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The Road from Serfdom: The Economic and Political Consequences of the End of Communism

Wednesday June 2006


About the Author

Professor Robert Skidelsky is Professor of Political Economy at the University of Warwick. He is the author of The World After Communism (1995) and a biography of the economist John Maynard Keynes, which received 5 prizes, including the Lionel Gelber Prize for International Relations and the Council of Foreign Relations Prize for International Relations. He was elected a Fellow of the British Academy in 1994. Robert Skidelsky was elevated to the House of Lords in 1991 and served as Chief Opposition Spokesman on Treasury Affairs (1998-1999). From 1991 to 2001 he was Chairman of the Social Market Foundation. Since 2002 he has been Chairman of the Centre for Global Studies (London). Lord Skidelsky is a non-executive director of Janus Capital Inc, Chairman of the Greater Europe Fund, and a Director of Transnational Insights Ltd. A Russian speaker, he is Director of the Moscow School of Political Studies and Founder and Executive Secretary of the UK/Russia Round Table. He is also a Trustee of the Manhattan Institute and Chairman of the Governors of the Brighton College.

Event Transcript

The Road to Serfdom Revisited
By Lord Robert Skidelsky

I AM DELIGHTED to be delivering the second annual Hayek Lecture at the Manhattan Institute. Hayek's name is imperishably associated with the cause of liberty. Today I recall the nature of the threat to liberty that he analyzed in his classic book The Road to Serfdom and the reaction to it of John Maynard Keynes. I then juxtapose Hayek's book with that other classic warning against despotism, George Orwell's 1984, published at almost the same time. I conclude by asking which, if either, slippery slope we are on today.

The fuse lit by The Road to Serfdom was slow-burning. Published in 1944, its message that all forms of socialism and economic planning lead inescapably to tyranny was sensational enough to make it a bestseller. Britain's Conservative leader Winston Churchill took up the theme in a notorious election broadcast on June 4, 1945. He claimed that if the Labour Party won, its leaders "would have to fall back on some form of Gestapo, no doubt very humanely directed in the first instance." He lost the election by a landslide. With Labour in power in Britain and the New Dealers in the United States, the book then seemed to die a natural death. An expanded government role in the economy seemed perfectly compatible with the maintenance of traditional liberties. Keynes was the name to conjure with, not Hayek.

The Road to Serfdom finally took off in the 1970s, when the Keynesian system ran into crisis. Margaret Thatcher reread it in 1974, and the scales fell from her eyes. Ronald Reagan spun his famous line about people having to work more and more of each day for the federal government rather than for themselves. It was time, he said in 1976, to "return to the people the freedoms usurped by the bureaucrats." And Hayek was still very much alive to drive home the message. In 1944, he had warned that "if we are determined not to allow unemployment at any price, and are not willing to use coercion, we shall be driven into ... a general and considerable inflation." In 1974, he repeated that trying to maintain employment by inflationary means would inevitably destroy the market economy and replace it "by a Communist or some other totalitarian system"; this was the "perilous road" we must "avoid at any price." That year, Hayek was awarded the Nobel Prize in economics.

Let me say a few words about his book before turning to the reactions to it and the question of its relevance today. First, why the word "serfdom"? No reviewers discussed this.

Serfdom is defined by the OED as "condition ... of bondage" or "modified slavery." Serfs were people in whom landowners had property rights: in prerevolutionary Russia, a landowner's estate was measured by the number of "souls" he owned. Typically, a serf is "attached" to a particular piece of land, owing his master "unpaid" goods or labor, but he and his family are secure in their right to what is left over.

This feudal relationship, which dates from the late Roman Empire, gave way over centuries to private property and free labor: to be liberated from serfdom meant being able to sell one's land and work where one pleased. Instead of labor dues levied by the lord, there were now taxes levied by the state. But in Eastern Europe, what Ferdinand Braudel has called a "second serfdom," based on compulsory labor, established itself in the sixteenth and seventeenth centuries just as it was being abolished in Western Europe. Serfs in Russia were only liberated in 1862. What might be called the "third serfdom" (together with a revival of slavery) reestablished itself in the Soviet Union, though in statist, rather than decentralized, form. Conscription of labor was an integral part of imperative central planning. The Marxist thinker Karl Kautsky wrote that "socialist production is irreconcilable ... with the [worker's] freedom to work when, where, and how he wills." But there was no unemployment, and everyone was guaranteed a job, plus complete cradle-to-grave social security.

