Chapter 6:

The Second World

War and Hayek's
Road to Serfdom
The Role of the State in the Economy
Adolf Hitler
Described to be "wholly
ignorant"of economics
Choice of economic policies
appears to have been guided by
no principle other than to
enhance his government's power
No coherent economic
philosophy but followed an in-
built interventionist policy
dynamic
National socialism
Rejected classical liberalism and its precept of a free market
economy
Genuine socialist movement, whose leading ideas are the final fruit
of the anti-liberal tendencies
Fascism
No revolutionary changes of the economic and social structure of
society
Interventionism + collectivist phraseology -> heavily monopolistic-
interventionistic society adorned terminological and phraseological
ornaments with an extensive government control of prices and
capital investment and large socialization of losses (Ropke)
Nazi's New Plan
Brought government control of all import and export transactions,
together with industrial cartelization and public works projects
Centralized agricultural policy and import quotas led to shortfalls in
food production and sharp price increases
Full employment policy was the engine driving the steady increase in
the degree of central government control
 Printed paper
Full employment Large public works
marks for funding

Diluted value of
Price freeze Price inflation
money
Prioritized
Shortage of industries and
Rationing system
consumer goods allocated raw
materials
Possible impact of prize freeze
Worker unrest
Demand for higher wages
WERNER SOMBART
Offered a Marxian-influenced critical
history of modern capitalism in the
style of the younger historical school
Linked the risk of capitalism to a
Jewish aptitude for enterprise
Most directly relevant to Nazi
economic policy was Deutscher
Sozialismus (German Socialism)
FRIEDRICH HAYEK
Rejected the view that central
economic planning was a way to save
Western societies from
totalitarianism
Saw central planning as a path toward
loss of liberty
Argued that the effort to centrally
plan has a serious political
disadvantage
FRIEDRICH HAYEK
Argued that a centrally planned
economy could not produce anything
close to the prosperity of a freely
competitive economy
Market economy is a more prosperous
system because it allowed individuals to
make the fullest use of their own special
bits of expertise in directing the
allocation of scarce resources
FRIEDRICH HAYEK
Rules of a centrally planned economy
will be strongly tempted not to
respect consumer sovereignty
Individuals skilled in wielding political
power will get ahead in a system
where political power controls
everything
Individualism
Individuals should be allowed within defined limits to follow their
own values and preferences rather than somebody else's
Recognition of the individual as the ultimate judge of their ends, the
belief that as far as possible his/her own views ought to govern
his/her actions, that forms the essence of the individualist position
Fundamental principles of individualism
and classical liberalism
 Free choice Rule of law Private property
Making use of the Government in Emphasized the
spontaneous all its actions is essential role of
forces of society bound by rules dispersed property
Resorting as little fixed and ownership in
as possible to announced enabling
coercion competition to
take place
Hayek's Road to Serfdom
Serfdom - medieval serf's obligation
and dependency to his/her feudal
lord
Success in the US despite being
written for the British audience
Impact on leaders: Margaret
Thatcher and Ronald Reagan
Complemented by the works of
George Orwell (Animal Farm and
1984 on the dangers of oppression
under total state control)