We were the first to assert that the more complicated the forms assumed by civilization, the more restricted the freedom of the individual must become.
—Benito Mussolini 1
It is a revealing fact that few planners are content to say that central planning is desirable. Most of them affirm that we can no longer choose but are compelled by circumstances beyond our control to substitute planning for competition. The myth is deliberately cultivated that we are embarking on the new course not out of free will but because competition is spontaneously eliminated by technological changes which we neither can reverse nor should wish to prevent. This argument is rarely developed at any length—it is one of the assertions taken over by one writer from another until, by mere iteration, it has come to be accepted as an established fact. It is, nevertheless, devoid of foundation. The tendency toward monopoly and planning is not the result of any “objective facts” beyond our control but the product of opinions fostered and propagated for half a century until they have come to dominate all our policy.
Of the various arguments employed to demonstrate the inevitability of planning, the one most frequently heard is that technological changes have made competition impossible in a constantly increasing number of fields and that the only choice left to us is between control of production by private monopolies and direction by the government. This belief derives mainly from the Marxist doctrine of the “concentration of industry,” although, like so many Marxist ideas, it is now found in many circles which have received it at third or fourth hand and do not know whence it derives.
The historical fact of the progressive growth of monopoly during the last fifty years and the increasing restriction of the field in which competition rules is, of course, not disputed—although the extent of the phenomenon is often greatly exaggerated. 2 The important question is whether this development is a necessary consequence of the advance of technology or whether it is simply the result of the policies pursued in most countries. We shall presently see that the actual history of this development strongly suggests the latter. But we must first consider in how far modern technological developments are of such a kind as to make the growth of monopolies in wide fields inevitable.
The alleged technological cause of the growth of monopoly is the superiority of the large firm over the small, owing to the greater efficiency of modern methods of mass production. Modern methods, it is asserted, have created conditions in the majority of industries where the production of the large firm can be increased at decreasing costs per unit, with the result that the large firms are everywhere underbidding and driving out the small ones; this process must go on until in each industry only one or at most a few giant firms are left. This argument singles out one effect sometimes accompanying technological progress; it disregards others which work in the opposite direction; and it receives little support from a serious study of the facts. We cannot here investigate this question in detail and must be content to accept the best evidence available. The most comprehensive study of the facts undertaken in recent times is that by the Temporary National Economic Committee on the Concentration of Economic Power. The final report of this committee (which certainly cannot be accused of an undue liberal bias) arrives at the conclusion that the view according to which the greater efficiency of large-scale production is the cause of the disappearance of competition “finds scant support in any evidence that is now at hand.” 3 And the detailed monograph on the question which was prepared for the committee sums up the answer in this statement:
“The superior efficiency of large establishments has not been demonstrated; the advantages that are supposed to destroy competition have failed to manifest themselves in many fields. Nor do the economies of size, where they exist, invariably necessitate monopoly… . The size or the sizes of the optimum efficiency may be reached long before the major part of a supply is subjected to such control. The conclusions that the advantage of large-scale production must lead inevitably to the abolition of competition cannot be accepted. It should be noted, moreover, that 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.” 4
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.
This conclusion is strongly supported by the historical order in which the decline of competition and the growth of monopoly manifested themselves in different countries. If they were the result of technological developments or a necessary product of the evolution of “capitalism,” we should expect them to appear first in the countries with the most advanced economic system. In fact, they appeared first during the last third of the nineteenth century in what were then comparatively young industrial countries, the United States and Germany. In the latter country especially, which came to be regarded as the model country typifying the necessary evolution of capitalism, the growth of cartels and syndicates has since 1878 been systematically fostered by deliberate policy. Not only the instrument of protection but direct inducements and ultimately compulsion were used by the governments to further the creation of monopolies for the regulation of prices and sales. It was here that, with the help of the state, the first great experiment in “scientific planning” and “conscious organization of industry” led to the creation of giant monopolies, which were represented as inevitable growths fifty years before the same was done in Great Britain. It is largely due to the influence of German socialist theoreticians, particularly Sombart, generalizing from the experience of their country, that the inevitable development of the competitive system into “monopoly capitalism” became widely accepted. 5 That in the United States a highly protectionist policy made a somewhat similar development possible seemed to confirm this generalization. The development of Germany, however, more than that of the United States, came to be regarded as representative of a universal tendency; and it became a commonplace to speak—to quote a widely read political essay of recent date—of “Germany where all the social and political forces of modern civilization have reached their most advanced form.” 6
How little there was of inevitability in all this, and how much is the result of deliberate policy, becomes clear when we consider the position in England until 1931 and the development since that year in which Great Britain also embarked upon a policy of general protection. 7 It is only a dozen years since, except for a few industries which had obtained protection earlier, British industry was on the whole as competitive as, perhaps, at any time in its history. And, although during the 1920s it suffered severely from incompatible policies followed with regard to wages and to money, at least the years up to 1929 compare with regard to employment and general activity not unfavorably with the 1930s. It is only since the transition to protection and the general change in British economic policy accompanying it that the growth of monopolies has proceeded at an amazing rate and has transformed British industry to an extent the public has scarcely yet realized. To argue that this development has anything to do with the technological progress during this period, that technological necessities which in Germany operated in the 1880s and 1890s, made themselves felt here in the 1930s, is not much less absurd than the claim, implied in a statement of Mussolini, that Italy had to abolish individual freedom before other European people because its civilization had marched so far in advance of the rest!
