Notes: Friedrich Hayek | Sociology Mains Optional for UPSC 2024 PDF Download

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F.A. Hayek 
Background 
• He considered himself a child of the Austro-Hungarian empire, and watched aghast as Hitler rose to power 
in Germany and then, in 1938, annexed Austria. 
• Fearing that Britain would experiment with the same kinds of anti-freedom ideas that has led to regimes 
like H it ler ’ s National-Socialism and the propaganda of Soviet Union, he resolved to expose the link 
between “ p l a n n e d ” economies and political repression. 
? His book The Road to Serfdom  made the shocking assertion that countries including Britain and the 
US could easily slide into totalitarianism, not by revolution but through good-intentioned steps toward 
greater organisation of the economy. 
? Ronald Regan, Margaret Thatcher, Milton Friedman, and the leaders of central E urope’s post-Soviet 
revolutions were all deeply influenced by Hayek. 
The roots of oppression 
• Hayek makes an express link between planned economies and totalitarianism  
? Right from the Italian city states to industrial Britain, it was the growth of commerce that allowed 
people to be freed of the hierarchical society in which birth alone determined position in life  
? Economic liberty begetting ever greater political freedom was the process that fueled the power and 
wealth of the West. 
• Yet the very success of liberalism was the basis of its decline 
? Though it had lifted up most of Europe, greater prosperity created ever more ambition and desire, so 
it was easy to blame the existing system as a failure  
? In reality, to paraphrase Franklin Roosevelt, it was not that free enterprise had failed, but that it had 
not yet been properly tried  
? Attempting to provide more freedom for those without it, brought with it less freedom for the whole, 
and thus a gradual erosion of the traditions of the individualist, liberal West 
Truth about Planning 
• Hayek defines socialism as a species of collectivism in which “ t h e entrepreneur working for profit is 
replaced by a central planning body ” 
? Attractions of planning: We are rational people —> we want to plan rather than leaving things to fate  
? Yet problems arise with how we go about this. Socialists say we need central direction, while Liberals 
seek a system that allows the free forces of competition to achieve the same good ends, but with the 
least amount of coercion  
Page 2


 
 www.YouTube.com/SleepyClasses 
 www.SleepyClasses.com 
  
F.A. Hayek 
Background 
• He considered himself a child of the Austro-Hungarian empire, and watched aghast as Hitler rose to power 
in Germany and then, in 1938, annexed Austria. 
• Fearing that Britain would experiment with the same kinds of anti-freedom ideas that has led to regimes 
like H it ler ’ s National-Socialism and the propaganda of Soviet Union, he resolved to expose the link 
between “ p l a n n e d ” economies and political repression. 
? His book The Road to Serfdom  made the shocking assertion that countries including Britain and the 
US could easily slide into totalitarianism, not by revolution but through good-intentioned steps toward 
greater organisation of the economy. 
? Ronald Regan, Margaret Thatcher, Milton Friedman, and the leaders of central E urope’s post-Soviet 
revolutions were all deeply influenced by Hayek. 
The roots of oppression 
• Hayek makes an express link between planned economies and totalitarianism  
? Right from the Italian city states to industrial Britain, it was the growth of commerce that allowed 
people to be freed of the hierarchical society in which birth alone determined position in life  
? Economic liberty begetting ever greater political freedom was the process that fueled the power and 
wealth of the West. 
• Yet the very success of liberalism was the basis of its decline 
? Though it had lifted up most of Europe, greater prosperity created ever more ambition and desire, so 
it was easy to blame the existing system as a failure  
? In reality, to paraphrase Franklin Roosevelt, it was not that free enterprise had failed, but that it had 
not yet been properly tried  
? Attempting to provide more freedom for those without it, brought with it less freedom for the whole, 
and thus a gradual erosion of the traditions of the individualist, liberal West 
Truth about Planning 
• Hayek defines socialism as a species of collectivism in which “ t h e entrepreneur working for profit is 
replaced by a central planning body ” 
? Attractions of planning: We are rational people —> we want to plan rather than leaving things to fate  
? Yet problems arise with how we go about this. Socialists say we need central direction, while Liberals 
seek a system that allows the free forces of competition to achieve the same good ends, but with the 
least amount of coercion  
 
