Wednesday, February 1, 2012

"Free" Enterprise and Competitive Order F. A. Hayek

IF DURING the next few years, that is, during the period with 
which practical politicians are alone concerned, a continued movement toward more government control in the greater par t of the world is almost certain, this is due, more t ha n to anyt hi ng else, to the lack of a real program, or perhaps I had better say, to a consistent philosophy 
of the groups which wish to oppose it. Th e position is even worse than 
mere lack of program would imply; the fact is that almost everywhere 
the groups which pret end to oppose socialism at the same time support 
policies which, if the principles on which they are based were general- 
ized, would no less lead to socialism than the avowedly socialist poli- 
cies. The r e is some justification at least in the taunt that many of the 
pret endi ng defenders of "free enterprise" are in fact defenders of privi- 
leges and advocates of government activity in their favor rather than 
opponents of all privilege. In principle the industrial protectionism 
and government-supported cartels a nd the agricultural policies of the 
conservative groups are not different from the proposals for a more 
far-reaching direction of economic life sponsored by the socialists. It is 
an illusion when the more conservative interventionists believe t hat 
they will be able to confine these government controls to the particular 
kinds of which they approve. In a democratic society, at any rate, once 
the principle is admitted t hat the government undertakes responsibil- 
ity for the status a nd position of particular groups, it is inevitable that 
this control will be extended to satisfy the aspirations a n d prej udices 
of the great masses. There is no hope of a return to a freer system 
until the leaders of the movement against state control are prepared 
first to impose upon themselves that discipline of a competitive mar ket 
which they ask the masses to accept. Th e hopelessness of the prospect 
for the near fut ure indeed is due mainly to the fact that no organized 
political gr oup anywhere is in favor of a truly free system. 
It is more than likely t hat from their point of view the practical poli- 
ticians are right and that in the existing state of public opinion nothing 
else would be practicable. But wha t to the politicians are fixed limits of 
practicability imposed by public opinion must not be similar limits to 
us. Public opinion on these matters is the wor k of men like ourselves, 
the economists a nd political philosophers of the past few generations, 
who have created the political climate i n whi ch the politicians of our 
time must move. I do not find myself often agreeing wi t h the late Lord 
Keynes, but he has never said a t r uer t hi ng t han when he wrote, on a 
subject on which his own experience has singularly qualified him to 
speak, that " the ideas of economists and political philosophers, both 
when they are right and· when they are wrong, are more powerful 
t han is commonly understood. Indeed the world is ruled by little else. 
Madmen i n authority, who hear voices i n the air, are distilling their 
frenzy from some academic scribbler of a few years back. I a m sure 
t ha t the power of vested interests is vastly exaggerated compared with 
the gr adual encroachment of ideas. Not , indeed, immediately, but 
after a certain interval; for in the field of economic a n d political philos- 
ophy there are not many who are influenced by new theories after they 
are twenty-five or thirty years of age, so t hat the ideas whi ch civil ser- 
vants a nd politicians a nd even agitators apply are not likely to be t he 
newest. But, soon or late, it is ideas, not vested interests, whi ch are 
dangerous for good and evil."
It is from this long-run point of view that we must look at our task. 
It is the beliefs whi ch must spread, if a free society is to be preserved, or 
restored, not what is practicable at the moment , which must be our 
concern. But, while we must emancipate ourselves from t hat servitude 
to cur r ent prej udices i n whi ch the politician is held, we mus t take a 
sane view of wha t persuasion and instruction are likely to achieve. 
Whi l e we may hope that, as regards the means to be employed a nd t he 
methods to be adopted, the public may i n some measure be accessible 
to reasonable ar gument , we mus t probably assume t ha t many of its 
basic values, its ethical standards, are at least fixed for a much longer 
time a n d to some ext ent entirely beyond the scope of reasoning. To 
some extent i t may be our task even here to show t ha t the aims whi ch 
our generation has set itself are incompatible or conflicting a n d t hat 
t he pur s ui t of some of t he m will endanger even great er values. Bu t we 
