Individualism and Capitalism vs. Central Planning and Statism: The Political Battle of the 21st Century

by | Feb 2, 2016 | Economics

If all of that dispersed and decentralized knowledge that exists in the individual minds of all the members of society is to be effectively used and brought to bear for mutual improvement of the human condition, each of us must be left free to use that knowledge as we, respectively, think best and most advantageous.

Wherever we turn we are confronted with politicians, political pundits, television talking heads, and editorial page commentators, all of whom offer an array of plans, programs, and projects that will solve the problems of the world – if only government is given the power and authority to remake society in the design proposed.

Even many of those who claim to be suspicious of “big government” and the Washington beltway powers-that-be, invariably offer their own versions of plans, programs, and projects they assert are compatible with or complementary to a free society.

The differences too often boil down simply to matters of how the proposer wants to use government to remake or modify people and society. The idea that people should or could be left alone to design, undertake and manage their own plans and interactions with others is sometimes given lip service, but never entirely advocated or proposed in practice.

In this sense, all those participating in contemporary politics are advocates of social engineering, that is, the modifying or remaking of part or all of society according to an imposed plan or set of plans.

The idea that such an approach to social matters is inconsistent with both individual liberty and any proper functioning of a free society is beyond the pale of political and policy discourse. We live in a time of piecemeal planning and incremental interventionism.

The Reasonableness of Individual Planning

It is worthwhile, perhaps, to question this “spirit of the times,” and to do so in the context of marking an anniversary. Slightly over 70 years ago, on December 17, 1945, the Austrian economist (and much later economics Nobel Prize winner), Friedrich A. Hayek, delivered a lecture at University College in Dublin, Ireland on, “Individualism: True and False.”

At a time when socialist central planning appeared to be the “wave of the future,” Hayek argued that the true and essential foundation for any society wishing to preserve human liberty and assure economic prosperity was a rightly understood philosophy of individualism.

At the heart of Hayek’s criticisms of what he called the “false” individualism was the idea that individual human beings could ever have the knowledge, wisdom, or ability to design or remake a society according to some “rational” plan.

It is easy, no doubt, to fall into this error and mistaken belief. After all, we all undertake plans and design projects of action that we attempt to bring to successful fruition. The construction engineer, for instance, designs a technical blueprint for designing and building a bridge over a river or a tunnel through a mountain.

The individual private enterpriser works out a “business plan” about what product he might produce, the start-up investment and production costs that would be entailed, and the estimated consumer demand and stream of potential future revenues that would justify incurring the costs of bringing the business into existence and operation.

As private individuals we design, plan, and attempt to implement our own activities all the time, including going to college and earning a degree; or selecting and pursuing a particular profession, occupation or employment; or forming clubs and associations with others in society to pursue the fulfillment of any variety of “good causes” or shared hobbies and interests; or even the general life we might like to live in terms of achieving a sense of fulfillment, purpose, and happiness during our earthly sojourn.

Not to do all of these “planful” things, and many, many others of like kind, would leave our lives in disordered chaos and uncertain instability and confusion. Who, therefore, could be against or critical of wise, reasonable and “rational” planning of the society as a whole, in which we all live and work out our lives in interaction with multitudes of others?

Yet, that idea of the social designing and engineering of society as a whole by government and its central planners is exactly what Friedrich Hayek asked us not to assume or take for granted.

Human Knowledge is Divided and Dispersed in Society

Earlier in 1945, Hayek had published an article on, “The Use of Knowledge in Society,” in which he pointed out that a fundamental limitation on the ability to centrally plan the economic affairs of society was the inherent and inescapable division of knowledge in society.

The division of labor through which we cooperatively associate with each other to better achieve our various goals and purposes carries with it a matching division of knowledge. The specialized types of knowledge that each of us possesses in comparison to others in society can never be fully and successfully centralized in the hands of a set of government central planners without losing much of the content and richness of the diverse qualities of that knowledge that exist in different forms in each individual’s mind.

