Hayek Was Right

Friedrich Hayek's famous 1944 book, The Road to Serfdom, sets forth the proposition that freedom and economic planning are inconsistent. Hayek says that it is impossible to plan an economy without also taking charge of all matters of supply and demand, vagaries of price, and allocations of people to professions. The moment you can order someone to take up a profession, or not to, there can be no civil liberty left, for the distinction (often made by socialists and communists in the past) between economic and personal liberty is false.

Hayek's proposition feels intuitively correct to me. I have some experience projecting the revenues of an $80 million, 900 person business, and have learned how to do so fairly accurately, but have learned a few significant things along the way:

It is almost useless to plan more than a year out (you might get away with fifteen months); too much changes the further out you go, so that trying to project the year after next, except in very broad strokes, is meaningless.
The more granularity you attempt to get, the phonier the numbers; you might be in the ballpark trying to figure how much you will spend on MIS, but you probably won't be able to predict how many computers you will buy next year.
Important unexpected events are certain to happen that just can't be accounted for in advance; for example, in the past twelve months we opened two new offices that we had no idea about until the time was suddenly right to start them.
Projecting is not the same thing as planning, anyway; when we try to project, we are attempting to predict a complex confluence of circumstances; when you plan, you are assuming you can control the circumstances, which is not the same thing as merely trying to guess what will happen. For this reason we do projections in my company, not budgets.

Planning inevitably fails, but I think that Hayek's point is that we shouldn't want to do it even if it worked. What we would give up if we tried to regiment ourselves that much is too costly; we would turn ourselves into an ant colony, with no individuality left. Hayek would almost certainly not agree with Robert Frost's statement that "freedom is feeling easy in the harness."

Though I have noted before that Justice Holmes' "marketplace of ideas" metaphor for free speech leaves me vaguely queasy, it illustrates nicely the interplay between markets and democracy. A market is a clutter of votes, thousands of votes every fraction of a second on prices, quantities and value. Free marketplaces involve democratic choices of lifestyles, places, culture, affinities and ideas. Unplanned free markets are an underpinning of human liberty, and have been since the first prehistoric human traded something unwanted for something desired.

Hayek, in fact, seems to think of himself as a liberal, though he uses the term far differently than conservatives use it today. To him, and to me, a liberal is not a collectivist, not a believer in big interventive government, but a believer in the Mill-ian concept of liberty: that we each should be free to develop in whatever direction we please so long as we do not harm other people.

Hayek is usually quoted by conservatives and libertarians today, in support of their belief that Government is Bad, but Hayek actually believed that there are purposes served only by government. "The successful use of competition as the principle of social organization precludes certain types of coercive interference with economic life," he wrote, "but it admits of others which sometimes may very considerably assist its work and even requires certain kinds of government action." Vital acts which can be performed only by government include "adequate organizations of certain institutions like money, markets and channels of information", some of which "can never be adequately provided by private enterprise."

The fundamental problem of capitalism, which Hayek does not really address, is that powerful forces soon develop which desire to end market freedoms. The dreaded collectivism sought by socialists is eerily similar to the collectivism brought about by economic monopolies and deprivation of choice. What is the difference between a government-planned and controlled Soviet village, and the West Virginia coal mining company town, with rows of dreary identical company-owned houses and the company as the only employer, supplier of groceries, all other goods and medical services, and employer of the police? Since market forces and freedom are so closely linked, the fundamental problem of capitalism also becomes the gravest danger to democracy.