PLANNING AND CAPITALISM By F. A. Hayek

Without some such central control of the means of production, planning in the sense in which we have used the term ceases to be a problem. It becomes unthinkable. This would probably be agreed by the majority of economists of all camps, although most other people who believe in planning still think of it as something which could be rationally attempted inside the framework of a society based on private property. In fact, however, if by planning is meant the actual direction of productive activity by authoritative prescription, either of the quantities to be produced, the methods of production to be used, or the prices to be fixed, it can be easily shown, not that such a thing is impossible, but that any isolated measure of this sort will cause reactions which will defeat its own end, and that any attempt to act consistently will necessitate further and further measures of control until all economic activity is brought under one central authority.
It is impossible within the scope of this discussion of socialism to enter further into this separate problem of state intervention in a capitalistic society. It is mentioned here only to say explicitly that it is excluded from our considerations. In our opinion well-accepted analysis shows that it does not provide an alternative which can be rationally chosen or which can be expected to provide a stable or satisfactory solution of any of the problems to which it is applied.1
But here again it is necessary to guard against misunderstanding. To say that partial planning of the kind we are alluding to is irrational is, however, not equivalent to saying that the only form of capitalism which can be rationally advocated is that of complete laissez faire in the old sense. There is no reason to assume that the historically given legal institutions are necessarily the most “natural” in any sense. The recognition of the principle of private property does not by any means necessarily imply that the particular delimitation of the contents of this right as determined by the existing laws are the most appropriate. The question as to which is the most appropriate permanent framework which will secure the smoothest and most efficient working of competition is of the greatest importance and one which it must be admitted has been sadly neglected by economists.
But on the other hand, to admit the possibility of changes in the legal framework is not to admit the possibility of a further type of planning in the sense in which we have used the word so far. There is an essential distinction here which must not be overlooked; the distinction between a permanent legal framework so devised as to provide all the necessary incentives to private initiative to bring about the adaptations required by any change, and a system where such adaptations are brought about by central direction. And it is this, and not the question of the maintenance of the existing order versus the introduction of new institutions, which is the real issue. In a sense both systems can be described as being the product of rational planning. But in the one case this planning is concerned only with the permanent framework of institutions and may be dispensed with if one is willing to accept the institutions which have grown in a slow historical process, while in the other it has to deal with day-to-day changes of every sort.
There can be no doubt that planning of this sort involves changes of a type and magnitude hitherto unknown in human history. It is sometimes urged that the changes now in progress are merely a return to the social forms of the pre-industrial era. But this is a misapprehension. Even when the mediæval guild system was at its height, and when restrictions to commerce were most extensive, they were not used as a means actually to direct individual activity. They were probably not the most rational permanent framework for individual activity which could have been devised, but they were essentially only a permanent framework inside which current activity by individual initiative had free play. With our attempts to use the old apparatus of restrictionism as an instrument of almost day-to-day adjustment to change we have probably already gone much further in the direction of central planning of current activity than has ever been attempted before. And if we follow the path on which we have started, if we try to act consistently and to combat the self-frustrating tendencies of any isolated act of planning, we shall certainly embark upon an experiment which has no parallel in history. But even at this stage we have gone very far. If we are to judge the potentialities aright it is necessary to realize that the system under which we live choked up with attempts at partial planning and restrictionism is almost as far from any system of capitalism which could be rationally advocated as it is different from any consistent system of planning. It is important to realize in any investigation of the possibilities of planning that it is a fallacy to suppose capitalism as it exists to-day is the alternative. We are certainly as far from capitalism in its pure form as we are from any system of central planning. The world of to-day is just interventionist chaos.

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