In so far as England is concerned, the thesis that the change in opinion and policy merely follows an inexorable change in the facts can be given a certain appearance of truth, just because the nation has followed at a distance the intellectual developments elsewhere. It could thus be argued that monopolistic organization of industry grew up in spite of the fact that public opinion still favored competition but that outside events frustrated their wishes. The true relation between theory and practice becomes, however, clear as soon as we look to the prototype of this development—Germany. That there the suppression of competition was a matter of deliberate policy, that it was undertaken in the service of the ideal which we now call planning, there can be no doubt. In the progressive advance toward a completely planned society the Germans, and all the people who are imitating their example, are merely following the course which nineteenth-century thinkers, particularly Germans, have mapped out for them. The intellectual history of the last sixty or eighty years is indeed a perfect illustration of the truth that in social evolution nothing is inevitable but thinking makes it so.
The assertion that modern technological progress makes planning inevitable can also be interpreted in a different manner. It may mean that the complexity of our modern industrial civilization creates new problems with which we cannot hope to deal effectively except by central planning. In a sense this is true— yet not in the wide sense in which it is claimed. It is, for example, a commonplace that many of the problems created by a modern town, like many other problems caused by close contiguity in space, are not adequately solved by competition. But it is not these problems, like those of the “public utilities,” etc., which are uppermost in the minds of those who invoke the complexity of modern civilization as an argument for central planning. What they generally suggest is that the increasing difficulty of obtaining a coherent picture of the complete economic process makes it indispensable that things should be coordinated by some central agency if social life is not to dissolve in chaos.
This argument is based on a complete misapprehension of the working of competition. Far from being appropriate only to comparatively simple conditions, it is the very complexity of the division of labor under modern conditions which makes competition the only method by which such coordination can be adequately brought about. There would be no difficulty about efficient control or planning were conditions so simple that a single person or board could effectively survey all the relevant facts. It is only as the factors which have to be taken into account become so numerous that it is impossible to gain a synoptic view of them that decentralization becomes imperative. But, once decentralization is necessary, the problem of coordination arises—a coordination which leaves the separate agencies free to adjust their activities to the facts which only they can know and yet brings about a mutual adjustment of their respective plans. As decentralization has become necessary because nobody can consciously balance all the considerations bearing on the decisions of so many individuals, the coordination can clearly be effected not by “conscious control” but only by arrangements which convey to each agent the information he must possess in order effectively to adjust his decisions to those of others. And because all the details of the changes constantly affecting the conditions of demand and supply of the different commodities can never be fully known, or quickly enough be collected and disseminated, by any one center, what is required is some apparatus of registration which automatically records all the relevant effects of individual actions and whose indications are at the same time the resultant of, and the guide for, all the individual decisions.
This is precisely what the price system does under competition, and which no other system even promises to accomplish. It enables entrepreneurs, by watching the movement of comparatively few prices, as an engineer watches the hands of a few dials, to adjust their activities to those of their fellows. The important point here is that the price system will fulfill this function only if competition prevails, that is, if the individual producer has to adapt himself to price changes and cannot control them. The more complicated the whole, the more dependent we become on that division of knowledge between individuals whose separate efforts are coordinated by the impersonal mechanism for transmitting the relevant information known by us as the price system.
It is no exaggeration to say that if we had had to rely on conscious central planning for the growth of our industrial system, it would never have reached the degree of differentiation, complexity, and flexibility it has attained. Compared with this method of solving the economic problem by means of decentralization plus automatic coordination, the more obvious method of central direction is incredibly clumsy, primitive, and limited in scope. That the division of labor has reached the extent which makes modern civilization possible we owe to the fact that it did not have to be consciously created but that man tumbled on a method by which the division of labor could be extended far beyond the limits within which it could have been planned. Any further growth of its complexity, therefore, far from making central direction more necessary, makes it more important than ever that we should use a technique which does not depend on conscious control.
