Probably the most brilliant book on the political implications of collectivism. I do believe Hayek's ideas were genuine and should not be misinterpreted as absolute support for an anti-government thesis.

The key idea is that any political system that interferes with economic freedom and competition (e.g. socialism) will ultimately leads to totalitarianism. Chapter ten on Why the Worst Get on Top is particularly interesting as it exposes the dynamics behind such a system.

My Notes

East and West Germany almost provide a controlled scientific experiment. Here are people of the same blood, the same civilization, the same level of technical skill and knowledge, torn asunder by the accidents of warfare, yet adopting radically different methods of social organization—central direction and the market. The results are crystal clear. East Germany, not West Germany, had to build a wall to keep its citizens from leaving. On its side of the wall, tyranny and misery; on the other side, freedom and affluence. — Milton Friedman, Introduction to the 1994 Edition

Hayek was not against the intervention of government per se; he argued that there is a distinction to be made on the relevance of the fields in which the government intervenes.

If in the long run we are the makers of our own fate, in the short run we are the captives of the ideas we have created.

• Western civilization has progressively, since the nineteenth century, lost the very ideals upon which it has been founded. Totalitarianism and socialism replaced liberal philosophy in most European countries.
• The freedom in economic affairs that we gave up on was the foundation that made personal and political freedom possible.
• One culprit, Hayek tells us, is the broad influence exerted by important German intellectuals such as Marx, List, Schmoller, Sombart, who all argued in favor of socialism or planning. Such influence had thus been imported from Germany to other areas of Europe.
• Hayek was a strong proponent of individualism, though the meaning of that word isn't the same today as it was in the past. Liberalism is today associated with egotism and selfishness, but it was used to contrast with socialism and collectivism.
• The idea of individualism was fully developed during the Renaissance. It was meant to recognize one's own views and tastes in order to accomplish one's own goals.

Only since industrial freedom opened the path to the free use of new knowledge, only since everything could be tried – if somebody could be found to back it at his own risk – has science made the great strides which in the last 150 years have changed the face of the world.

Economic liberalism is opposed, however, to competition being supplanted by inferior methods of co-ordinating 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.

• As per Hayek’s words, democratic socialism is the great utopia of the last few generations, which erroneously believes that it can coexist with freedom.

• Socialists may genuinely believe in the quest for freedom, but they fail to realize that a socialistic society deprives men of their freedom.

• The freedom which is sought by socialism isn’t freedom from coercition nor freedom from the power of other men. The freedom of socialism is the freedom from necessity, in which the economic system must be restrained.

The complete collapse of the belief in the attainability of freedom and equality through Marxist socialism has forced Russia to travel the same road toward a totalitarian, purely negative, noneconomic society of unfreedom and inequality which Germany has been following… — Peter Drucker

• Socialism is a form of collectivism; therefore it shares all its attributes, including the necessity of its partisans to be oppressive and tyrannical to support themselves.
• "Planning" is seen by most as a means to rationally handle common problems. But socialists see planning as a measure to centralize all economic activity.
• It is important to remember that opposition to planning does not equal dogmatic laissez-faire, but rather to promote effective competition in the fairest way.

Any attempt to control prices or quantities of particular commodities deprives competition of its power of bringing about an effective coordination of individual efforts, because price changes then cease to register all the relevant changes in circumstances and no longer provide a reliable guide for the individual's actions.

• Hayek does not blindly nor unequivocally oppose government intervention. Government is in fact crucial in order to establish fair and relevant rules so to make competition works.
• Some specific cases may even require production controls, but these measures should be applied only to serve the common good.
• It is impossible to reconcile freedom and planning, centralization and competition, in ways that lead to effective production.
• Both competition and centralization becomes poor if they are incomplete.
• Planning and competition can be combined only if it is planning for competition—not against it.

Although competition can bear some mixture of regulation, it cannot be combined with planning to any extent we like without ceasing to operate as an effective guide to production. Nor is planning a medicine which, taken in small doses, can produce the effects for which one might hope from its thoroughgoing application.

• People who argue for planning widely exaggerate it importance.
• Many idealists and specialists want central planning for it will best serve their ideals; the motorist wishes the country cut up by big motor roads, the efficiency fanatic wants as much mechanization as possible, whereas the artisan seeks to preserve all the talented craftsmen.

The movement for planning owes its present strength largely to the fact that, while planning is in the main still an ambition, it unites almost all the singleminded idealists, all the men and women who have devoted their lives to a single task. The hopes they place in planning, however, are the result not of a comprehensive view of society but rather of a very limited view and often the result of a great exaggeration of the importance of the ends they place foremost.