This was the target against which Hayek aimed. Western thought had come to believe that economic and political freedom were separable. One could, and indeed should, curtail economic freedom for the sake of economic security. But this would not necessarily damage political freedom. Hayek's book was designed to hit this thesis on the head. Coming from Central Europe, where serfdom and autocracy had risen and fallen together, Hayek insisted on the tight nexus between political and economic freedom and unfreedom. The road to serfdom in the economic sense was inescapably the road to totalitarianism in the political sense.

The second thing that one needs to know about the background of The Road to Serfdom was that it arose from Hayek's involvement in the debate on central planning in the 1930s. Socialists had argued that a central-planning authority could replicate the economic benefits of the market, minus its costs, by causing state-run firms, required to equate marginal costs and prices, to respond appropriately to simulated market signals. Hayek claimed that this was completely utopian. Central planning was doomed to failure because the knowledge needed to make it work could never be centralized. Further, it ignored the role of market competition in discovering new wants and processes. It would thus freeze economic life at a low level.

In The Road to Serfdom, Hayek extended his critique of central planning to politics. He defined central planning as the central direction of all economic activity toward particular ends. The nature of the ownership system was not crucial, since central planning removed the essential rights of owners or managers. Democratic central planning, he declared, was an illusion, because there was never sufficient voluntary consent for the goals of the central plan and because partial planning would lead to problems that required ever more extensive planning. So planning involved a "progressive suppression of that economic freedom without which personal and political freedom has never existed in the past." Fascism and communism were totalitarian culminations of what had started as democratic socialism. Western democracies were fighting fascism without realizing that they were on the slippery slope themselves. Against the planners, Hayek upheld 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."

Two other important features of The Road to Serfdom deserve notice. For Hayek, the bedrock of liberty was the rule of law. By the rule of law, he meant a system of general rules, binding on all, and rooted in the commonlaw tradition, as opposed to laws that aimed to benefit or harm particular groups. This contrast would be familiar to readers who had before them the horrendous example of laws aimed against particular groups: capitalists in the Soviet Union, Jews in Nazi Germany. In a famous analogy, Hayek likened the rule of law to the highway code, which doesn't try to impose a direction on the travelers but leaves them free to choose their own routes. Central planning was incompatible with the rule of law because it directed people toward the planners' goals, rather than their own. For the same reason, he opposed redistributive taxation and special privileges for groups like the labor unions.

Second, Hayek was not an apostle of laissez-faire. He believed in a strong, but limited, state. Government had a duty to provide a social safety net. Above all, it had the task to devise and enforce the rules of competition. Hayek's position is close to the Chinese concept of wu wei, which is roughly translated as "active inactivity."

The real originality of his book was the argument that serfdom would not generally be brought about by evil men like Hitler and Stalin but by the cumulative effect of the actions of good men, each of whose interventions could be justified by immediate necessity. The road to serfdom was paved with good intentions and was traversed at a creep rather than a gallop. It was because the creep had become evident by the 1970s, with the Republican Richard Nixon imposing wage and price controls, for the first time in U.S. peacetime history, that Hayek's book finally hit home.

I now turn to Keynes's reservations about The Road to Serfdom. These were echoed by all academic reviewers at the time, though usually not as elegantly. On June 28, 1944, Keynes wrote Hayek a generous and thoughtful letter, congratulating him on having written "a grand book," and adding: "Morally and philosophically I find myself in agreement with virtually the whole of it; and not only in agreement, but in a deeply moved agreement." But:

(1) "You admit ... that it is a question of knowing where to draw the line. You agree that the line has to be drawn somewhere, and that the logical extreme is not possible. But you give us no guidance whatever as to where to draw it.... As soon as you admit that the extreme is not possible ... you are, on your own argument done for, since you are trying to persuade us that so soon as one moves an inch in the planned direction you are necessarily launched on the slippery path which will lead you in due course over the precipice."

