Hayek on Policies that Foster Monopolies

We were the first to assert that the more complicated the forms assumed by civilization, the more restricted the freedom of the individual must become. —Benito Mussolini

What follows is F.A. Hayek commenting on how, in most cases, governmental economic policy creates the conditions for monopolies to form.  He then goes on to explain how centralized planning cannot conceivably understand and reasonably control all the variables in a complex economy.  Only in a free market system of competition can a complex economic system function effectively.

"Of the various arguments employed to demonstrate the inevitability of planning, the one most frequently heard is that technological changes have made competition impossible in a constantly increasing number of fields and that the only choice left to us is between control of production by private monopolies and direction by the government. This belief derives mainly from the Marxist doctrine of the “concentration of industry...” 

The conclusions that the advantage of large-scale production must lead inevitably to the abolition of competition cannot be accepted. It should be noted, moreover, that monopoly is frequently the product of factors other than the lower costs of greater size. It is attained through collusive agreement and promoted by public policies. When these agreements are invalidated and when these policies are reversed, competitive conditions can be restored....” 

In [Germany] especially, which came to be regarded as the model country typifying the necessary evolution of capitalism, the growth of cartels and syndicates has since 1878 been systematically fostered by deliberate policy. Not only the instrument of protection but direct inducements and ultimately compulsion were used by the governments to further the creation of monopolies for the regulation of prices and sales.... 

That [in Germany] the suppression of competition was a matter of deliberate policy, that it was undertaken in the service of the ideal which we now call planning, there can be no doubt. In the progressive advance toward a completely planned society the Germans, and all the people who are imitating their example, are merely following the course which nineteenth-century thinkers, particularly Germans, have mapped out for them.  The intellectual history of the last sixty or eighty years is indeed a perfect illustration of the truth that in social evolution nothing is inevitable but thinking makes it so....

What they generally suggest is that the increasing difficulty of obtaining a coherent picture of the complete economic process makes it indispensable that things should be coordinated by some central agency if social life is not to dissolve in chaos....

...it is the very complexity of the division of labor under modern conditions which makes competition the only method by which such coordination can be adequately brought about. There would be no difficulty about efficient control or planning were conditions so simple that a single person or board could effectively survey all the relevant facts. It is only as the factors which have to be taken into account become so numerous that it is impossible to gain a synoptic view of them that decentralization becomes imperative. But, once decentralization is necessary, the problem of coordination arises—a coordination which leaves the separate agencies free to adjust their activities to the facts which only they can know and yet brings about a mutual adjustment of their respective plans. As decentralization has become necessary because nobody can consciously balance all the considerations bearing on the decisions of so many individuals, the coordination can clearly be effected not by “conscious control” but only by arrangements which convey to each agent the information he must possess in order effectively to adjust his decisions to those of others."

Hayek, F. A. (2010-10-22). The Road to Serfdom (p. 91-95). University of Chicago Press - A. Kindle Edition.

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Hayek on Competition

Here is F.A. Hayek's rationale for why a reliance on the forces of competition is superior to centralized control and planning, as found in a collectivist (socialist) government.  (Remember that the term "liberal" is used in the classic sense and not in the modern sense where it is synonymous with "socialist.")

"The liberal argument is in favor of making the best possible use of the forces of competition as a means of coordinating human efforts, not an argument for leaving things just as they are. It is based on the conviction that, where effective competition can be created, it is a better way of guiding individual efforts than any other. It does not deny, but even emphasizes, that, in order that competition should work beneficially, a carefully thought-out legal framework is required and that neither the existing nor the past legal rules are free from grave defects. Nor does it deny that, where it is impossible to create the conditions necessary to make competition effective, we must resort to other methods of guiding economic activity. Economic liberalism is opposed, however, to competition’s being supplanted by inferior methods of coordinating individual efforts. And it regards competition as superior not only because it is in most circumstances the most efficient method known but even more because it is the only method by which our activities can be adjusted to each other without coercive or arbitrary intervention of authority. Indeed, one of the main arguments in favor of competition is that it dispenses with the need for “conscious social control” and that it gives the individuals a chance to decide whether the prospects of a particular occupation are sufficient to compensate for the disadvantages and risks connected with it."

Hayek, F. A. (2010-10-22). The Road to Serfdom (pp. 85-86). University of Chicago Press - A. Kindle Edition.

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Hayek on the Meaning of Socialism

What follows is F.A. Hayek describing socialism in a bit more detail by relating it back to the common goals of collectivism and discussing the means it uses to get there.

"A confusion largely responsible for the way in which we are drifting into things which nobody wants must be cleared up. This confusion concerns nothing less than the concept of socialism itself. It may mean, and is often used to describe, merely the ideals of social justice, greater equality, and security, which are the ultimate aims of socialism. But it means also the particular method by which most socialists hope to attain these ends and which many competent people regard as the only methods by which they can be fully and quickly attained. In this sense socialism means the abolition of private enterprise, of private ownership of the means of production, and the creation of a system of “planned economy” in which the entrepreneur working for profit is replaced by a central planning body....

We must centrally direct economic activity if we want to make the distribution of income conform to current ideas of social justice. “Planning,” therefore, is wanted by all those who demand that “production for use” be substituted for production for profit.

...it must always be remembered that socialism is a species of collectivism and that therefore everything which is true of collectivism as such must apply also to socialism. Nearly all the points which are disputed between socialists and liberals concern the methods common to all forms of collectivism and not the particular ends for which socialists want to use them; and all the consequences with which we shall be concerned in this book follow from the methods of collectivism irrespective of the ends for which they are used.

...it is socialism which has persuaded liberal-minded people to submit once more to that regimentation of economic life which they had overthrown because, in the words of Adam Smith, it puts governments in a position where “to support themselves they are obliged to be oppressive and tyrannical.”"

Hayek, F. A. (2010-10-22). The Road to Serfdom (p. 83-84). University of Chicago Press - A. Kindle Edition.

--Against All Enemies