 www.YouTube.com/SleepyClasses 
 www.SleepyClasses.com 
  
? Advocates of central planning claim that it is “ n e c e s s a r y ” because an economy is so complex that 
it needs guidance by the state.  
? Yet Hayek says that precisely the opposite is true: The greater the complexity, the more 
impossible it is to get an overview of what is happening.  
? Development is best achieved through decentralisation 
Thus, according to Hayek, societies flourish when people are free to make their own decisions based on 
available information, including prices. 
• To sum up 
? The wish to organise all of so c iety ’s resources for a definite social end sounds good, but in one stroke 
it ends personal freedom and demonstrates a lack of faith in i n d i v i d u a l s ’ ability to achieve the “ so c i al 
en d s” for which socialists call. 
Socialism and the rule of law 
• Hayek notes that under the rule of law by which liberal societies operate, laws “ a r e intended for such long 
periods that it is impossible to know whether they will assist particular people more than others ” 
? In planned society, it is not left up to future or unknown people to allocate resources; rather, certain 
priorities are decided to exist, which identify gainers and losers.  
? This is the difference between –  
1. providing the rules of the road in a Highway Code 
2. telling people where to travel 
• The key point about rule of law is that it safeguards equality  
? It assumes that no one is going to be treated better because of their status or connections 
? Hayek admits that rule of law does nothing to protect against economic inequality, yet neither is it 
designed to benefit particular people in particular ways  
? As soon as laws are designed for “ d i s t r i b u t i v e j u s t i c e ” some people are put above others; even if done 
with good intentions, it inevitably leads to the destruction of the rule of law. 
• The rule of law does not mean simply that a society is run according to law, but that the powers of 
government itself are circumscribed by a constitution or laws set well in advance of its coming to power 
Planned economies and totalitarianism  
• Defenders of planned economy say that planning “ o n l y ” applies to the economy; if we give up control in this 
aspect, we will be provided for to pursue, higher things in life. 
? However, economic striving is never a “ s e c o n d a r y ” aspect of our lives, Hayek observes, but rather our 
fundamental means to achieve heartfelt goals and live out certain values. 
Page 3


 
 www.YouTube.com/SleepyClasses 
 www.SleepyClasses.com 
  
F.A. Hayek 
Background 
• He considered himself a child of the Austro-Hungarian empire, and watched aghast as Hitler rose to power 
in Germany and then, in 1938, annexed Austria. 
• Fearing that Britain would experiment with the same kinds of anti-freedom ideas that has led to regimes 
like H it ler ’ s National-Socialism and the propaganda of Soviet Union, he resolved to expose the link 
between “ p l a n n e d ” economies and political repression. 
? His book The Road to Serfdom  made the shocking assertion that countries including Britain and the 
US could easily slide into totalitarianism, not by revolution but through good-intentioned steps toward 
greater organisation of the economy. 
? Ronald Regan, Margaret Thatcher, Milton Friedman, and the leaders of central E urope’s post-Soviet 
revolutions were all deeply influenced by Hayek. 
The roots of oppression 
• Hayek makes an express link between planned economies and totalitarianism  
? Right from the Italian city states to industrial Britain, it was the growth of commerce that allowed 
people to be freed of the hierarchical society in which birth alone determined position in life  
? Economic liberty begetting ever greater political freedom was the process that fueled the power and 
wealth of the West. 
• Yet the very success of liberalism was the basis of its decline 
? Though it had lifted up most of Europe, greater prosperity created ever more ambition and desire, so 
it was easy to blame the existing system as a failure  
? In reality, to paraphrase Franklin Roosevelt, it was not that free enterprise had failed, but that it had 
not yet been properly tried  
? Attempting to provide more freedom for those without it, brought with it less freedom for the whole, 
and thus a gradual erosion of the traditions of the individualist, liberal West 
Truth about Planning 
• Hayek defines socialism as a species of collectivism in which “ t h e entrepreneur working for profit is 
replaced by a central planning body ” 
? Attractions of planning: We are rational people —> we want to plan rather than leaving things to fate  
? Yet problems arise with how we go about this. Socialists say we need central direction, while Liberals 
seek a system that allows the free forces of competition to achieve the same good ends, but with the 
least amount of coercion  
 