Hayek’s conclusion was that if all of that dispersed and decentralized knowledge that exists in the individual minds of all the members of society is to be effectively used and brought to bear for mutual improvement of the human condition, each of us must be left free to use that knowledge as we, respectively, think best and most advantageous.

Furthermore, our various actions using our individual types and bits of unique knowledge is best integrated and coordinated through a competitively-based free pricing system generated by the unhampered interaction of market supply and demand. (See my article, “Why Government Can’t Manage The Economy,” Part I and Part II.)

Society is a Spontaneous Order, Not a Planned One

In this later lecture on “Individualism: True and False” (which was published in Hayek’s collection of essays, Individualism and Economic Order), Hayek argued that the true individualism starts from the premise that “society” is not some ethereal entity having an existence of its own, nor the designed creation of one or a handful of minds imposing a “plan” on people that produces the social order.

Instead, society is the cumulative and interactive outcome and result of multitudes of individual human beings making their separate individual plans that interact and generate connections and associations with other individual plans to produce the overall social order and its coordinated patterns.

If we think of language, custom, tradition, most rules of common etiquette and interpersonal conduct, and the general moral and ethical codes that prevail in a society we surely realize, upon a little reflection, that they are the cumulative outcomes of multitudes of generations of people whose interactions brought about these social institutions without which human association and cooperation would hardly be possible.

Once we realize this, we also understand that much of what we call “society” could not and was not designed because the forms, shapes and characteristics that it takes on could not have been anticipated or even imagined in all their detail and specificity as they emerged and evolved through historical time.

If the evolution and institutions of society had been limited to what a group of central planners could have known and designed, our society’s development would have been confined and limited to what that handful of minds had been able to image and understand, given their own personal and limited knowledge.

Or as Hayek expressed it:

The “basic contention is . . . that there is no way towards understanding of social phenomena but through our understanding of individual actions directed towards other people and guided by their expected behavior . . .

It is the contention that, by tracing the combined effects of individual actions, we discover that many of the institutions on which human achievement rest have arisen and are functioning without a designing or directing mind; that, as [the eighteenth century Scottish moral philosopher] Adam Ferguson expressed it, ‘nations stumble upon establishments [institutions], which are indeed the result of human action but not the result of human design’; and that the spontaneous collaboration of free men often create things which are greater than their individual minds could ever fully comprehend.

Though Hayek does not include it, the next passage in Adam Ferguson’s An Essay on the History of Civil Society (1767), is most pertinent to this point:

It may with more reason be affirmed for communities [societies], that they admit of the greatest revolutions where no change is intended, and that the most refined politicians do not always know whither they are leading the state by their projects.

Market Planning versus Political Designs

Those market experimenters and entrepreneurs of the eighteenth and early nineteenth centuries who began to invest in mass production machinery in what became known as the “factory system” never imagined that their attempts to find ways to produce more and less expensive goods for mass consumption as the means to earning their personal profits would cumulatively generate what we now call the “industrial revolution,” with the economic transformation of unimagined rising standards of human living that has come from it over the last two hundred years.

Nor, more recently, could most, if hardly any, people have imagined the ways things would be changed and transformed in terms of everyday life through the development of computer technology. The first IBM computer occupied much of a city block in New York City. Who could have anticipated and planned for at that time that the later discovery and development of the microchip would revolutionize the world of communication and commerce in the way that has happened over the last few decades?

Yet, one hundred years ago, an American president entered the First World War to “make the world safe for democracy” and helped to set in motion a sequence of unintended consequences that, instead, resulted in twentieth century Soviet communism, Italian fascism and German Nazism.

And more recently, “anti-terrorist” nation building by U.S. government military intervention in Afghanistan, Iraq and Libya have helped foster, instead, the emergence of religious fanatics and cruel murderers equal to or often worse than the tyrants the interventions were designed to overturn.

Knowledge-Using Institutions versus Great Men Politics

What inferences were to be drawn from the view of a free society as, primarily, a “spontaneous order,” the cumulative, and often the unintended outcome, of multitudes of human interactions, the results of which could never be fully or in many instances even partially anticipated in its rich texture and form, out of which has come many of the human betterments around us?

