inaccessible, given the complexity and dynamism of a national economy, but he doesn’t flesh out his arguments here.

We could go on to much larger discussions of planning, economic and political freedom, competition, the “free market system”, the role of government, and more. I think, if you want to read something that furthers your thinking after reading Hayek, one contemporary book that would be helpful is Joseph Stiglitz’s recent book, The Road to Freedom. Stiglitz challenges Hayek’s notion of freedom, in fact arguing that that notion is unexamined and undeveloped, proposing his own conception of freedom as “opportunity sets.” He also challenges assumptions he believes necessary to the beneficial workings of a free market, assumptions not met by actual economies.

Hayek and Stiglitz are economists. If you want to pursue a more philosophical vein, Robert Nozick’s Anarchy, State, and Utopia is an updated (although now itself about 50 years old) argument for libertarianism and minimalistic government. And, by counterpoint to both Hayek and Nozick, John Rawls’ A Theory of Justice presents and defends a more active role for the state in providing for a just distribution of resources, while also respecting and enabling individualiastic life plans and conceptions of a good life. Rawls’ book is a classic and a touchstone for any modern discussion of political philosophy.

All grist for thought, and all the more needed at a time when political talk so far outpaces political thought. show less

Last year forced me to to see if I am hallucinating about the world or we truly (collectively to use phrase as cliche as it can be) want to implement the world out of the dystopian books and movies (which are, as I try to explain to people whole the time, warnings, not bloody blueprints!).

To be honest I was reluctant to pick this one up because (as I can see is general feeling among some reviewers that [tried to or fully] read the book) US republicans recommend it. So I expected some tirade show more related to socialism in general (you know kind of like US citizens get terrified when somebody says Sweden is social state (keep in mind I say social not socialist, difference is huge because I know socialist states, same first six characters but completely different thing)).

And how surprised was I by this book..

First, book is about the eternal conflict between state and individual. US citizens will never understand this because they never had this type of struggle and only pressure from federal government they get is for revenue purposes (I know I am simplifying but you gotta admit this is more or less only intrusion of big government).

While US was created using most enlightened political approaches at the time, Europe had to go through lots of motions not to mention bloody wars that sometimes lasted 30, sometimes 100 years, ferocity of which US [thankfully] cannot even imagine, until they reached the same state post-1945. During that period lots of things happened and it was not until two world wars in 20th century that Western Europe (and to a degree countries going eastward, towards Central Europe and border with Russia; Spanish for example had to wait additional 30 years) finally fully accepted libertarian democracy as a main mechanism for driving their societies forward (do note that up to 1914 there were a lot of monarchies, duchies and empires in Europe - although some were more enlightened than others they were very ruthless with dissidents).

At the time when this book was written (1944) UK was the most free society in the world (similar to US today). Mainland was held by one of the most oppressive regimes ever, Hitler's Nazi Germany. Further east another totalitarian state existed and at this time it was actively fighting Germany - USSR.

Author uses UK and as a contrast both Nazi Germany and USSR to show what are the traps and dangers when individual rights are replaced with eternal loyalty to the faceless and supreme-ruling body of numerous bureaucrats that live for only one reason - controlling and directing the others what to do (usually 99% of population).
If Hitler did not follow his racial policy (note that eugenics were popular all over the world at the time as was Italian style of state corporations) and caused horrors that will echo through eternity as vilest thing ever done, he would be just one more German dictator with world domination obsession. I shudder when I think what would happen then.

And this is where the core of the book lies - pointing to the dangers of totalitarian state and how easy it is for open free society to become totalitarian.

Written in a very clear and understandable way [and very German type of sentence that force you to pay attention and actually read, not skim the pages] author gives viewpoint as a European main-lander that emigrated to UK for a very reason of escaping the omnipotent state. Being an immigrant he saw things that prompted him to write the book (and believe me, immigrants usually almost immediately identify this type of things - main populace behaves like frogs in slowly boiling water while immigrants usually come to the new country running away from these horrors - this gives them unique view of the society dynamics).

