The Great Utopia



It is here that Hayek delves into the traditionally authoritative roots of socialism, bringing forward the example of early socialism which its founders during the French Revolution felt that it could only be put in practice through a dictatorial government. Then its transfer to being considered an agent of liberty in regards to the development of “democratic socialism”, and this saw greater acceptability in western societies.

It is established that democracy and socialism stood at an “irreconcilable conflict” through reference to Alexis de Tocqueville who stated:

“Democracy extends the sphere of the individual freedom, socialism restricts it. Democracy attaches all possible value to each man,’ socialism makes each man a mere agent, a mere number.”

Further Hayek notes the development of thought in regards to people placing greater importance over economic freedom than political freedom, of which Hayek argues that one cannot have economic freedom without political freedom. Socialism aims to provide economic freedom without political freedom in that equality can be reached. To finish the Tocqueville quote:

“Democracy and socialism have nothing in common but one word: equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude”

In this there is a change in the meaning of freedom from “freedom from coercion, freedom from the arbitrary power of other men, etc.” to “freedom from necessity, and to free from the despotism of material want,”. He notes that rather it being a demand of a new freedom it was simply the old demand for equal distribution of wealth. In this he notes the appeal of socialism and its promise of greater freedom as it lured more liberals, from this he makes his most bold remarks in regards to socialism “The Road to Freedom was in fact The High Road to Servitude” and that to the followers of socialism in a progressive manner from liberalism that “it should appear inconceivable of socialism leading to the opposite of liberty”

This is then developed into the political sphere where at first approach communism and fascism appear to be at opposite poles, but to some extent they are actually the outcome of similar tendencies. Where “socialism achieved by democratic means seems definitely to belong to the world of utopias”

Then with reference to Italy and Germany as being examples where dictators arose from socialist backgrounds into fascist and Nazi forces respectively, which would appear to be at opposite sides of the spectrum but are ultimately as he notes was realised in 1930s Germany it was easy to transfer young communist to a Nazi and vice-versa. History tells the tale of how the two sides have clashed and Hayek argues this was because they sought the support of similar minds, as in actual fact they were both against the old type of liberalism. His use of Hitler and Mussolini as examples of the rise of Socialism is interesting in that when being taught history often the struggle between fascists and communists for power is portrayed and that they appealed to different parts of society. However, Hayek notes their similarities and that their forms of policy were rooted in socialism as the agent for pushing through authoritarianism and nationalism (notably through central control).

Thus, here Hayek concludes that those whom argue socialism can coincide with freedom have simply not yet realised the extent to which they are irreconcilable ideals. Ultimately stating that democratic socialism or individualist socialism, or however many ways socialists who still believe in liberal ideals express it are arguing for the creation of an impossible utopia.


The Abandoned Road?


It is here that Hayek develops what can be seen as his doctrine of freedom, this is more of political science then economics but it is integral in understanding his ultimate support of capitalism and the threat socialism and communism pose on liberty.

He identifies how it was the liberation of action and thought which had resulted in the improvement in our general living standards whether at the top or bottom of the social ladder.

“During the whole of this modern period of European history the general direction of social development was one of freeing the individual from the ties which had bound him to the customary or prescribed ways in the pursuit of his ordinary activities”

The example of science and its development alongside freedom is noted as a direct benefit of allowing individual thought, he notes the remarks of Auguste Comte “the perennial Western malady, the revolt of the individual against the species” but rather than Hayek noting this in a derogatory sense he uses it an example of freedom being the force which created Western civilization.

Hayek is often bundled in with far right wing economic policy, with taking a completely laissez-faire approach, but he to some extent is more of an opponent to socialism then a proponent of laissez-faire policy. This originates from his core ideology of libertarianism which he states can be a mobile creed that does not stay on set values when conditions of society change. The other supporters of the liberal cause had made laissez-faire a “hard and fast rule” in which there was a failure to recognise the need for developing institutions to support it. This is identified as the cause for the picking apart of the liberal argument and then the slow progress of policy, as it was (and still is) difficult to change the institutional framework of society.

