Books That Aren't About Investing That Every Investor Should Read, Part II

By P.J. O'Rourke

It's one of the most powerful statements ever made: "None of our most cherished rights are possible without economic freedom..."

Austrian-born economist Friedrich Hayek was the leading 20th-century advocate of "Classical Liberalism."

In his landmark book The Road to Serfdom, Hayek describes a Classical Liberal as someone who believes in civil, religious, and political rights, and the right to self-government by representative democracy.

But most important, a Classical Liberal understands that none of these rights can exist without economic freedom.

Classical Liberalism is a political ideology. All ideologies have pitfalls. "True believers" are rigid in the logic of their ideology, and rigid logic can lead to weird outcomes. Life is not an idea.

(Negative interest rates, for example, are a logical result of central bankers' idea that economic growth comes from the supply of money, not hard work.)

Classical Liberalism, however, comes as close as any ideology can to meriting the description of being just plain good.

Hayek argues for economic freedom by arguing against central planning.

The greatest danger to economic freedom comes from central planning, whether the central planners are dictators in China, bureaucrats in the European Union, or Democrats and Republicans in the White House and Congress.

You can see the threat right in the name of the thing. Central means that the decisions we make about working, spending, saving, investing, and minding our own business (and businesses) won't be made by us. We're scattered all over the place. Those decisions will be made in a central place, such as Washington.

What will the politicians and political appointees in charge of that centralization do? They'll plan how we work, spend, save, invest, and do business.

We'll be told what to do, how to do it, and where the benefits of our labors will go. We'll become our government's serfs.

One argument that politicians make in favor of central planning is that we face a lot of problems and government is the biggest and most effective tool to fix those problems. The trouble with this method of problem-fixing is that politicians have to promise to fix every problem. Just listen to the speeches of any of the candidates this year. Hayek points out the stupidity of this promise:

There is an infinite number of good things, which we all agree are highly desirable as well as possible... That these things cannot all be done at the same time... can be appreciated only by a painful intellectual effort.

Our politicians can be accused of a lot of things, but making a painful intellectual effort is not one of them. We individuals, on the other hand, don't have to think hard to know that Hayek is telling the truth. We can look in our bank accounts.

Another argument in favor of central planning is technocratic. Government will get things done by putting experts in charge, by delegating centralized power over various aspects of life to the most eminent specialists in each field. Hayek demolishes this notion:

There could hardly be a more unbearable – and more irrational – world than one in which the most eminent specialists in each field were allowed to proceed unchecked with the realization of their ideals.

Hayek admits that economic freedom can cause difficulties. He says, "In a competitive society, most things can be had at a price – though it is often a cruelly high price we have to pay."

But the alternative to paying the high price is not getting everything for free, as promised. The alternative is obtaining what we need and want from a political authority issuing "orders and prohibitions which must be obeyed." And says Hayek, "in the last resort" our needs and wants will depend on "the favor of the mighty."

The "mighty" will, of course, claim that they're using their power in the interest of social justice. This means they'll need more power. As Hayek says:

Once government has embarked upon planning for the sake of justice, it cannot refuse responsibility for anybody's fate or position... There will be no economic or social questions that would not be political questions in the sense that their solution will depend exclusively on who wields the coercive power.

Get in line for the federally mandated transgender bathroom.

Government overreach inexorably results in bad government.

... neither good intentions nor efficiency of organization can preserve decency in a system in which personal freedom and individual responsibility are destroyed.

Bad government leads to worse government.

... equality before the law is in conflict, and in fact incompatible, with any activity of the government deliberately aiming at material or substantive equality of different people... distributive justice must lead to destruction of the Rule of Law.

The laws of our country may remain the same under central planning, but the rules and regulations will proliferate – even more than they have already. Instead of a nation obeying "the rule of law" we'll live in a nation obeying "the law of rules."

The difference between the two... is the same as that between laying down a Rule of the Road, as in the Highway Code, and ordering people where to go.

And democracy is no guarantee that we'll avoid tyranny.

... it is not the source but the limitation of power which prevents it from being arbitrary.

The sphere of politics will expand to encompass all of life. The only way anybody will be able to get ahead (or stay afloat) will depend on politics.

Think about how we use the word politics. Are "office politics" ever a good thing? When someone "plays politics" to get a promotion, does he or she deserve it? When we call a colleague "a real politician," is that a compliment?

As Hayek asks, "Who will deny that a world in which the wealthy are powerful is still a better world than one in which only the already powerful can acquire wealth?"

Hayek wrote The Road to Serfdom in the midst of World War II, when the planet was beset by freedom-murdering ideologies – German Nazism, Soviet communism, Italian and Spanish fascism, Japanese imperialism, and English and French colonialism.

Hayek predicted that sooner or later, these would be defeated. But he foresaw that another hazard lay ahead in the supposed "liberalism" of Britain's fervent Labor Party and flaccid Tory opposition, FDR's "New Deal" and the political coalitions that would impose welfare-state "social democracy" on post-war Europe. "Classical Liberalism" would be replaced by "Farcical Liberalism."

Therefore, Hayek dedicated his book "to Socialists of all parties."

Regards,

P.J. O'Rourke