 www.YouTube.com/SleepyClasses 
 www.SleepyClasses.com 
  
? Advocates of central planning claim that it is “ n e c e s s a r y ” because an economy is so complex that 
it needs guidance by the state.  
? Yet Hayek says that precisely the opposite is true: The greater the complexity, the more 
impossible it is to get an overview of what is happening.  
? Development is best achieved through decentralisation 
Thus, according to Hayek, societies flourish when people are free to make their own decisions based on 
available information, including prices. 
• To sum up 
? The wish to organise all of so c iety ’s resources for a definite social end sounds good, but in one stroke 
it ends personal freedom and demonstrates a lack of faith in i n d i v i d u a l s ’ ability to achieve the “ so c i al 
en d s” for which socialists call. 
Socialism and the rule of law 
• Hayek notes that under the rule of law by which liberal societies operate, laws “ a r e intended for such long 
periods that it is impossible to know whether they will assist particular people more than others ” 
? In planned society, it is not left up to future or unknown people to allocate resources; rather, certain 
priorities are decided to exist, which identify gainers and losers.  
? This is the difference between –  
1. providing the rules of the road in a Highway Code 
2. telling people where to travel 
• The key point about rule of law is that it safeguards equality  
? It assumes that no one is going to be treated better because of their status or connections 
? Hayek admits that rule of law does nothing to protect against economic inequality, yet neither is it 
designed to benefit particular people in particular ways  
? As soon as laws are designed for “ d i s t r i b u t i v e j u s t i c e ” some people are put above others; even if done 
with good intentions, it inevitably leads to the destruction of the rule of law. 
• The rule of law does not mean simply that a society is run according to law, but that the powers of 
government itself are circumscribed by a constitution or laws set well in advance of its coming to power 
Planned economies and totalitarianism  
• Defenders of planned economy say that planning “ o n l y ” applies to the economy; if we give up control in this 
aspect, we will be provided for to pursue, higher things in life. 
? However, economic striving is never a “ s e c o n d a r y ” aspect of our lives, Hayek observes, but rather our 
fundamental means to achieve heartfelt goals and live out certain values. 
 
 www.YouTube.com/SleepyClasses 
 www.SleepyClasses.com 
  
• The real question is not whether a planned economy will give us what we want or need, but whether it takes 
away our freedom to decide what is important or desirable. 
? “ M e r e ” direction of the economy can end up shaping the sort of life we can live 
? In a planned economy, we may work for years to buy something, only to find that the state does 
not consider it worthy and bans it, or it is simply unavailable because of other production 
priorities. 
• Those incharge of planned economies always maintain that there will be freedom to choose o n e ’ s 
occupation, but the reality is that economic direction requires certain jobs, industries and sectors to be 
more important than others which means that access to other fields will be more difficult or restricted, or 
offer little opportunity  
? Instead everyone will be judged according to their fitness for certain defined categories of work  
? One will no longer work to fulfil ones own interests or potential, but become merely a means toward 
achieving “ t h e good of a ll ” 
Freedom v. Economic security 
• In planned economy, the biggest problem is incentives for people to do their best 
? If your position does not depend on your skills or imagination, but on the s t a t e ’ s judgement of the job ’s 
importance, it will not really matter whether you work harder or smarter, since it yields no particular 
gain to you 
? When multiplied with the whole population we have a society whose productivity is well below what 
it could be  
• Moreover, when everyone is assured of a job under some national program of “ economi c se c uri t y” , what 
matters most is not the quality or need for those jobs, but the fact that everyone has some kind of 
occupation 
? In a competitive economy, where there is less economic security there is much more incentive for you 
to retrain or study to make yourself more employable 
• In a competitive economy, Hayek notes, failure can end with the bailiff (bankruptcy), whereas in a planned 
economy it can end with the hangman 
? Trotsky (1937): In a country where the sole employer is the State, opposition means death by slow 
starvation. The old principle: who does not work shall not eat, has been replaced by a new one: who 
does not obey shall not eat. 
• In a society in which economic security is considered more important than freedom, freedom itself becomes 
mocked, since it is worthless in providing “ t he good things of this ea rth ” 
? In these circumstances people will happily sacrifice liberty for security  
Page 4


