Leading the Revival of Individualism & Self Reliance

Spontaneous Order: The Beautiful System That Emerges From Individualism.

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As humans, we are a product of spontaneous order, specifically of a version of spontaneous order that we call evolution. With no plan and no planner, innovations (genetic mutations) occur randomly, are tested in the marketplace of survival, and the most successful go forward. The outcome has been beneficial for the entire species.

Spontaneous order is a concept with a long history in economics and sociology. Steven Horwitz has traced the spontaneous order tradition from Adam Smith to Carl Menger to Hayek. It is F. A. Hayek who is viewed as the primary champion of the idea that the spontaneous collaboration of free people “creates things which are greater than their individual minds can ever fully comprehend.” Allowing spontaneous orders to flourish is the essence of a free society.

Why are we not more open to the idea of spontaneous order?

Why, then, is spontaneous order repressed in modern societies and economies? Why do we insist upon, and seem to prefer, hierarchies, authority, designed institutions and planned economies?

Our human brains do not seem to be able to understand or conceive of a system of emergent order for the social organization of the species. We insist on a linear vision of cause and effect, on hubristic processes of design, and on rigid authoritarian and hierarchical social structures.

If, instead, we could recognize the beneficial outcomes of spontaneous order and embrace a future characterized by conditions that favor spontaneous order, we’d all live better and more fulfilled lives.

Sync is everywhere.

Steven Strogatz can help to open our minds to this possibility with a book called Sync: How Order Emerges From Chaos In The Universe, Nature and Daily Life. Dr. Strogatz is a Professor of Applied Mathematics who has focused on a science of Synchrony, Sync for short.

He starts the reader of his book on a journey of explanation with a seemingly simple example. Fireflies are known flash in synchrony, each flashing on and off at the same time. How do they orchestrate themselves? At this point he introduces us to an important concept: coupled oscillators.

These are pairs of biological phenomena that can influence each other. If one firefly fires early, it can influence its coupled oscillator neighbor to speed up. If one fires late, it can influence its coupled oscillator to slow down. Eventually, each pair gets in sync and an entire neighborhood of fireflies can become synchronized. How do they do it? Dr. Strogatz reveals the big idea: they self-organize.

He then gives us additional examples of coupled oscillators synchronizing, including crickets chirping, the firing of pacemaker cells in the human heart, and stock market booms and crashes. The richness of the world is due, in large part, he says, to the miracle of self-organization.

But he observes, “Unfortunately, our minds are bad at grasping these kinds of problems. We’re accustomed to thinking in terms of centralized control, clear chains of command, and the straightforward logic of cause and effect. But in huge, interconnected systems, where every player ultimately affects every other, our standard ways of thinking fall apart.”

Free Markets In Sync.

In fact, he has given us our first clue to the acceptance of spontaneous order. We can think of individuals in unhampered economic markets engaging in mutually voluntary exchange as coupled oscillators. Buyers and sellers. Producers and consumers. Each aligns with the other through market feedback (when the producer observes what the consumer does and does not buy) and the pricing mechanism (when the producer discovers what value the consumer assigns to different choices available to them). These coupled oscillators can achieve sync if there are no restrictions on their mutual communication.

Sympathy Begets Sync.

Another chapter is entitled “The Sympathetic Universe”. Dr. Strogatz tells the story of the seventeenth century Dutch physicist Christian Huygens, who observed two pendulum clocks hanging close to each other in his room whose pendulum swings started out unsynchronized but, over time, synchronized themselves. He attributed the phenomenon to “a kind of sympathy” between them. In fact, Strogatz demonstrates that the effect springs from the laws of mathematics and physics.

Yet the word “sympathy” resonates, because Adam Smith told us (in Theory Of Moral Sentiments) that sympathy is the basis for the synchronized working of markets and societies.

We are each endowed with a natural sympathy towards others. When we see others distressed or happy, we feel for them. In markets, this sympathy results in entrepreneurs developing new offerings designed to alleviate others’ dissatisfactions and improve their lives. The feedback loop from customer to entrepreneur, indicating whether the new offering is accepted and valuable, is sympathy operating in the reverse direction. The entrepreneur and the customer are coupled oscillators synchronizing via sympathetic connection.