This is a cogent criticism, which has been echoed by libertarians ever since. Ayn Rand denounced Hayek as a "compromiser." Anthony de Jasay argues that Hayek leaves the state's place in society "ad hoc, open-ended, indeterminate." For example, Hayek's distinction between general rules and those designed to benefit particular groups does not protect liberty in the way he wants: perfectly general rules, like conscription, can be highly coercive. Hayek concedes the need for a social safety net but argues that its aim should not be redistributive. Any publicly financed social safety net, however, involves some redistribution.

(2) "What we need therefore," Keynes continued, "is not a change in our economic programs, which would lead in practice to disillusion with the results of your philosophy, but perhaps even ... an enlargement of them." Keynes was accusing Hayek of ignoring political reality—a good conservative (and, indeed, Whig) criticism. Hayek was vulnerable to this charge. His book displayed no sense of history, ascribing the retreat of classical liberalism purely to intellectual error. Keynes made the telling point that policies that took no precautions against slumps would be likely to produce disillusion with liberal values. In fact, he might well have pointed out that it was not the monopolistic structure of German industry that Hayek saw as a prelude to Nazism but six million unemployed that brought Hitler to power. On the other hand, Hayek was right to point out—after Keynes's death—that by destroying the rules that restrained government economic intervention, especially the balanced budget rule, Keynes had opened the door to an unrestrained expansion of government activity.

(3) "But the planning should take place in a community in which as many people as possible, both leaders and followers, share your own moral position. Moderate planning will be safe if those carrying it out are rightly orientated in their own minds and hearts to your own moral position.... Dangerous acts can be done safely in a community which thinks and feels rightly which would be the way to hell if they were executed by those who think and feel wrongly."

In short, moderate planning and political liberalism could be made consistent in a country with strong liberal—in the European sense—traditions. This line of criticism was taken up by many contemporary reviewers. The preparation for an electrocution and for an electrocardiograph is the same, up to a point, observed Professor T. V. Smith of the University of Chicago. Which it would be depended on the traditions of the particular society. "No country," he wrote, "has yet wittingly or ... unwittingly slipped into serfdom whose presuppositions are democratic, whose customs, hopes, and habits are redolent with sympathy for men and replete with respect for laws as instruments of freedom." Its own constitutional past rendered America immune to the totalitarian creep.

However, Hayek has a good comeback on this one. The arguments advanced by Keynes and Professor Smith are essentially static. What they ignore is the consideration that "right feelings" and democratic customs can be depleted and eroded by continuous government intervention; their continuation is not independent of the acts being done. A society in which "dangerous acts" by governments are frequent will lose its understanding of why they are dangerous—that is, its sense of what it is to be free. And this has happened to some extent. But do the dangerous acts that pose the threat to liberty today arise from the economic sphere, as Hayek supposed they would, or from the political sphere? I now turn my attention to this matter.

Let me start with the ambiguity of the word "security." It is used in three senses: economic security, national security, and security of the citizen against crime.

Hayek was concerned only with the first use: with the threat to freedom posed by the demand for economic security. The Road to Serfdom had hardly anything to say about national security, and nothing about what is called "law and order." Like most people in 1944, he assumed that, with the defeat of Nazi Germany, the world would be entering a peaceful period, so one could abstract from threats to liberty caused by having to deal with external dangers. The Cold War was still in the future in 1944. What Hayek wanted to emphasize was the danger that Western countries would converge on the Soviet model.

Let me juxtapose Hayek's account of the threat to liberty with an equally famous warning that appeared four years later: George Orwell's 1984.

In many ways, Hayek's and Orwell's starting points were the same. Orwell's dystopia was set in a largely state-controlled economy, with a few monopolistic producers, and directed labor. But it wasn't this fact that made Big Brother all powerful. It was two other factors.

The first was the perfection of power by technology. Orwell thought that the advent of television would make it comparatively easy for a self-perpetuating elite to manipulate, condition, and monitor the masses without much explicit use of terror. "Every citizen, or at least every citizen important enough to be worth watching, could be kept for twenty-four hours a day under the eyes of the police and in the sound of official propaganda.... The possibility of enforcing ... complete uniformity of opinion on all subjects now existed for the first time." Orwell was always alert to the connection between totalitarian habits of thought and the corruption of language, and he coined the expression "doublespeak" to denote the manipulation of truth by words. He envisaged a Ministry of Truth turning out pornography to distract and debase the "proles."