Hayek suggested that an important insight was to accept the fact that it was a false trail to be attempting to find wise leaders or super-human statesmen to guide society to a better future. The reality, he said, is that none have the wisdom or super-human talents and abilities to guide and direct human society.

The fact is, people are limited in their knowledge, abilities and talents, and are too often tempted to misuse and abuse any such positions of political power to benefit themselves and their associates at the expense of others in society.

The task, instead, Hayek said, is finding an institutional order in which the potential for such misuse and abuse is minimized and the widest latitude prevails for people to use their own unique and specialized knowledge and abilities in ways that not only benefit themselves but improve the conditions of many others in society, as well.

Explained Hayek:

The “chief concern was not so much with what man might occasionally achieve when he was at his best but that he should have as little opportunity as possible to do harm when he was at his worst . . .

The main merit . . . of [political] individualism . . . is that it is a system under which bad men can do least harm; it is a social system which does not depend for its functioning on our finding good men for running it, or on all men becoming better than they now are, but which makes use of men in all their given variety and complexity, sometimes good and sometimes bad, sometimes intelligent and more often stupid. [The] aim was a system under which it should be possible to grant freedom to all, instead of restricting it . . . to ‘the good and wise’ . . .

What the economists [of the eighteenth and nineteenth centuries] understood for the first time was that the market as it had grown up was an effective way of making men take part in a process more complex and extended than he could comprehend and that it was through the market that he was made to contribute ‘to ends which were no part of his purpose’ [to quote from Adam Smith] . . .

The true basis of [the individualist’s] argument is that nobody can know who knows best and that the only way by which we can find out is through a social process in which everybody is allowed to try and see what he can do.

The fundamental assumption here as elsewhere is the unlimited variety of human gifts and skills and the consequent ignorance of any single individual of most of what is known to all the members of society taken together.

Individual Freedom with Limited Government

If we take Hayek’s argument to heart, we must not only doubt but strongly challenge the arrogance and hubris expressed by all those in the public policy arena who assert a presumed knowledge to know how to guide, direct, redesign, regulate and plan the society in a manner better than allowing the free interactions of multitudes of individuals within a general system of individual rights to life, liberty and honestly acquired property, with enforcement of all contracts and agreements freely and non-fraudulently entered into.

As Hayek went on to say, this also implies a society in which individuals reap the benefits of all peaceful rewards they have earned, but also must be willing to bear the losses and disappointments when outcomes are not always to their liking.

Thus, while such a free society rejects any and all political forms of favor, privilege and artificial status, it also operates on the basis of market-resulting inequalities of material and other outcomes under a regime of impartial and equal individual rights before the law. Either all people are treated equally before the law with resulting unequal economic outcomes, or government treats individuals unequally in the attempt to assure more equal economic results.

Hayek ended his lecture with a question and an observation that is as relevant today as when he delivered it 70 years ago:

The fundamental attitude of true individualism is one of humility towards the processes by which mankind has achieved things which have not been designed or understood by any individual and are indeed greater than individual minds. The great question at this moment is whether man’s mind will be allowed to continue to grow as part of this process or whether human reason is to place itself in chains of its own making.

What individualism teaches us is that society is greater than the individual only in so far as it is free. In so far as it is controlled or directed, it is limited to the powers of the individual minds which control or direct it.

Which direction will the twenty-first century follow: individual free minds or politically managed minds? That is the question for all of us to answer.

Dr. Richard M. Ebeling is the recently appointed BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel. He was formerly professor of Economics at Northwood University, president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

Related articles

Bidenomics: Creating “Jobs” That Destroy Wealth

Bidenomics: Creating “Jobs” That Destroy Wealth

Government spending doesn’t really create jobs, but instead moves them from where people themselves would have chosen to where the government dictates by way of its tax, spending, and regulatory policies.

Why Even Insiders Underestimate Markets’ Power

Why Even Insiders Underestimate Markets’ Power

Anyone who has ever taken a competently taught economic principles course should understand why people tend to underestimate market forces for airline fuel, irrigation water, and so many other areas.

No spam. Unsubscribe anytime.

Pin It on Pinterest