A program whose basic thesis is, not that the system of free enterprise for profit has failed in this generation, but that it has not yet been tried.

—F. D. Roosevelt 1

When the course of civilization takes an unexpected turn—when, instead of the continuous progress which we have come to expect, we find ourselves threatened by evils associated by us with past ages of barbarism—we naturally blame anything but ourselves. Have we not all striven according to our best lights, and have not many of our finest minds incessantly worked to make this a better world? Have not all our efforts and hopes been directed toward greater freedom, justice, and prosperity? If the outcome is so different from our aims— if, instead of freedom and prosperity, bondage and misery stare us in the face—is it not clear that sinister forces must have foiled our intentions, that we are the victims of some evil power which must be conquered before we can resume the road to better things? However much we may differ when we name the culprit—whether it is the wicked capitalist or the vicious spirit of a particular nation, the stupidity of our elders, or a social system not yet, although we have struggled against it for half a century, fully overthrown—we all are, or at last were until recently, certain of one thing: that the leading ideas which during the last generation have become common to most people of good will and have determined the major changes in our social life cannot have been wrong. We are ready to accept almost any explanation of the present crisis of our civilization except one: that the present state of the world may be the result of genuine error on our own part and that the pursuit of some of our most cherished ideals has apparently produced results utterly different from those which we expected.

While all our energies are directed to bring this war to a victorious conclusion, it is sometimes difficult to remember that even before the war the values for which we are now fighting were threatened here and destroyed elsewhere. Though for the time being the different ideals are represented by hostile nations fighting for their existence, we must not forget that this conflict has grown out of a struggle of ideas within what, not so long ago, was a common European civilization and that the tendencies which have culminated in the creation of the totalitarian systems were not confined to the countries which have succumbed to them. Though the first task must now be to win the war, to win it will only gain us another opportunity to face the basic problems and to find a way of averting the fate which has overtaken kindred civilizations.

Now, it is somewhat difficult to think of Germany and Italy, or of Russia, not as different worlds but as products of a development of thought in which we have shared; it is, at least so far as our enemies are concerned, easier and more comforting to think that they are entirely different from us and that what happened there cannot happen here. Yet the history of these countries in the years before the rise of the totalitarian system showed few features with which we are not familiar. The external conflict is a result of a transformation of European thought in which others have moved so much faster as to bring them into irreconcilable conflict with our ideals, but which has not left us unaffected.

That a change of ideas and the force of human will have made the world what it is now, though men did not foresee the results, and that no spontaneous change in the facts obliged us thus to adapt our thought is perhaps particularly difficult for the Anglo-Saxon nations to see, just because in this development they have, fortunately for them, lagged behind most of the European peoples. We still think of the ideals which guide us, and have guided us for the past generation, as ideals only to be realized in the future and are not aware how far in the last twenty-five years they have already transformed not only the world but also our own countries. We still believe that until quite recently we were governed by what are vaguely called nineteenth-century ideas or the principle of laissez faire. Compared with some other countries, and from the point of view of those impatient to speed up the change, there may be some justification for such belief. But although until 1931 England and America had followed only slowly on the path on which others had led, even by then they had moved so far that only those whose memory goes back to the years before the last war know what a liberal world has been like. 2

The crucial point of which our people are still so little aware is, however, not merely the magnitude of the changes which have taken place during the last generation but the fact that they mean a complete change in the direction of the evolution of our ideas and social order. For at least twenty-five years before the specter of totalitarianism became a real threat, we had progressively been moving away from the basic ideas on which Western civilization has been built. That this movement on which we have entered with such high hopes and ambitions should have brought us face to face with the totalitarian horror has come as a profound shock to this generation, which still refuses to connect the two facts. Yet this development merely confirms the warnings of the fathers of the liberal philosophy which we still profess. We have progressively abandoned that freedom in economic affairs without which personal and political freedom has never existed in the past. Although we had been warned by some of the greatest political thinkers of the nineteenth century, by Tocqueville and Lord Acton, that socialism means slavery, we have steadily moved in the direction of socialism. 3 And now that we have seen a new form of slavery arise before our eyes, we have so completely forgotten the warning that it scarcely occurs to us that the two things may be connected. 4