What is worrisome, things he talks about are very much present today (and similarities are worrying to say the least):
- educational system that is very critical of its own society, very values and properties that enable that same educational system and provide means to professors and teachers to live and work - freely; so critical that everyone feels ashamed and just avoids talking about their own national prides. What is expected is constant mea-culpa and covering oneself with ashes .... always and forever which is stupid to say the least.
- elites/politicians that are weak, have great power and like to feel smart (hey we follow the science - sounds familiar eh?) and are not willing to give up their power once they obtain it (again, very familiar) so they look for ways to cling to it and if possible expand it. They have plans and everything is very clear (for them, others do not matter, they need to follow orders).
- people that are blunted by their everyday life, so attuned to the lies and corruption they do not react anymore (instead of acting in a constructive (accent on constructive) way). This makes them perfect mass for the maniacs in power to mold them.
- scientists that think they are able to think better for the masses, they will do everything right and cannot make mistake (heh! I was surprised this was trend in 1940's and by the looks of it even before, obviously when they think they hold the intellectual ground they tend to stay on the high-horse) - again similarities with modern times and last year in particular ..... terrifying
- humanist-science guys that draw inspiration from 18th/19th social movements whose ideals have more in common with ancient Sparta and Northern Korea today, highly militarized, closed societies, with rulers to whom purpose is everything, who think to manage the society by placing people like plant cogs where they are most effective (of course keeping managerial roles for themselves) and if they have no purpose ..... well Hitler's, Mussolini's and Stalin's state just erased them. I was horrified when I heard how UK intelligentsia said for Hitler that he is the worst but (semi-quote)might be the first one to find the way of handling the state and its populace for the future(/semi-quote)...... in 1940's......during the UK's gravest hour one of their sociologists says this.........what! But then again today we have actual destruction - for whatever reason, perceivable as good or bad- praised by everyone. So not that much different, right? It seems that approach violence-is-the-ultimate-leveler and we need strife, strife is always popular amongst revolutionaries (as can be seen these totalitarian states always need struggle, eternal struggle, otherwise people would start thinking and we cannot have that!)
- media that is under the state control, propaganda firing on all 8 cylinders, supporting the official story and blocking everyone else (again .... right, yeah? I don't want to repeat myself)
- new linguistic gymnastics to mess with peoples understanding of things and thus obfuscating what is actually going on
- industry monopolies that try to take over the free market and use state as an enforcement tool (again, bloody hell, social events are truly cyclic)

State and individual need to cooperate - latter needs to be able to progress and work on its goals, be resilient and independent, former needs to ensure physical escalations don't take place, that there are general rules of conduct between all parties involved and that poorest or in dire circumstances are taken care of. Author is not against social-welfare state as long it does not block its citizens from living normally and individually free.

State needs to protect its own citizens and citizens need to protect the state from external or internal enemies. There is always push-pull relationship here, state trying to gain more power, individual trying to get more freedom and independence. But this dynamic is what makes life of the citizen, from ancient Rome to modern times. They need to be in balance.

When state takes over the power and starts dictating the rules then problems arise. Hey, millions died of famine because we had 10 year plan to build industry - mainstream will say hey that was part of the project altogether, all good. You cannot question the plan or the planners. Otherwise everything goes down.
To make sure everyone believes in party line (what is called today mainstream media) there must be no doubt, there must be full loyalty and obedience. And this brings in force and oppression (because power [and trust] over constituency is lost - remember those drug-like-raids because household has 3 instead of 2 persons in? Bring down that door, throw in stun grenades and possibly deploy counter-terrorist forces - get them!), restrictions (taking care of older than X years, sorry maybe in 20 years, building roads to wherever is now priority) and colossal level of mind-twisting propaganda in media and education to ensure everyone is in line with the decision (whether they like it or not). Again... right? Right.

For this not to happen people need to be aware of the core values of their society, they need to cherish it and first and foremost they need to cherish the individual freedoms. Once this stops (and majority people have attention span of the golden fish and thinking is something majority also avoids) we are surrendering ourselves to the mercy of people of dubious moral quality (authors explanation how unscrupulous people tend to rule totalitarian societies is excellent) - once in power people tend to keep it and expand it, never relinquish it. And so grip is ever tightening.

Excellent book, might be tricky if you start reading with some preconceived notions and assumptions (I was guilty of this) but very soon it is clear that author is against omnipotent totalitarian (today somebody gives it a cutey-cute nickname nanny] state and wants people to be able to prosper on their own not to be limited on what they can do with their lives. How totalitarian state came to be - was it tsarist regime before, already militarized society or free state - does not matter. Once state starts with planning the life of its populace everything goes down because planning implies one idea for all and to pursue it there can be no discussion, there can be no debate, no doubt, there can only be execution. People that want to do the planning are usually those that think they cannot err, they think they know the best but forget (in my opinion intentionally) that coercion and enforcement of someones idea of how things are supposed to go makes prison out of state itself.

Btw on one of the comments that said author compares Nazis and Stalin's Communists as if they were the same....in 1940's they were almost identical in the way they expressed love to their populace, they had more common elements than differences, read any book on the period from 1917 to Stalin's death, he was running for all means and purposes a concentration camp, cutting heads left and right just for the fun of it (that eternal struggle, you cannot have anyone relaxing). When he died people thought it was just one of his elaborate plays to check their loyalty. Only through the Hitler's blunder and invasion of Russia Western allies got unexpected ally in the East that would prove to be a multiplying force that enabled two-side strike that finally ended the war. I don't want to think what would happen if Germany did not attack Russia when it did. show less

I recently read the short brochure “A Free-Market Monetary System,” a compilation of Friedrich A. Hayak’s 1974 Nobel Prize speech “A Pretense of Knowledge” and a short essay on proposing a free-market monetary system (hence, the name, see?). Both are short, and neither waste any time proposing radical changes to what was then, and indeed what is still, the status quo in monetary and economic policy.
Both the essay and the speech are worth reading.