Small-world Networks

In the final section of Sync, Dr. Strogatz tells us about “small-world networks.” In studying the networks in which oscillators are connected, scientists have identified some conditions under which sync and the rapid, sometimes explosive, spread of information and ideas are most likely to emerge. The pattern of connections between individuals – “the architecture of relationships” – is what matters.

Structure always affects function. The structure of social networks, for example, affects the spread of information. The “small-world” structure refers to a complex network which includes a tight knit set of “local connections” (think family, friends, neighborhood, work colleagues) and a widely flung set of global connections (think people all over the world whom we correspond with on e-mail, our LinkedIn network of connections, globally distributed connections in a professional association, and so on).

The internet is one simple example of a small-world network. Most web pages link to others on the same topic, but occasionally may veer off onto idiosyncratic byways. To use the example of infectious diseases, “Ebola demonstrated that infectious diseases spread mainly within tight-knit communities, but also hitch rides on airplanes.”

Simple Rules.

Simple general rules determine how sync emerges in vast networked populations. In a separate TED talk, Strogatz explained the general rules for a flock of starlings or a school of fish to move in incredibly beautiful synchronized motions.

“There are just three simple rules. First, all the individuals are only aware of their nearest neighbors. Second, all the individuals have a tendency to line up. And third, they’re all attracted to each other, but they try to keep a small distance apart. And when you build those three rules in, automatically you start to see swarms that look very much like fish schools or bird flocks. Now, fish like to stay close together, about a body length apart. Birds try to stay about three or four body lengths apart. But except for that difference, the rules are the same for both.”

This brings us neatly back to F.A. Hayek and his sociology of spontaneous order. He proposed that all individuals be free to act and to innovate in a system of general rules that apply to all, and do not favor one individual or group over another, or favor a predetermined outcome. They connect with each other through knowledge and information sharing, and provide feedback to each other through the price system.

Today, individuals can share and express their sympathy for each other both locally and globally, in what Dr. Strogatz would call a small-world network. And, as Brittany Hunter has pointed out, if we look, we find spontaneous order all around us.

Conditions are ideal for sync and spontaneous order – if we let it emerge.

The Sunk Cost Fallacy Can Be Found Practically Everywhere

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Economics often seems confusing primarily because many economists wish it to be. This reliance on their knowledge has allowed central authorities to plan and control economies for centuries. But many of the essential principles of economics are identifiable in our everyday lives.

One does not need charts or graphs to be able to understand that every decision we make is based on a cost-benefit analysis. Even if we do not even realize this process is occurring, each decision we make is finalized by weighing it against another option, a fundamental principle of economics.

The sunk cost fallacy is another principle that can be found in many real-life scenarios.

The Uncomfortable Boots

The sunk cost fallacy is, most simply put, knowing when to quit. So often in life, we mistakenly double down on our losses rather than quit while we are ahead. And much of this is due to the emotional investment that accompanies the decision-making process.

If I were to buy an extravagantly priced pair of boots, that turn out to be unbearably painful to wear, I have two options: I can cut my losses and stop wearing the boots, even though I paid a high price. Or, I can continue wearing the boots because I feel as though I must “get my money’s worth.”

But in choosing the latter, I have actually lost twice. I already paid the initial cost for the boots. Assuming that since I wore them they are now unreturnable, there is nothing I can do, aside from creating a time machine, that will allow me to make up for that initial loss. This is precisely what makes my next decision so important.

If I neglect to wear these boots, thus saving my feet the torture of having to walk in them, I will “cut my losses.” I can move on having learned an important lesson and with comfortable feet.

But if I decide to wear them as much as possible since I paid so much for them, I pay the initial cost plus the pain felt each time I force myself to wear the boots.

But there was an emotional connection I had with those boots during the initial decision-making process. In this case, the attachment I had to the physical appearance of the boots caused me to sacrifice both money and comfort.

The Buffet

For those who may not relate to the boots example, another common association with the sunk cost fallacy is the great buffet conundrum.  

In anticipation of an all-inclusive Vegas buffet experience, you decide to forego breakfast and lunch. Plagued with hunger and feeling absolutely miserable, you decide that you must endure this feeling because later you will feed yourself ungodly amounts of food.