 
 www.YouTube.com/SleepyClasses 
 www.SleepyClasses.com 
  
F.A. Hayek 
Background 
• He considered himself a child of the Austro-Hungarian empire, and watched aghast as Hitler rose to power 
in Germany and then, in 1938, annexed Austria. 
• Fearing that Britain would experiment with the same kinds of anti-freedom ideas that has led to regimes 
like H it ler ’ s National-Socialism and the propaganda of Soviet Union, he resolved to expose the link 
between “ p l a n n e d ” economies and political repression. 
? His book The Road to Serfdom  made the shocking assertion that countries including Britain and the 
US could easily slide into totalitarianism, not by revolution but through good-intentioned steps toward 
greater organisation of the economy. 
? Ronald Regan, Margaret Thatcher, Milton Friedman, and the leaders of central E urope’s post-Soviet 
revolutions were all deeply influenced by Hayek. 
The roots of oppression 
• Hayek makes an express link between planned economies and totalitarianism  
? Right from the Italian city states to industrial Britain, it was the growth of commerce that allowed 
people to be freed of the hierarchical society in which birth alone determined position in life  
? Economic liberty begetting ever greater political freedom was the process that fueled the power and 
wealth of the West. 
• Yet the very success of liberalism was the basis of its decline 
? Though it had lifted up most of Europe, greater prosperity created ever more ambition and desire, so 
it was easy to blame the existing system as a failure  
? In reality, to paraphrase Franklin Roosevelt, it was not that free enterprise had failed, but that it had 
not yet been properly tried  
? Attempting to provide more freedom for those without it, brought with it less freedom for the whole, 
and thus a gradual erosion of the traditions of the individualist, liberal West 
Truth about Planning 
• Hayek defines socialism as a species of collectivism in which “ t h e entrepreneur working for profit is 
replaced by a central planning body ” 
? Attractions of planning: We are rational people —> we want to plan rather than leaving things to fate  
? Yet problems arise with how we go about this. Socialists say we need central direction, while Liberals 
seek a system that allows the free forces of competition to achieve the same good ends, but with the 
least amount of coercion  
 
