The Fatal Conceit: The Errors of Socialism.

FRIEDRICH HAYEK'S great insight, dating from the 1930s, was that socialism would not work as advertised, because the central planning authority entrusted with organizing production never would have at its disposal the information needed to draw up intelligent plans or to issue anything other than arbitrary commands. Nonetheless, a centrally controlled state would be able to exercise tyrannical power. And so socialist societies were doomed to poverty and slavery. Central planning was "the road to serfdom."

Subsequent events have proved Hayek right. Central plans can be implemented only if individuals are prevented from carrying out their local plans. But information is itself mostly a "local" commodity. Most things that people know are close to home, and this knowledge is mostly carried about inside their beads. It cannot be transferred to a central planning board hundreds (or even tens) of miles away. Therefore, preventing people from using the knowledge in their heads will idle most existing information. People under planning are expected to be obedient, like soldiers in an army. They are expected to switch the "computers" inside their heads to the "slave" position.

In The Fatal Conceit, Hayek makes the converse argument. The "extended order" of a capitalist society uses far more information than any one person or planning authority can grasp. Since this order cannot be foreseen, and is "generated without design," it can be said to "evolve spontaneously." But this only occurs when people conform "to certain traditional and largely moral practices," or rules. (Hayek discussed these rules in his Constitution of Liberty; here he merely says that they "deal with" private property, honesty, contract, exchange, cooperation, and so on.) And so capitalism arises through a "process of self-organization," which resembles (Hayek believes) the evolution of organisms in nature. Thus he moves onto the terrain of evolutionary theory, which has increasingly preoccupied him in recent years.

In one sense it is true that the modern capitalist order really did "evolve." It developed step by step, with thc steps and the outcome unforeseen by anyone. But the claim that the gradual global spread of this form of society is a matter of the "evolutionary selection-the comparative increase of population and wealth-of those groups that happen to follow" the right rules goes much further than this and cannot be sustained.

The phrase "evolutionary selection" suggests a mechanism that inexorably overrides human will: those societies that follow the rules of the spontaneous order will grow richer and more populous, and so other modes of social organization will be pre-empted. It is certainly true that societies following Hayekian rules will get richer, but this initially uneven prosperity has a way, sometimes, of provoking socialist revolution; or perhaps I should call it counter-evolution.

In the Russia of 1907, for example, Prime Minister Pyotr Stolypin was implementing Hayek-approved rules. Private ownership of property was rapidly expanding, and the country was growing richer. By 1908 Lenin knew that he was in a race against time with Stolypin (who was assassinated in 1911). There followed World War I and the calamity of the Bolshevik revolution-a contradiction of the spontaneous order. Much the same thing happened in Cuba in the 1950s: the country's growing prosperity culminated in an abrupt spasm of tyranny. Thirty years later the tyrant responsible for this disaster still prospers.

In the light of such conflicting outcomes, one can only say that Hayek's theory of social evolution is truesometimes.

Hayek says that economic competition "is a procedure of discovery, a procedure involved in all evolution." But here he is on very shaky ground. The best guess of the intelligent entrepreneur is not at all the same thing as the random mutation that is the only source of diversity admitted by a biology that fiercely shuns all teleology. The start-up company in Silicon Valley is not just a roll of the dice. That's Reno. Hayek's theory does not distinguish between intelligence and chance.

Nonetheless, Hayek is onto something important when he argues that "Darwin got the basic idea of evolution from economics." Darwin was reading Adam Smith 'just when, in 1838, he was formulating his own theory." Bertrand Russell said much the same thing. Darwin's theory of natural selection, Russell wrote, was "the extension of laissez-faire economics to the animal and vegetable kingdoms."

For about seventy years now we have all been indoctrinated to believe that biological Darwinism came first and was pure, good, and true; and that Social Darwinism was its corruption-wicked and false. Actually, there's no doubt that laissez-faire economics really did come first. Darwin unconsciously borrowed from it. What is more surprising is that Social Darwinism may one day be recognized as embodying a truth that is absent from Darwinism itself. With socialist economies collapsing everywhere, a theory of Social Darwinism can now be stated in such a way that those who oppose it might seem more ideological than thosewho espouse it: Societies in which firms are permitted to compete (i.e., to "adapt") without subsidy or bailout will be more prosperous and will enjoy greater social harmony than all others. By contrast Darwinism proper may be almost completely vacuous-not so much false as unfalsifiable. Since Darwin failed to specify a criterion of fitness that is independent of survival, his supposed mechanism of evolution ("the survival of the fittest") is reduced to tautology: the survival of survivors.

Hayek's theory of an evolving spontaneous order would be falsified by the existence of societies that broadly shun Hayekian rules and then either prosper or grow more populous than those that adopt such rules. Inconveniently, Islamic nations, which do not enjoy the rule of law (all-important in Hayek's scheme), have the world's fastest-growing populations. Moreover, Soviet-bloc countries are growing slightly faster than developed, Western countries. The subject is enormously complex, however. "Communist countries such as Russia would be starving today if their populations were not kept alive by the Western world," Hayek correctly claims. These countries are sustained not merely by subsidies and loans but by the price data, available for them to utilize, that would not exist at all in the absence of market economies. Arab countries likewise harbor enclaves where Western rules are tolerated and sufficient oil revenues generated to subsidize their indigenous populations.

Hayek is right to suggest, as he does several times, that if socialism were to be imposed worldwide "the life itself of a large proportion of our existing population" would be threatened. In short order, billions of people would die of starvation. For this reason, there is no chance that socialism will be freely adopted anywhere. It can only be imposed by force. Perhaps that is all Hayek means when he says that the market order "evolves."

Hayek's observations about the market order, the unwritten (barely understood) rules that make it possible, and the extraordinary, ceaseless hostility it has evoked from intellectuals are of exceptional interest. This is the key terrain of what used to be called political economy. For decades it has been shamefully neglected by an economics profession that a century ago did not have the courage to resist the socialist onslaught and to this day has not recovered the confidence to do much more than play about with equations in the academic sandlots. And so, to a degree that must have surprised even him, Hayek has had the field to himself. He is one of the small number of modern economists who have not been afraid to don the robes of the philosopher. My only complaint is that he could have done it all just as well, and perhaps better, without reference to biology or evolution.