How sharp a break not only with the recent past but with the whole evolution of Western civilization the modern trend toward socialism means becomes clear if we consider it not merely against the background of the nineteenth century but in a longer historical perspective. We are rapidly abandoning not the views merely of Cobden and Bright, of Adam Smith and Hume, or even of Locke and Milton, 5 but one of the salient characteristics of Western civilization as it has grown from the foundations laid by Christianity and the Greeks and Romans. Not merely nineteenth-and eighteenth-century liberalism, but the basic individualism inherited by us from Erasmus and Montaigne, from Cicero and Tacitus, Pericles and Thucydides, is progressively relinquished. 6

The Nazi leader who described the National Socialist revolution as a counter-Renaissance spoke more truly than he probably knew. It was the decisive step in the destruction of that civilization which modern man had built up from the age of the Renaissance and which was, above all, an individualist civilization. Individualism has a bad name today, and the term has come to be connected with egotism and selfishness. 7 But the individualism of which we speak in contrast to socialism and all other forms of collectivism has no necessary connection with these. Only gradually in the course of this book shall we be able to make clear the contrast between the two opposing principles. But the essential features of that individualism which, from elements provided by Christianity and the philosophy of classical antiquity, was first fully developed during the Renaissance and has since grown and spread into what we know as Western civilization—are the respect for the individual man qua man, that is, the recognition of his own views and tastes as supreme in his own sphere, however narrowly that may be circumscribed, and the belief that it is desirable that men should develop their own individual gifts and bents. “Freedom” and “liberty” are now words so worn with use and abuse that one must hesitate to employ them to express the ideals for which they stood during that period. “Tolerance” is, perhaps, the only word which still preserves the full meaning of the principle which during the whole of this period was in the ascendant and which only in recent times has again been in decline, to disappear completely with the rise of the totalitarian state.

The gradual transformation of a rigidly organized hierarchic system into one where men could at least attempt to shape their own life, where man gained the opportunity of knowing and choosing between different forms of life, is closely associated with the growth of commerce. From the commercial cities of northern Italy the new view of life spread with commerce to the west and north, through France and the southwest of Germany to the Low Countries and the British Isles, taking firm root wherever there was no despotic political power to stifle it. In the Low Countries and Britain it for a long time enjoyed its fullest development and for the first time had an opportunity to grow freely and to become the foundation of the social and political life of these countries. And it was from there that in the late seventeenth and eighteenth centuries it again began to spread in a more fully developed form to the West and East, to the New World and to the center of the European continent, where devastating wars and political oppression had largely submerged the earlier beginnings of a similar growth. 8

During the whole of this modern period of European history the general direction of social development was one of freeing the individual from the ties which had bound him to the customary or prescribed ways in the pursuit of his ordinary activities. The conscious realization that the spontaneous and uncontrolled efforts of individuals were capable of producing a complex order of economic activities could come only after this development had made some progress. The subsequent elaboration of a consistent argument in favor of economic freedom was the outcome of a free growth of economic activity which had been the undesigned and unforeseen by-product of political freedom.

Perhaps the greatest result of the unchaining of individual energies was the marvelous growth of science which followed the march of individual liberty from Italy to England and beyond. That the inventive faculty of man had been no less in earlier periods is shown by the many highly ingenious automatic toys and other mechanical contrivances constructed while industrial technique still remained stationary and by the development in some industries which, like mining or watch-making, were not subject to restrictive controls. But the few attempts toward a more extended industrial use of mechanical inventions, some extraordinarily advanced, were promptly suppressed, and the desire for knowledge was stifled, so long as the dominant views were held to be binding for all: the beliefs of the great majority on what was right and proper were allowed to bar the way of the individual innovator. Only since industrial freedom opened the path to the free use of new knowledge, only since everything could be tried—if somebody could be found to back it at his own risk—and, it should be added, as often as not from outside the authorities officially entrusted with the cultivation of learning, has science made the great strides which in the last hundred and fifty years have changed the face of the world.