The second factor supporting the rule of Big Brother was the lie of perpetual war. Orwell set up a world of three giant powers with unstable frontiers that he called Oceania, Eurasia, and Eastasia, each rendered immune to conquest by its possession of nuclear weapons, but each needing, for purposes of domestic control, to create the illusion that they were permanently at war with one another. In his notes for the book, Orwell refers to "the system of organized lying on which society is founded" and "the nightmare feeling caused by the disappearance of objectivity."

Thus for Orwell, the danger of totalitarianism arose from the new technologies of manipulation, control, and surveillance and their being pressed into the service of national security. He painted a world in which the structure of the economy and the tastes of the people were adapted to the requirements of power.

Neither Hayek nor Orwell talked about security in the third sense. But the war against crime has joined the war against terrorism in the lexicon of contemporary fear. In fact, it preceded it and paved the way for it. The contemporary language of politics has habituated us to believe that we are now at war on a large number of fronts, wars with no apparent end.

I have identified two possible slippery slopes toward serfdom: a Hayekian slope based on the demand for economic security; and an Orwellian slope based on the threat to national security. Which have we most to fear? The brief answer is that it depends on where we live.

The best contemporary evidence for the Hayekian slope comes from Europe. In The Road to Serfdom, Hayek wrote: "We shall have carefully to watch our step if we are to avoid making all economic activity progressively more dependent on the direction and volume of government expenditure." In the EU, state spending as a percentage of GDP averages 50. What Donald Rumsfeld called "old Europe" never experienced a Thatcher-Reagan revolution. Unsatisfactory though this situation will seem to a Hayekian, however, it is very far from exhibiting that movement toward socialism, central planning, and the welfare state against which Hayek warned. In fact, the intellectual movement is the other way. The problem in Europe is not the commitment of its elites to socialism but popular resistance to reducing long-standing entitlements. The result is a kind of stasis. The danger to which we should certainly be alert is the linking up of the defense of entitlements with ideological antiglobalization. The recrudescence of protectionism and economic nationalism would certainly be a slippery slope.

What about the Orwellian slope? The issue here is the extent to which the instability of Western frontiers manned mainly by the United States with help from Great Britain threatens to subvert the rule of law. A noted British lawyer, Helena Kennedy, remarked in a recent lecture in London that the war on terrorism offers opportunities not otherwise available to prime ministers and presidents for repressive legislation. She points out that the police and security agencies now have an incredible array of surveillance technology at their disposal, just as Orwell foresaw that they would in the 1940s. In a conscious, or an unconscious, echo of Hayek, Lady Kennedy notes that any concern about the "thin end of wedges" is brushed aside as intemperate, because our officials are all "good chaps."

I don't wish to comment on developments specific to the United States, especially after the tragedy of 9/11. But I do want to draw your attention to the rise in both our countries of what might be called the "preemptive theory of justice." This is the view that the law should be used not just to convict the guilty but to prevent the potentially guilty from staying "free" to commit their offenses. A recent bill allowing for three months' detention without charge only narrowly failed in the British Parliament, but other measures such as curfews and restrictions of right of association and residence can now be imposed on individuals on the basis of reasonable suspicion only. We are slowly being acclimatized to large-scale systems of surveillance and preemption, based on information that is not publicly disclosed
and therefore testable in the courts and that may turn out to be completely false.

Our government justifies the increasing use of surveillance and preemptive arrest with the mantra that no law-abiding citizen has anything to fear. But this is a dangerous argument because it leaves the determination of what is law-abiding to the discretion of the authorities rather than to legal process. For example, the reading of certain materials, which it is legal to publish, may nevertheless arouse reasonable suspicion in the security service that the reader may be about to commit an offense. We should be highly suspicious of the appearance of this kind of argument in our kind of societies.

This brings me back to Hayek and The Road to Serfdom. The particular threats to liberty that he identified may be on the wane—his book has done its work well—but there are other threats, and the victory of liberty is never secure. Hayek's key message for us today is surely this: every new restriction or regulation should be judged by its effect not just on the problem that it is designed to solve or the danger that it is designed to avert but by its effect on the system of liberty as a whole. If we are blind to this, we will be left with a damaged system of liberty long after the particular problem or danger has passed away.