In “A Free Market Monetary show more System,” Hayek warns that as long as central banks are in control of the money supply, we can expect to see the economic highs and lows that we have come to expect, better known as “bubbles” and “recessions.” Both are part of the market corrections that result when markets try to correct for artificial highs created by monetary policy in the control of a central bank.
Hayek’s recommendation? Let private enterprises issue their own money for circulation.

I am more convinced than ever that if we ever again are going to have decent money, it will not come from government: it will be issued by private enterprise, because providing the public with good money which ic can trust and use can not only be an extremely profitable business; it imposes on the issuer a discipline to which the government has never been and cannot be subject.

Get it? Rather than “Dollars,” we would buy, and spend, money that might be called something else. Nike “Swooshes,” perhaps, or American Express “credits.” The point is that business does not have a monopoly on money the way that government–i.e. central banks–does and therefore has a greater incentive to protect the integrity of that money from inflation and against other currencies by good policies. If it doesn’t, people won’t use it and it’s value will drop. (Can you hear the invisible hand clapping?)

“It is a business which competing enterprise can maintain only if it gives the public as good a money as anybody else,” said Hayek. Meanwhile, central banks have no such limits or restraints. Just ask Ben Bernanke.

Could it work? Would the government ever give up its control of the money supply?

Ha! Good one. Have you ever known the government to willingly give up any power?

For an interesting look at how an economy where private enterprise issues its own money, check out the speculative novel “The Unincorporated Man” by Dani Kollin and Eytan Kollin.
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The second part of the brochure is the text of ”A Pretense of Knowledge.” Hayek’s speech upon receiving the Nobel Prize for economics in 1974 (he shared the prize with Gunnar Myrdal for their work in “the theory of money and economic fluctuations and for their penetrating analysis of the interdependence of economic, social and institutional phenomena”) was a thunderhead of a critique of policies recommended by economists and implemented by governments that had, in his words, “made a mess of things.” He attributed the failure of economists to guide public policy more successfully to a “propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences[...]” That attempt, he said, “in our field may lead to outright error.” Economics is not an exact science, and the application of “habits of thought to fields different from those in which they have been formed” lead to a “‘scientistic’ attitude” that the unknowable is knowable.

Economies involve an “organized complexity” that is too deep for economic researchers to obtain. Speaking of wages and prices as an example, Hayek argues that “the determination of [prices and wages] will enter the effects of particular information possessed by every one of the participants in the market process–a sum of facts which in their totality cannot be known to the scientific observer, or to any other single brain.” What he is saying is that while my wife at the grocery store may know enough to decide whether one can of salsa is better priced than another–based on a list of criteria only she knows, including flavor, cost relative to other salsas, cost relative to other stores and whether it is worth driving to those other stores to get the salsa, as well as how much my daughters are fussing in the shopping cart to hurry, whether we need salsa at all, and so on–the observer, the economist or market researcher or whoever is watching, can never know all that goes into her mind.

Says Hayek:

"It is indeed the source of the superiority of the market order, and the reason why, when it is not suppressed by the powers of government, it regularly displaces other types of order, that in the resulting allocation of resources more of the knowledge of particular facts will be utilized which exists only dispersed among uncounted persons, than any one person can possess."

Only the market–the composite of my wife, and the hundreds of thousands (or millions) of shoppers out there can determine what the market value–the price–of the salsa should be.

This is why governments mess things up when they try to intervene. Whether it is propping up failing auto companies (go google “GM volt january 2012 sales” to find out that the company bailed out by Washington, D.C. sold a measly 603 Volts last month) or promoting and subsidizing “green” energy companies (for this only, google “Solyndra scandal” where even the New York Times admits that the government took risks that the market would not take. I wonder why the market wouldn’t risk it?), when government tries to pick winners better than the market, it inevitably fails or produces less success than the a free market.

This isn’t to say that economics is entirely unable to offer predictive power. Quite the contrary. It just can’t do so with the same ability as the “hard sciences,” such as physics, or chemistry.

Often all that we shall be able to predict will be some abstract characteristic of the pattern that will appear–relations between kinds of elements about which individually we know very little.[...] The danger of which i want to warn is precisely the belief that in order to have a claim to be accepted as scientific it is necessary to achieve more. This way lies charlatanism and worse. To act on the belief that that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which we do not possess, is likely to make us do much harm.

Neither the Members of Congress making laws, the President and his Executive Branch (proposing, executing, and, also, making laws), nor judges in their black robes know enough to out think the decisions of millions or billions of people that make up a market.

"But in the social field the erroneous belief that the exercise of some power would have beneficial consequences is likely to lead to a new power to coerce other men being conferred on some authority. Even if such power is not in itself bad, its exercise is likely to impede the functioning of those spontaneous ordering forces by which, without understanding them, man is in fact so largely assisted in the pursuit of his aims."

We may not always understand why the market chooses what it does, but in large part the market chooses, through spontaneity, that which helps man get what he wants.

In other words, Hayeks’ message to economists and policy makers is simple: get out of the way and let the market choose. It’s much smarter than you are. show less