As is so often true, the nature of our civilization has been seen more clearly by its enemies than by most of its friends: “the perennial Western malady, the revolt of the individual against the species,” as that nineteenth-century totalitarian, Auguste Comte, has described it, was indeed the force which built our civilization. 9 What the nineteenth century added to the individualism of the preceding period was merely to make all classes conscious of freedom, to develop systematically and continuously what had grown in a haphazard and patchy manner, and to spread it from England and Holland over most of the European continent.

The result of this growth surpassed all expectations. Wherever the barriers to the free exercise of human ingenuity were removed, man became rapidly able to satisfy ever widening ranges of desire. And while the rising standard soon led to the discovery of very dark spots in society, spots which men were no longer willing to tolerate, there was probably no class that did not substantially benefit from the general advance. 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. To appreciate what it meant to those who took part in it, we must measure it by the hopes and wishes men held when it began: and there can be no doubt that its success surpassed man’s wildest dreams, that 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.

What in the future will probably appear the most significant and far-reaching effect of this success is the new sense of power over their own fate, the belief in the unbounded possibilities of improving their own lot, which the success already achieved created among men. With the success grew ambition—and man had every right to be ambitious. What had been an inspiring promise seemed no longer enough, the rate of progress far too slow; and the principles which had made this progress possible in the past came to be regarded more as obstacles to speedier progress, impatiently to be brushed away, than as the conditions for the preservation and development of what had already been achieved.

There is nothing in the basic principles of liberalism to make it a stationary creed; there are no hard-and-fast rules fixed once and for all. The fundamental principle that in the ordering of our affairs we should make as much use as possible of the spontaneous forces of society, and resort as little as possible to coercion, is capable of an infinite variety of applications. There is, in particular, all the difference between deliberately creating a system within which competition will work as beneficially as possible and passively accepting institutions as they are. Probably nothing has done so much harm to the liberal cause as the wooden insistence of some liberals on certain rough rules of thumb, above all the principle of laissez faire. Yet, in a sense, this was necessary and unavoidable. Against the innumerable interests which could show that particular measures would confer immediate and obvious benefits on some, while the harm they caused was much more indirect and difficult to see, nothing short of some hard-and-fast rule would have been effective. And since a strong presumption in favor of industrial liberty had undoubtedly been established, the temptation to present it as a rule which knew no exceptions was too strong always to be resisted.

But, with this attitude taken by many popularizers of the liberal doctrine, it was almost inevitable that, once their position was penetrated at some points, it should soon collapse as a whole. The position was further weakened by the inevitably slow progress of a policy which aimed at a gradual improvement of the institutional framework of a free society. This progress depended on the growth of our understanding of the social forces and the conditions most favorable to their working in a desirable manner. Since the task was to assist, and where necessary to supplement, their operation, the first requisite was to understand them. The attitude of the liberal toward society is like that of the gardener who tends a plant and, in order to create the conditions most favorable to its growth, must know as much as possible about its structure and the way it functions.

No sensible person should have doubted that the crude rules in which the principles of economic policy of the nineteenth century were expressed were only a beginning—that we had yet much to learn and that there were still immense possibilities of advancement on the lines on which we had moved. But this advance could come only as we gained increasing intellectual mastery of the forces of which we had to make use. There were many obvious tasks, such as our handling of the monetary system and the prevention or control of monopoly, and an even greater number of less obvious but hardly less important tasks to be undertaken in other fields, where there could be no doubt that the governments possessed enormous powers for good and evil; and there was every reason to expect that, with a better understanding of the problems, we should some day be able to use these powers successfully.

But while the progress toward what is commonly called “positive” action was necessarily slow, and while for the immediate improvement liberalism had to rely largely on the gradual increase of wealth which freedom brought about, it had constantly to fight proposals which threatened this progress. It came to be regarded as a “negative” creed because it could offer to particular individuals little more than a share in the common progress—a progress which came to be taken more and more for granted and was no longer recognized as the result of the policy of freedom. It might even be said that the very success of liberalism became the cause of its decline. Because of the success already achieved, man became increasingly unwilling to tolerate the evils still with him which now appeared both unbearable and unnecessary. 10

