Home >Opinion >Columns >The modern-day relevance of Hayek’s ‘The Road to Serfdom’

The year 2019 marked the 75th anniversary of the book The Road to Serfdom by Friedrich von Hayek. When it was published in 1944, The Reader’s Digest, easily the most popular publication then in America, was so impressed that it brought out a condensed version to distribute to millions of its readers. Its editor described the book as “...the most important political book of this epoch. If our civilization survives the desperate crisis it is passing through, it will be because we arrive soon enough at the mature and expert wisdoms contained in this book. It is the science of our salvation...."

Over the years, the book has achieved the status of a sort of bible for right-wing economists and conservative thinkers. It is supposed to be the definitive defence of free-market and laissez-faire economics, right up there with Adam Smith’s. In the simplistic and somewhat misleading words of Nobel laureate Paul Samuelson, the book warns that “each step away from market system and toward social reform of the welfare state is inevitably a journey that must end in a totalitarian state." Hayek firmly refuted this interpretation and called it misleading. Indeed, his views were in favour of state intervention to temper the ill-effects of laissez faire.

The origins of this epoch-influencing book go back to Hayek’s invited lectures at the London School of Economics in 1933, at a time when America and Britain were passing through the Great Depression, the Nazis were ascendant, and the public had lost confidence in economists. There was conflicting advice on government policies: Freer markets or more intervention? The Nazis were deeply suspicious of liberal intellectuals, and were followers of the German Historical School of economics. A whole class of British intellectuals, including scientists, was in awe of a rising Soviet Union, with its scientific approach to economic planning.

John Maynard Keynes had published The End of Laissez Faire in sharp contrast to the thinking of classical liberals. Keynes’s ideas have proven influential to this day. Yet, he found himself to be mostly in agreement with Hayek’s liberal ideas. Even George Orwell approved of the book’s main thesis. Hayek, probably horrified by rampant misreadings and the selective or mischievous quoting of his book, wrote Why I Am Not a Conservative in 1960, as if to distance himself from his ardent admirers. The Ronald Reagan and Margaret Thatcher revolutions were supposed to have been inspired by the ideas of Hayek. The subsequent fall of the Soviet Union was a vindication of his dire warnings about collectivism.

Yet, most people miss the nuanced key message of Hayek. He does not advocate untrammelled free markets, nor put down every socialist idea. The reader may profitably read a recent lucid, scholarly, balanced and in-depth account of Hayek’s book and how it came to be written by professor Bruce Caldwell, titled The Road to Serfdom After 75 Years. By way of an anecdote, Caldwell recalls how at the height of his stardom, Hayek was asked to speak to a group of businessmen nurtured by the US Republican Party, the sort of group that would want a small government and also government protection of their industries. He shocked his audience by saying, “ must know that one thing I stand for above all else is free trade throughout the world". No doubt, this greatly embarrassed his hosts.

Hayek’s ideas remain relevant, especially at a time of rising populism, protectionism, and curbing of individual rights in the name of national interest. There is also crony capitalism, or what former chief economic adviser Arvind Subramanian called India’s “stigmatized capitalism". He described it as an issue of insufficient trust in the private sector or in state capacity to regulate the private sector.

Take the instance of India’s Production-Linked Incentive (PLI) scheme. Seen from Hayek’s lens, is this not the government or a central planner picking winners? Not through a market process but by way of an application process. More than 1.5 trillion of taxpayer money has been allocated to the scheme. But to prevent the misuse of public funds, the PLI rule book is dense and full of fine print. The very idea of such elaborate central planning would be anathema to Hayek.

Or consider the trend of India’s rising import tariffs in recent years. These are ostensibly to protect the domestic industry from foreign imports. But they act as de facto export taxes, since a large chunk of the imports serve as intermediate inputs. Such selective tinkering calls for much superior knowledge available with a central planner, without which there can be nasty side-effects; and further measures to undo those, like inverted duties. This is a recipe for disaster spelt out by Hayek.

Even India’s approach to farming has been based on extensive output and price controls. These are compensated by large input subsidies. These, in turn, lead to desperate attempts to undo effects like the lowering of water tables, high soil salinity due to excessive use of cheap fertilizer, and a skewed cropping pattern dominated by wheat and rice. It all started with an unimaginable shackling of agriculture, which has led to serfdom for the farmer. Hayek would have said ‘I told you so’.

Ajit Ranade is an economist and a senior fellow at The Takshashila Institution, an independent centre for research and education in public policy.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Edit Profile
My ReadsRedeem a Gift CardLogout