There is yet another theory which connects the growth of monopolies with technological progress, and which uses arguments almost opposite to those we have just considered; though not often clearly stated, it has also exercised considerable influence. It contends not that modern technique destroys competition but that, on the contrary, it will be impossible to make use of many of the new technological possibilities unless protection against competition is granted, i.e., a monopoly is conferred. This type of argument is not necessarily fraudulent, as the critical reader will perhaps suspect: the obvious answer— that if a new technique for satisfying our wants is really better, it ought to be able to stand up against all competition—does not dispose of all instances to which this argument refers. No doubt in many cases it is used merely as a form of special pleading by interested parties. Even more often it is probably based on a confusion between technical excellence from a narrow engineering point of view and desirability from the point of view of society as a whole.
There remains, however, a group of instances where the argument has some force. It is, for example, at least conceivable that the British automobile industry might be able to supply a car cheaper and better than cars used to be in the United States if everyone in England were made to use the same kind of car or that the use of electricity for all purposes could be made cheaper than coal or gas if everybody could be made to use only electricity. In instances like these it is at least possible that we might all be better off and should prefer the new situation if we had the choice—but that no individual ever gets the choice, because the alternative is either that we should all use the same cheap car (or all should use only electricity) or that we should have the choice between these things with each of them at a much higher price. I do not know whether this is true in either of the instances given. But it must be admitted that it is possible that, by compulsory standardization or the prohibition of variety beyond a certain degree, abundance might be increased in some fields more than sufficiently to compensate for the restriction of the choice of the consumer. It is even conceivable that a new invention may be made some day whose adoption would seem unquestionably beneficial but which could be used only if many or all people were made to avail themselves of it at the same time.
Whether such instances are of any great or lasting importance, they are certainly not instances where it could be legitimately claimed that technical progress makes central direction inevitable. They would merely make it necessary to choose between gaining a particular advantage by compulsion and not obtaining it—or, in most instances, obtaining it a little later, when further technical advance has overcome the particular difficulties. It is true that in such situations we may have to sacrifice a possible immediate gain as the price of our freedom—but we avoid, on the other hand, the necessity of making future developments dependent upon the knowledge which particular people now possess. By sacrificing such possible present advantages, we preserve an important stimulus to further progress. Though in the short run the price we have to pay for variety and freedom of choice may sometimes be high, in the long run even material progress will depend on this very variety, because we can never predict from which of the many forms in which a good or service can be provided something better may develop. It cannot, of course, be asserted that the preservation of freedom at the expense of some addition to our present material comfort will be thus rewarded in all instances. But the argument for freedom is precisely that we ought to leave room for the unforeseeable free growth. It applies, therefore, no less when, on the basis of our present knowledge, compulsion would seem to bring only advantages, and although in a particular instance it may actually do no harm.
In much of the current discussion on the effects of technological progress this progress is presented to us as if it were something outside us which could compel us to use the new knowledge in a particular way. While it is true, of course, that inventions have given us tremendous power, it is absurd to suggest that we must use this power to destroy our most precious inheritance: liberty. It does mean, however, that if we want to preserve it, we must guard it more jealously than ever and that we must be prepared to make sacrifices for it. While there is nothing in modern technological developments which forces us toward comprehensive economic planning, there is a great deal in them which makes infinitely more dangerous the power a planning authority would possess.
While there can thus be little doubt that the movement toward planning is the result of deliberate action and that there are no external necessities which force us to it, it is worth inquiring why so large a proportion of the technical experts should be found in the front rank of the planners. The explanation of this phenomenon is closely connected with an important fact which the critics of the planners should always keep in mind: that 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. It is the frustration of his ambitions in his own field which makes the specialist revolt against the existing order. We all find it difficult to bear to see things left undone which everybody must admit are both desirable and possible. That these things cannot all be done at the same time, that any one of them can be achieved only at the sacrifice of others, can be seen only by taking into account factors which fall outside any specialism, which can be appreciated only by a painful intellectual effort—the more painful as it forces us to see against a wider background the objects to which most of our labors are directed and to balance them against others which lie outside our immediate interest and for which, for that reason, we care less.