shall probably also find t hat i n some respects d u r i n g t he last h u n d r e d 
years certain moral aims have firmly established themselves for the 
satisfaction of which i n a free society suitable techniques can be found. 
Even i f we shoul d not altogether share the new importance attached 
to some of these newer values, we shall do well to assume t hat they will 
determine action for a l ong time to come a nd carefully to consider how 
far a place can be found for t hem i n a free society. It is, of course, main- 
ly t he demands for greater security a n d greater equality I have here in 
mi nd. I n both respects I believe very careful distinctions will have to be 
d r a wn between t he sense i n whi ch "security" a n d "equality" can and 
cannot be provided i n a free society. 
Yet i n anot her sense I t hi nk t ha t we shall have to pay deliberate 
attention to the moral t emper of contemporary ma n if we are to suc- 
ceed i n canal i zi ng his energies from the har mf ul policies to which they 
are now devoted to a new effort on behalf of individual freedom. Un- 
less we can set a definite task to the reformatory zeal of men, unless we 
can poi nt out reforms which can be fought for by unselfish men, wi t hi n 
a pr ogr a m for freedom, t hei r moral fervor is certain to be used against 
freedom. I t was probably the most fatal tactical mistake of many nine- 
teenth-century liberals to have given the impression t ha t t he abandon- 
me nt of all har mf ul or unnecessary state activity was t he consumma- 
tion of all political wisdom a n d t hat the question of h o w t he state 
ought to use those powers whi ch nobody denied to i t offered no serious 
a n d i mpor t ant problems on which reasonable people could differ. 
Th i s is, of course, not t rue of all nineteenth-century liberals. About 
a hundr e d years ago John St uar t Mill, t hen still a t r ue liberal, stated 
one of our present mai n problems i n unmistakable terms. " Th e prin- 
ciple of private property has never yet had a fair trial i n any country," 
he wrote i n the first edition of his Political Economy. " Th e laws of 
property have never yet conformed to the principles on which the jus- 
tification of private property rests. They have made property of things 
which never ought to be property, and absolute property where only a 
qualified property ought to exist . . . if the tendency of legislators ha d 
been to favour th~ diffusion, instead of the concentration of wealth, to 
encourage the subdivision of the large units, instead of striving to 
keep t hem together; the principle of private property would have been 
found to have no real connection wi t h the physical a n d social evils 
which have made so many minds t u r n eagerly to any prospect of relief, 
however desperate."2 But little was i n fact done to make the rules of 
property conform better to its rationale, a nd Mill himself, like so many 
others, soon t ur ned his attention to schemes involving its restriction 
or abolition rat her t ha n its more effective use. 
Whi l e it woul d be an exaggeration, i t would not be altogether un- 
t rue to say t hat the interpretation of the fundament al principle of 
liberalism as absence' of state activity rat her t han as a policy which de- 
liberately adopts competition, the market, and prices as its orderi ng 
principle a n d uses the legal framework enforced by the state i n order 
to make competition as effective a nd beneficial as p o s s i b l e - a n d to 
supplement it where, and only where, it cannot be made ef f ect i ve- i s 
as much responsible for the decline of competition as the active sup- 
por t which governments have given directly and indirectly to the 
gr owt h of monopoly. I t is the first general thesis which we shall have 
to consider t hat competition can be made more effective and more 
beneficent by certain activities of government t han it would be wi t hout 
them. Wi t h regard to some of these activities this has never been 
denied, al t hough people speak sometimes as if they had forgotten 
about them. Th a t a functioning mar ket presupposes not only preven- 
tion of violence and fraud b u t the protection of certain rights, such as
property, a nd the enforcement of contracts, is always taken for granted. 
Whe r e the traditional discussion becomes so unsatisfactory is where i t 
is suggested that, wi t h the recognition of the principles of private 
property a nd freedom of contract, which indeed every liberal must 
recognize, all the issues were settled, as if the law of property a n d con- 
tract were given once a nd for all i n its final a nd most appropriate form, 
i.e., i n the form which will make the mar ket economy work at its best. 
I t is only after we have agreed on these principles t hat the real prob- 
lems begin. 

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