Because of the growing impatience with the slow advance of liberal policy, the just irritation with those who used liberal phraseology in defense of antisocial privileges, and the boundless ambition seemingly justified by the material improvements already achieved, it came to pass that toward the turn of the century the belief in the basic tenets of liberalism was more and more relinquished. What had been achieved came to be regarded as a secure and imperishable possession, acquired once and for all. The eyes of the people became fixed on the new demands, the rapid satisfaction of which seemed to be barred by the adherence to the old principles. It became more and more widely accepted that further advance could be expected not along the old lines within the general framework which had made past progress possible but only by a complete remodeling of society. It was no longer a question of adding to or improving the existing machinery but of completely scrapping and replacing it. And, as the hope of the new generation came to be centered on something completely new, interest in and understanding of the functioning of the existing society rapidly declined; and, with the decline of the understanding of the way in which the free system worked, our awareness of what depended on its existence also decreased.

This is not the place to discuss how this change in outlook was fostered by the uncritical transfer to the problems of society of habits of thought engendered by the preoccupation with technological problems, the habits of thought of the natural scientist and the engineer, and how these at the same time tended to discredit the results of the past study of society which did not conform to their prejudices and to impose ideals of organization on a sphere to which they are not appropriate. 11 All we are here concerned to show is how completely, though gradually and by almost imperceptible steps, our attitude toward society has changed. What at every stage of this process of change had appeared a difference of degree only has in its cumulative effect already brought about a fundamental difference between the older liberal attitude toward society and the present approach to social problems. The change amounts to a complete reversal of the trend we have sketched, an entire abandonment of the individualist tradition which has created Western civilization.

According to the views now dominant, the question is no longer how we can make the best use of the spontaneous forces found in a free society. We have in effect undertaken to dispense with the forces which produced unforeseen results and to replace the impersonal and anonymous mechanism of the market by collective and “conscious” direction of all social forces to deliberately chosen goals. The difference cannot be better illustrated than by the extreme position taken in a widely acclaimed book on whose program of so-called “planning for freedom” we shall have to comment yet more than once. “We have never had to set up and direct,” writes Dr. Karl Mannheim, “the entire system of nature as we are forced to do today with society… . Mankind is tending more and more to regulate the whole of its social life, although it has never attempted to create a second nature.” 12

It is significant that this change in the trend of ideas has coincided with a reversal of the direction in which ideas have traveled in space. For over two hundred years English ideas had been spreading eastward. The rule of freedom which had been achieved in England seemed destined to spread throughout the world. By about 1870 the reign of these ideas had probably reached its easternmost expansion. From then onward it began to retreat, and a different set of ideas, not really new but very old, began to advance from the East. England lost her intellectual leadership in the political and social sphere and became an importer of ideas. For the next sixty years Germany became the center from which the ideas destined to govern the world in the twentieth century spread east and west. Whether it was Hegel or Marx, List or Schmoller, Sombart or Mannheim, whether it was socialism in its more radical form or merely “organization” or “planning” of a less radical kind, German ideas were everywhere readily imported and German institutions imitated. 13

Although most of the new ideas, and particularly socialism, did not originate in Germany, it was in Germany that they were perfected and during the last quarter of the nineteenth and the first quarter of the twentieth century that they reached their fullest development. It is now often forgotten how very considerable was the lead which Germany had during this period in the development of the theory and practice of socialism; that a generation before socialism became a serious issue in this country, Germany had a large socialist party in her parliament and that until not very long ago the doctrinal development of socialism was almost entirely carried on in Germany and Austria, so that even today Russian discussion largely carries on where the Germans left off. Most English and American socialists are still unaware that the majority of the problems they begin to discover were thoroughly discussed by German socialists long ago. 14

The intellectual influence which German thinkers were able to exercise during this period on the whole world was supported not merely by the great material progress of Germany but even more by the extraordinary reputation which German thinkers and scientists had earned during the preceding hundred years when Germany had once more become an integral and even leading member of the common European civilization. But it soon served to assist the spreading from Germany of ideas directed against the foundations of that civilization. The Germans themselves—or at least those among them who spread these ideas—were fully aware of the conflict: what had been the common heritage of European civilization became to them, long before the Nazis, “Western” civilization—where “Western” was no longer used in the old sense of Occident but had come to mean west of the Rhine. “Western” in this sense was liberalism and democracy, capitalism and individualism, free trade and any form of internationalism or love of peace.