 www.YouTube.com/SleepyClasses 
 www.SleepyClasses.com 
  
? Advocates of central planning claim that it is “ n e c e s s a r y ” because an economy is so complex that 
it needs guidance by the state.  
? Yet Hayek says that precisely the opposite is true: The greater the complexity, the more 
impossible it is to get an overview of what is happening.  
? Development is best achieved through decentralisation 
Thus, according to Hayek, societies flourish when people are free to make their own decisions based on 
available information, including prices. 
• To sum up 
? The wish to organise all of so c iety ’s resources for a definite social end sounds good, but in one stroke 
it ends personal freedom and demonstrates a lack of faith in i n d i v i d u a l s ’ ability to achieve the “ so c i al 
en d s” for which socialists call. 
Socialism and the rule of law 
• Hayek notes that under the rule of law by which liberal societies operate, laws “ a r e intended for such long 
periods that it is impossible to know whether they will assist particular people more than others ” 
? In planned society, it is not left up to future or unknown people to allocate resources; rather, certain 
priorities are decided to exist, which identify gainers and losers.  
? This is the difference between –  
1. providing the rules of the road in a Highway Code 
2. telling people where to travel 
• The key point about rule of law is that it safeguards equality  
? It assumes that no one is going to be treated better because of their status or connections 
? Hayek admits that rule of law does nothing to protect against economic inequality, yet neither is it 
designed to benefit particular people in particular ways  
? As soon as laws are designed for “ d i s t r i b u t i v e j u s t i c e ” some people are put above others; even if done 
with good intentions, it inevitably leads to the destruction of the rule of law. 
• The rule of law does not mean simply that a society is run according to law, but that the powers of 
government itself are circumscribed by a constitution or laws set well in advance of its coming to power 
Planned economies and totalitarianism  
• Defenders of planned economy say that planning “ o n l y ” applies to the economy; if we give up control in this 
aspect, we will be provided for to pursue, higher things in life. 
? However, economic striving is never a “ s e c o n d a r y ” aspect of our lives, Hayek observes, but rather our 
fundamental means to achieve heartfelt goals and live out certain values. 
 
 www.YouTube.com/SleepyClasses 
 www.SleepyClasses.com 
  
• The real question is not whether a planned economy will give us what we want or need, but whether it takes 
away our freedom to decide what is important or desirable. 
? “ M e r e ” direction of the economy can end up shaping the sort of life we can live 
? In a planned economy, we may work for years to buy something, only to find that the state does 
not consider it worthy and bans it, or it is simply unavailable because of other production 
priorities. 
• Those incharge of planned economies always maintain that there will be freedom to choose o n e ’ s 
occupation, but the reality is that economic direction requires certain jobs, industries and sectors to be 
more important than others which means that access to other fields will be more difficult or restricted, or 
offer little opportunity  
? Instead everyone will be judged according to their fitness for certain defined categories of work  
? One will no longer work to fulfil ones own interests or potential, but become merely a means toward 
achieving “ t h e good of a ll ” 
Freedom v. Economic security 
• In planned economy, the biggest problem is incentives for people to do their best 
? If your position does not depend on your skills or imagination, but on the s t a t e ’ s judgement of the job ’s 
importance, it will not really matter whether you work harder or smarter, since it yields no particular 
gain to you 
? When multiplied with the whole population we have a society whose productivity is well below what 
it could be  
• Moreover, when everyone is assured of a job under some national program of “ economi c se c uri t y” , what 
matters most is not the quality or need for those jobs, but the fact that everyone has some kind of 
occupation 
? In a competitive economy, where there is less economic security there is much more incentive for you 
to retrain or study to make yourself more employable 
• In a competitive economy, Hayek notes, failure can end with the bailiff (bankruptcy), whereas in a planned 
economy it can end with the hangman 
? Trotsky (1937): In a country where the sole employer is the State, opposition means death by slow 
starvation. The old principle: who does not work shall not eat, has been replaced by a new one: who 
does not obey shall not eat. 
• In a society in which economic security is considered more important than freedom, freedom itself becomes 
mocked, since it is worthless in providing “ t he good things of this ea rth ” 
? In these circumstances people will happily sacrifice liberty for security  
 
 www.YouTube.com/SleepyClasses 
 www.SleepyClasses.com 
  
• Hayek was not against some form of welfare state 
? Extreme privatisation should be protected against but economic security should not trump freedom 
as so c iety ’s basic value 
To sum up 
• Faced with a choice of a reasonably liberal dictatorship or a democracy where the state is involved in every 
aspect of the economy and society, Hayek said he would choose the former  
? In his case study of Chile, a democracy does not imply real personal and economic liberty.  
Indeed, the price controls and nationalisation of private businesses that occurred under the elected 
government were an assault on the basic freedoms of exchange and ownership 
? Economic freedom may seem less subtle, yet it is crucial if we are to preserve open societies as well as 
healthy economies