From the saintly and single-minded idealist to the fanatic is often but a step.

• The best way to distinguish the conditions in a free country from those under arbitrary government is through the presence of the Rule of Law, referring to formal laws.
• This means that government in all its actions is bound by preestablished rules and announced beforehand: individuals are able to foresee with quite some accuracy how the authority will make use of its coercive powers.
• Under the Rule of Law, there is no discretion decisions that would go against what individuals expect. The coercive power of the state can be used only in cases defined in advance by the law.
• The application of the Rule of Law per se is more important that its content. As long as the content of the rule is universally and equally applied, the Rule of Law will be effective.
• As an example, it does not matter whether we all drive on the left or on the right side of the road so long as we all do the same. What matters is our ability to predict others' behavior correctly.
• Rule of Law cannot exist in a planned society for the powers, which are in theory unlimited, are centralized.
• In a planned society, the poor have no choice whatsoever but to remain at the mercy of the state. In a competitive and free society, the very poor man has the possibility to become rich through work.
• The system of private property is the very foundation of our freedom, not only for those who own property, but also for those who don't.

The fact that the opportunities open to the poor in a competitive society are much more restricted than those open to the rich does not make it less true that in such a society the poor are much more free than a person commanding much greater material comfort in a different type of society.

• It's because the control of the means of production are divided among people acting independently that nobody has complete power over us.

There will always exist inequalities which will appear unjust to those who suffer from them, disappointments which will appear unmerited, and strokes of misfortune which those hit have not deserved. But when these things occur in a society which is consciously directed, the way in which people will react will be very different from what it is when they are nobody’s conscious choice.

In a country where the sole employer is the State, opposition means death by slow starvation. The old principle: who does not work shall not eat, has been replaced by a new one: who does not obey shall not eat. — Leon Trotsky

• To Hayek, one of the most important problems of our time is the recurrent waves of large-scale unemployment that threaten economic activity.
• Remuneration is supposed to reflect people’s usefulness in society. But if those whose usefulness is reduced (e.g. through technological change) are protected against such a loss, remuneration will cease provide the utility it is supposed to.
• To get an idea of what society would look like had socialists been in control, one could observe the military life, where individuals are conceded full economic security but restricted from their liberty.
• Securing the income of some inevitably leads to the degradation of the position of others.
• Any control of prices or quantities restrict competition; it favors some individuals at the expense of many others.

The more we try to provide full security by interfering with the market system, the greater the insecurity becomes; and, what is worse, the greater becomes the contrast between the security of those to whom it is granted as a privilege and the ever-increasing insecurity of the under-privileged. And the more security becomes a privilege, and the greater the danger to those excluded from it, the higher will security be prized. As the number of the privileged increases and the difference between their security and the insecurity of the others increases, a completely new set of social values gradually arises.

It is no longer independence but security which gives rank and status, the certain right to a pension more than confidence in his making good which makes a young man eligible for marriage, while insecurity becomes the dreaded state of the pariah in which those who in their youth have been refused admission to the haven of a salaried position remain for life.

• Why do the worst get on top?

  • Uniformity is found in a society among those who have lower moral and intellectual standards. Thus the largest group of people whose values are similar are the people with low standards. If someone seeks to impose their views on people, it will be easier on the " mass".
  • That person may be able to obtain the support of all the docile instincts, who have no strong convictions of their own.
  • A law of human nature is that it is almost always easier to adhere people to agree on a negative program based on the hatred of the enemy rather that the opposite.

• A socialist system needs a raison d’état to work: it can justify all the means to serve the end, without limit to what its citizens must be prepared to do.

• Collectivist ethics do no have formal rules (or Rule of Law). To be useful in a collectivist system one must serve the ends of the nation determined by the state.

• The worst get on top in a totalitarian state because to be useful requires one to be prepared to break every moral rule he has ever known. The leader alone sets the ends; its partisans must be unreservedly committed to him. Being ruthless and unprincipled thus become an asset for the state to assert its dominance.

• For a totalitarian regime to work, not only people have to work towards the same ends, they also have to believe that these ends are also theirs. The state therefore needs to control what is in the mind of the people.

• Totalitarian propaganda destroys all morals and the respect of truth. The only truth tolerable is the truth of the state.

• This explains why totalitarian regimes historically used scapegoats or myths to justify their purpose.

• Individualism and happiness become irreconcilable because they do not serve the superior ideal of the state. There is no longer things such as art for art’s sake or science for science sake.

• Individualism is an attitude of tolerance to other opinions and is therefore the exact opposite of the intellectual misconception rooting for collectivism.

• The nature of power structure makes socialism very dangerous. Central planning requires that a small handful of people holds a considerable amount of power.