But in spite of the ill-concealed contempt of an ever increasing number of Germans for those “shallow” Western ideals, or perhaps because of it, the people of the West continued to import German ideas and were even induced to believe that their own former convictions had merely been rationalizations of selfish interests, that free trade was a doctrine invented to further British interests, and that the political ideals of England and America were hopelessly outmoded and a thing to be ashamed of.

1 [Franklin D. Roosevelt, “Recommendations to the Congress to Curb Monopolies and the Concentration of Economic Power,” The Continuing Struggle for Liberalism, vol. 7 of The Public Papers and Addresses of Franklin D. Roosevelt (New York: Macmillan, 1941), p. 320. The address was delivered on April 29, 1938. Roosevelt lamented in the speech the concentration of power, or “collectivism,” in corporate America, and called for a reintroduction of a “democratic competitive order” through additional federal regulation of business. Hayek was more hopeful at this time for the future path of the United States relative to Britain regarding free enterprise. For more on this, see his remarks in “Planning, Science, and Freedom,” Nature, vol. 143, November 15, 1941, pp. 581–82, reprinted as chapter 10 of F. A. Hayek, Socialism and War: Essays, Documents, Reviews, op. cit., p. 219. —Ed.]

2 Even in that year the Macmillan Report could already speak of “the change of outlook of the government of this country in recent times, its growing preoccupation, irrespective of party, with the management of the life of the people” and add that “Parliament finds itself increasingly engaged in legislation which has for its conscious aim the regulation of the day-to-day affairs of the community and now intervenes in matters formerly thought to be entirely outside its scope.” This could be said before, later in the same year, England finally took the headlong plunge and, in the short space of the inglorious years 1931–39, transformed its economic system beyond recognition. [Hayek refers to the Committee on Finance and Industry Report, Cmd. 3897 (London: HMSO, 1931). The two passages Hayek quotes from are found on pages 4 and 4–5, respectively. The Committee, chaired by the British jurist Hugo Pattison Macmillan (1873–1952), was charged with discovering the causes behind and formulating remedies for England’s depressed economy; it also served as a venue in which J. M. Keynes challenged the “Treasury View.” —Ed.]

3 [For more on Acton and Tocqueville, see the foreword to the 1956 American paperback edition, notes 10 and 22, respectively. —Ed.]

4 Even much more recent warnings which have proved dreadfully true have been almost entirely forgotten. It is not yet thirty years since Hilaire Belloc, in a book which explains more of what has happened since in Germany than most works written after the event, explained that “the effect of Socialist doctrine on Capitalist society is to produce a third thing different from either of its two begetters—to wit, the Servile State.” [French-born British writer and poet Hilaire Belloc (1870– 1953), friend to G. K. Chesterton and writer of children’s verse, was also the author of The Servile State (1912; 2nd ed., London and Edinburgh: T. N. Foulis, 1913; reprinted, Indianapolis: Liberty Classics, 1977), from which the quote is drawn (p. 32). —Ed.]

5 [English politicians Richard Cobden (1804–1865) and John Bright (1811–1889), both prominent members of the Anti-Corn Law League, were persistent advocates for free trade in nineteenth-century England. Scottish political economist Adam Smith (1723–1790) extolled the system of natural liberty and decried mercantilist restrictions on trade in his classic work, An Inquiry into the Nature and Causes of the Wealth of Nations. Scottish philosopher and historian (and close friend of Adam Smith) David Hume (1711–1776) was the author of A Treatise of Human Nature, a central work in the empiricist tradition in British philosophy, and of the multivolume History of England. English philosopher John Locke (1632–1704), another member of the British empiricist tradition, enunciated the theory of the social contract in his Two Treatises of Government. English poet John Milton (1608–1674), author of Paradise Lost and Paradise Regained, also wrote pamphlets in support of the Commonwealth and of freedom of the press. —Ed.]