He uses a delightful metaphor to summarise this:

“The attitude of the liberal towards society is like that of the gardener who tends a plant and in order to create the conditions most favourable to its growth must know as much as possible about its structure and the way it functions.”

Moving on from this he accounts for the rise of the argument for planning, “conscious direction”, and socialism. In that he looks at how society changed from the rough rules of the 18th century accompanied by new thought but slow progress in making gaps which were yet to be filled. Thus, there were those who argued that “it was no longer a question of adding to or improving the existing machinery [of society], but of completely scrapping and replacing it.” Consequently, leading to the removal of unseen forces that produce unforeseen results, and its place have a collective and conscious direction towards deliberately chosen goals.

He accounts for the spread of similar thought throughout Europe as a consequence of the import of German ideas, he notes that the ideas may have not been first conceived in Germany but were “developed to perfection”, and that during Germany’s materialist accumulation these ideas were spread and were encompassed in the government itself which had a large socialist party in the parliament. He then notes a distinction that German thinkers developed in that “Western” was west of the Rhine, and that the society become opponents of this “Western” ideology which was constituted in liberalism, democracy, capitalism, and individualism. As the German people conceived these things to be shallow ideals, or “the rationalisation of selfish interest” thus defining the nature of German society in the early 20th century.

Capitalism by Dessert


The other night I went out with a couple of friends to my favourite local restaurant. Three years ago this restaurant was a simple English pub, but under new ownership a chef was brought in and it is now gastro pub cuisine. The food is very good (London standard) albeit at relatively high prices for the local area.

No matter what I choose to eat during the meal, I will always take sticky toffee pudding for dessert. When I went out with my friends and it came to the arrival of dessert, I was struck by the significant decrease in size of the sticky toffee pudding. It had only been two or three months since the last time I was there, and I recalled that the pudding was far bigger.

Two things were clear to me, firstly the menu was unchanged and so the prices were unchanged. Secondly, the restaurant just created more profit by decreasing the size of the pudding. I found this rather infuriating as the quality had not changed; it was just a smaller version of my favourite pudding. After venting to my friends, we came to the conclusion that this was capitalism and free markets operating at their very best.

It was always noticeable that people were in awe of the size of the sticky toffee pudding before its reduction, it was a dessert worth sharing. Now that it is smaller it is more likely that fellow diners will not share the dessert but have to order their own. This would have not been noticeable to anyone but a regular, and it is evident that the pub is maximising their profits.

Nevertheless, I think I will still come back to eat there as it is arguably the best sticky toffee around the area. It seems that for the restaurant it is dessert first, costumers second.

Types of Unemployment


Changes in labour skills demanded, leaving different groups unrequired e.g. 1980s manufacturing in the UK, Welsh miners, and Detroit in 1990


People lose jobs in a recession (two consecutive quarters of negative growth) this has strong links with the business cycle. This can lead to structural unemployment as the market becomes more concentrated on different business sectors.


People are in between jobs looking for work, for example those recently fired or quit. This is linked with the bureaucracy and procedure of finding work, as it takes times for checks, assessments, and interviews. This is also created through labour laws, labour unions, and the time taken for wage negotiation.


This is unemployment during a specific season. An example of this is a ski instructor during the summer or ice cream salesman during the winter. There are certain jobs which have an aspect of this such as agricultural workers as there Is a wait time between sowing and planting, and the time of harvest.


Those with the required skill to work, but the jobs are not located where they can work. For example hypothetically a teacher is trained in Scunthorpe but there are no teaching jobs there; they are all in London, and the teacher is unable to commute to London.

The most dominant types of unemployment are structural and frictional; currently there has been a rise in cyclical unemployment as a result of the financial crisis. When an economy struggles to grow or experiences negative growth there is usually a high rate of unemployment as there are parts of the economy that are underutilised.

Unemployment can be shown through a variety of graphical methods all with their own merits. The most common is a simply supply of labour and demand of labour graph. Unemployment can be simply displayed through an inward shift of aggregate demand, and also operation in a PPF that is not on the curve. There is also the Marginal Revenue Product of Labour which can be graphed and this is used to argue that minimum wage can be beneficial.