Every one of the many things which, considered in isolation, it would be possible to achieve in a planned society creates enthusiasts for planning who feel confident that they will be able to instill into the directors of such a society their sense of the value of the particular objective; and the hopes of some of them would undoubtedly be fulfilled, since a planned society would certainly further some objectives more than is the case at present. It would be foolish to deny that the instances of planned or semiplanned societies which we know do furnish illustrations in point, good things which the people of these countries owe entirely to planning. The magnificent motor roads in Germany and Italy are an instance often quoted—even though they do not represent a kind of planning not equally possible in a liberal society. But it is equally foolish to quote such instances of technical excellence in particular fields as evidence of the general superiority of planning. It would be more correct to say that such extreme technical excellence out of line with general conditions is evidence of a misdirection of resources. Anyone who has driven along the famous German motor roads and found the amount of traffic on them less than on many a secondary road in England can have little doubt that, so far as peace purposes are concerned, there was little justification for them. Whether it was not a case where the planners decided in favor of “guns” instead of “butter” is another matter. 8 But by our standards there is little ground for enthusiasm.
The illusion of the specialist that in a planned society he would secure more attention to the objectives for which he cares most is a more general phenomenon than the term “specialist” at first suggests. In our predilections and interests we are all in some measure specialists. And we all think that our personal order of values is not merely personal but that in a free discussion among rational people we would convince the others that ours is the right one. The lover of the countryside who wants above all that its traditional appearance should be preserved and that the blots already made by industry on its fair face should be removed, no less than the health enthusiast who wants all the picturesque but unsanitary old cottages cleared away, or the motorist who wishes the country cut up by big motor roads, the efficiency fanatic who desires the maximum of specialization and mechanization no less than the idealist who for the development of personality wants to preserve as many independent craftsmen as possible, all know that their aim can be fully achieved only by planning—and they all want planning for that reason. But, of course, the adoption of the social planning for which they clamor can only bring out the concealed conflict between their aims.
The movement for planning owes its present strength largely to the fact that, while planning is in the main still an ambition, it unites almost all the single-minded idealists, all the men and women who have devoted their lives to a single task. The hopes they place in planning, however, are the result not of a comprehensive view of society but rather of a very limited view and often the result of a great exaggeration of the importance of the ends they place foremost. This is not to underrate the great pragmatic value of this type of men in a free society like ours, which makes them the subject of just admiration. But it would make the very men who are most anxious to plan society the most dangerous if they were allowed to do so—and the most intolerant of the planning of others. From the saintly and single-minded idealist to the fanatic is often but a step. Though it is the resentment of the frustrated specialist which gives the demand for planning its strongest impetus, there could hardly be a more unbearable— and more irrational—world than one in which the most eminent specialists in each field were allowed to proceed unchecked with the realization of their ideals. Nor can “coordination,” as some planners seem to imagine, become a new specialism. The economist is the last to claim that he has the knowledge which the coordinator would need. His plea is for a method which effects such coordination without the need for an omniscient dictator. But that means precisely the retention of some such impersonal, and often unintelligible, checks on individual efforts as those against which all specialists chafe.
1 [Benito Mussolini, Grand Fascist Council Report, 1929, quoted in E. B. Ashton, The Fascist: His State and His Mind (New York: William Morrow and Co., 1937), p. 63, note 5. —Ed.]
2 For a fuller discussion of these problems see Professor Lionel Robbins’s essay, “The Inevitability of Monopoly,” in his book, The Economic Basis of Class Conflict and Other Essays in Political Economy (London: Macmillan, 1939), pp. 45–80.
3 Final Report and Recommendations of the Temporary National Economic Committee, United States of America, 77th Congress, 1st Session, Senate Document No. 35, 1941, p. 89. [President Roosevelt’s speech, an excerpt from which provides the quotation at the beginning of chapter 1, was the impetus for the formation of the Temporary National Economic Committee. —Ed.]
4 Clair Wilcox, Competition and Monopoly in American Industry, Temporary National Economic Committee Monograph, No. 21 (Washington, DC: U.S. Government Printing Office, 1941), p. 314. [In the original Hayek listed the date of publication as 1940, not 1941. —Ed.]
5 [For more on Sombart, see chapter 1, note 13. —Ed.]
6 Reinhold Niebuhr, Moral Man and Immoral Society: A Study in Ethics and Politics (New York: Charles Scribner’s Sons, 1932), p. 182.
7 [In the summer of 1931 a financial crisis in Britain led to the collapse of the Labour government, the creation of a “National Government” coalition with Ramsey MacDonald at its head, and the abandonment of the gold standard. One of the first moves of the new National Government was the institution of the general protective tariff to which Hayek refers. —Ed.]
8 But as I am correcting this the news comes that maintenance work on the German motor roads has been suspended!