6 [Renaissance humanist and cosmopolitan scholar Desiderius Erasmus (1466–1536), “Erasmus of Rotterdam,” was the author of In Praise of Folly. French writer Michel Eyquem de Montaigne (1533–1592) introduced the essay as a literary form. In his essays he embraced a skeptical attitude toward what could be known and criticized those who held views dogmatically. Roman statesman and man of letters Marcus Tullius Cicero (106–43 BC) was famed for his oratorical skills; his Philippics against Mark Antony ultimately cost him his life. In his Annals and Histories, Roman historian Publius Tacitus (ca. 55–ca. 120) chronicled the Roman Empire in the first century. Under the reign of Athenian statesman Pericles (490–429 BC), architecture, sculpture, and theater in Athens flourished. Greek historian Thucydides (ca. 460–ca. 400 BC) was the author of History of the Peloponnesian War. —Ed.]

7 [Hayek criticized the view that individualism is necessarily associated with egoism and selfishness in his article, “Individualism: True and False,” op. cit. —Ed.]

8 The most fateful of these developments, pregnant with consequences not yet extinct, was the subjection and partial destruction of the German bourgeoisie by the territorial princes in the fifteenth and sixteenth centuries. [Hayek’s readers would have seen analogies between his historical references and the destruction of the influence of the bourgeoisie in Germany after World War I, when hyperinflation wiped out the savings of middle-class German bondholders and helped pave the way for Hitler’s rise. The extermination of the kulaks as Stalin consolidated his power was another analogue. —Ed.]

9 [Auguste Comte, Système de Politique Positive (1851–1854), vol. 4 (Paris: Librairie Positiviste, 1912), pp. 368–69. French philosopher and social theorist Auguste Comte (1798–1857) claimed that there are three stages of knowledge—the theological, metaphysical, and positive—with positive being the highest. Positive knowledge had been obtained in many natural sciences, and Comte argued that positivism should be introduced in the study of society. Hayek explicated and criticized Comte’s views in his essays “The Counter-Revolution of Science” and “Comte and Hegel,” op. cit. —Ed.]

10 [Hayek makes a similar argument in “The Trend of Economic Thinking,” op. cit. —Ed.]

11 The author has made an attempt to trace the beginning of this development in two series of articles on “Scientism and the Study of Society” and “The Counter-Revolution of Science,” which appeared in Economica, 1941–44. [Revisions of these essays appear in The Counter-Revolution of Science: Studies in the Abuse of Reason, op. cit., on pp. 17–182 and 183–363, respectively. —Ed.]

12 Karl Mannheim, Man and Society in an Age of Reconstruction: Studies in Modern Social Structure (London: Kegan Paul, 1940), pp. 175–176. [Hungarian-born sociologist Karl Mannheim (1893–1947) taught at Heidelberg and Frankfurt before fleeing to the LSE in 1933. Having been among the first academics dismissed under Hitler’s “Restoration of Civil Service Act” in March 1933, he was invited as a visiting professor under the auspices of the Academic Freedom Committee set up by Beveridge and his LSE colleagues. For more on this, see Ralf Darendorf, LSE: A History of the London School of Economics and Political Science, 1895–1995 (Oxford: Oxford University Press, 1995), pp. 286–87. Mannheim is remembered today chiefly for his contributions to the sociology of knowledge. —Ed.]

13 [German idealist philosopher Georg Wilhelm Friedrich Hegel (1770–1831) articulated the dialectical method in describing the evolution of consciousness and progression of history, which the revolutionary social theorist Karl Marx (1818–1883) placed within a materialist framework to predict the inevitable collapse of capitalism. In his book National System of Political Economy, German-born political economist Friedrich List (1789–1846) advocated trade protectionism. Many of his policy recommendations were also endorsed by the German historical school economists, of whom Gustav Schmoller (1838–1917) was a leader. Schmoller engaged in a Methoden-streit, or battle over methods, with Austrian School founder Carl Menger. Historian of the development of capitalism Werner Sombart (1863–1941) was perhaps the last of the historical school economists. Hayek would view his move from left-wing socialism toward anticapitalism of the fascist variety as exemplifying a natural tendency. —Ed.]

14 [For more on the German socialist tradition, see M. C. Howard and J. E. King, A History of Marxian Economics, Vol. I 1883–1914 (Princeton: Princeton University Press, 1989). One of Hayek’s goals in editing the volume, Collectivist Economic Planning, op. cit., was to inform his English readers of some key documents critical of the German-language socialist literature. —Ed.]