As I read this book, I bookmarked pages that I knew I would want to go back and refer to when I came to write about it here. I am somewhat dismayed that, looking back at the first page so marked, I cannot figure out what I thought was notable on that page. It is in the introduction, where Hayek is explaining how important it is to understand how National Socialism developed. He emphasizes that the atrocities committed by the Nazis were not because the Germans are worse people than others, but that it was the result of ideas that had taken root in their society decades earlier.
I have to admit that one of my biggest disappointments with the book is that I don’t think Hayek really did show much about how National Socialism developed. Here and there he make mention of certain names, though only sometimes does he actually quote them. But where I had expected to see a clear trail of dates, names, and writings or influential activities, I found mostly brief allusions, and those in no kind of order, or even grouped into a single chapter.
I suppose for those who read the book when it was first written, more of this would have been common knowledge. As I had never heard of most of those he mentions, however, I have no idea what kind of reputation any of them had. Hayek was trained as an economist, not a historian, so I can’t blame him for not writing as a historian might. But I felt that I knew little more about how National Socialism developed when I had finished the book than when I started.
I did find it enlightening, later in the book, to learn how highly the Germans valued a well-organized society. This, it seems to me from Hayek’s writing, was the initial idea of socialism. Not so much an economic system per se, it was a view of how the entire society ought to be structured. In contrast to the individualism of the English (and even more so the Americans), the Germans prided themselves on having organized their society so that everyone had a role, and a duty to fulfill that role for the greater good of Germany.
Understanding that, it is easier to see why ordinary Germans followed Hitler not only willingly but enthusiastically. While those backward English and Americans persisted in their individualism and competing among themselves, the Germans were going to show the world their superior way of cooperating in a scientifically designed and planned society.
It’s true, by the way, that competition does introduce some inefficiencies. When the corporation I work for acquires another company, they gradually integrate the acquired company’s computer systems into ours, and consolidate various functions. It is more efficient to have one payroll department then several, and this in one reason that acquiring another company makes financial sense – because the total costs of the combined company are less than both companies operating separately. (This is not true in every acquisition, but generally that is one goal in the merger.)
In the short run, costs do often fall when a large company buys up the competition. But in the long run, something valuable is lost when competition is reduced, because there is less motivation to find new and better ways to do things. In our competitive economy, our company is always developing and releasing now products, trying to keep ahead of similar efforts by our competition. We keep trying to find ways to improve our quality, reduce friction in the order process, reduce lead times, and generally make our company the most enjoyable to do business with.
If we were part of a large, structured economy organized from the top down, and we provided all that was needed of the product we make, we would have little incentive to innovate. Without competition, there would be no reason to work at coming up with new products unless we were told to. There would be little reason to worry about lead time or quality so long as we met the expectations of whoever was in charge. The people who actually used our product would be of little concern to us at all. It would be their duty to use our product, as it was ours to make it.
I think most of the world has realized that by now, which is why even Communist China allows a great deal of free enterprise. One reason that there is still so much debate about the proper role of the government is that our incredible level of prosperity makes the poverty that is still left in the world seem so unjust.
Hayek addresses this also. He points out how, starting with the Renaissance and building from there, people were free to think and act in new ways.
Wherever the barriers to the free exercise of human ingenuity were removed, man became rapidly able to satisfy ever widening ranges of desire. … We cannot do justice to this astonishing growth if we measure it by our present standards, which themselves result from this growth and now make many defects obvious. … by the beginning of the twentieth century the workingman in the Western world had reached a degree of material comfort, security, and personal independence which a hundred years before had seemed scarcely possible.
So much having already been achieved, it seemed that nothing should be impossible. With so much wealth in society, why should it not be possible to eradicate poverty altogether? That meant everyone having jobs, and how could you ensure that everyone got jobs except by coming up with a master plan for the economy? Everything that needed to be made would be made, everyone would have a role to play, and everyone would get what they needed.
It sounded good to many of Hayek’s contemporaries, and it sounds good to many people today also. In the sixth grade class where I taught sessions on global trade (as a Junior Achievement volunteer) last month, one boy asked why do we have money? I started to explain how using currency is superior to barter, but he wanted to know why do we need to sell things at all, just make things and let people have what they need.
It would have taken a lot more than the time I had in the classroom to fully answer that question, but I tried, together with the classroom teacher, who was better at coming up with examples from the students’ own experience. In a small group of highly motivated individuals it might work, but the larger the group, the more problems develop. Some people simply are going to do no more than they have to, and without sufficient incentive to work hard, they won’t. So either the work doesn’t get done, everyone ends up poorer because less is produced, even the ordinarily hardworking people no longer think it’s worth the effort, and only the threat of punishment can keep the system working.
One of Hayek’s major points is the importance of what he calls the Rule of Law. This does not mean only that society is governed by laws, but that the laws do not favor some individuals over others. Nor should laws favor certain groups in society over others. In our society we prohibit discrimination on the basis of race, religion, or any of an increasing number of personal characteristics. But when it comes to taxes and subsidies, I suspect Hayek would find quite a bit that violates this principle.
The problems with that, Hayek says, even aside from moral issues, is that once such laws are promulgated, then tend to proliferate. And one never knows when one will be passed that has a significant effect on one’s financial prospects. People only invest when they can reasonably expect a decent rate of return. And such expectations require that – other than “acts of God” or war – the future can be predicted at least in general outlines. If laws can be passed that could completely change the value of a prospective venture, few people will take the risk to invest in it.
In our own country, often it doesn’t take any new laws to make such changes. Various federal regulatory agencies have been given the power to write regulations that have the force of law. Often such regulations are written with the best of intentions, but end up having many unintended consequences. I think regulatory agencies have their place, but it’s difficult to keep them from expanding beyond that place. As with the desire to eradicate poverty, we have so successfully removed many dangers from our lives that it’s hard not to want to try regulate the rest out of existence.
There’s a great deal more I could say, as a few more of my bookmarks remind me. But this review covers much of it better than I could. If you’re interested in reading the book yourself, I will warn you that it is not an easy read, in my opinion. Hayek doesn’t use technical language, but his style is difficult for the modern reader. (I don’t know how it would have been considered in the 1940’s.) His long sentences (I found one sentence over 100 words long), stuffed with multiple subordinate clauses, would earn him low marks from composition teachers today.
There are some abridged versions available on the Web, and no doubt in print also. I haven’t looked at any of them, so I can’t tell you how they compare to the original in either readability or content.