The time for dinner is finally here. After you pay the all-inclusive cost and make your way around the entire buffet once, you realize that there is no possible way you can squeeze any more food into your body. But you are not willing to throw in the towel just yet. So, you consider your options.

Having already spent the day in anticipatory agony and paid the price for the buffet, you have already paid a nonrefundable cost. If you decide that you have already made it this far, and must make it around the buffet yet again, you will end up paying an additional cost. You risk the likely possibility that this overindulgence will result in discomfort or extreme sickness.

If on the other hand, you are able to dissect the situation more rationally you may decide to quit while you are ahead and save yourself any further discomfort. After all, you have already been in pain throughout the day, you owe it to yourself to be comfortable now.

But again, so often in life, we relate back to that first initial decision and use it as justification to double down on this initial stance.

A Simple Principle Many Ignore 

Yet, as simple as this basic economic principle is, it continues to plague policymakers. Once there is an emotional investment into a specific plan of action, even if the economic benefit isn’t there.

Legislators who have emotional investments in certain policies can easily forget that by doubling down on a misguided stance, they are actually losing twice. This type of thinking has been seen in the War on Drugs, which has failed and yet continues to be waged by the federal government despite hemorrhaging costs.

In foreign policy, this happens often as well. When an objective is not being met, but sacrifices have already been made, many policymakers forget that sticking to their guns would mean a continuation of human casualties in addition to economic losses.

But the same process that might help a politician understand the consequences of doubling down on a decision, is the same each of us encounters daily when making choices. And if we understand this, we can become better at cutting our losses and getting out of a bad situation while the gettin’ is good.

Why the Worst Humans Are Able to Rise to Power

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In chapter ten of The Road to Serfdom, “Why the Worst Get on Top,” Hayek continues to warn about the dangers of planned economies, but with a slightly different approach from earlier chapters.

Stepping into new territory, here we see Hayek not only identifying economic problems, but also discussing the very nature of power itself. Specifically, he addresses how totalitarians are able to rise to power and coerce entire populations into absolute despotism.

What is so fascinating about Hayek’s warnings in this chapter is the fact that they were written at a time when the world was desperately trying to make sense of what had just occurred in Germany during WWII. Hitler and the Third Reich were all too fresh in the minds of all mankind, making Hayek’s warnings extraordinarily relevant.

The world was determined to never let that kind of evil loose on civilization again, but as Hayek warned, it is not merely a matter of making sure “good” people get elected to office; it is making sure totalitarianism is rejected at all corners: economic, political, social and all other forms imaginable.

Three Reasons Why

History’s most notorious dictators did not rise to power randomly. And in this chapter of his book, Hayek explains why the most despicable people always end up with political power and why, to paraphrase Lord Acton, absolute power always corrupts absolutely.

Hayek explains:

“There are three main reasons why such a numerous and strong group with fairly homogeneous views is not likely to be formed by the best but rather by the worst elements of any society. By our standards the principles on which such a group would be selected will be almost entirely negative.”

Addressing the first reason, Hayek says:

“In the first instance, it is probably true that, in general, the higher the education and intelligence of individuals become, the more their views and tastes are differentiated and the less likely they are to agree on a particular hierarchy of values. It is a corollary of this that if we wish to find a high degree of uniformity and similarity of outlook, we have to descend to the regions of lower moral and intellectual standards where the more primitive and “common” instincts and tastes prevail.”

And this is precisely what happened in Germany prior to the rise of the Third Reich.

Hayek continues:

“It is, as it were, the lowest common denominator which unites the largest number of people.”

After the German economy was decimated in the aftermath of WWI, economic woes were the bond that united all Germans. They may have had nothing else in common save this one element, but it was of enough importance to impact the day-to-day lives of all Germans.

In addition to the economic hardships brought about by the hyperinflation of the Weimar Republic, the “volk” had one other common element: They were all Germans. And from this came a propaganda campaign that would capitalize on these few similarities in order to further unite the German people to one cause: The Third Reich.  

Discussing his second reason, Hayek says:

“Here comes in the second negative principle of selection: he will be able to obtain the support of all the docile and gullible, who have no strong convictions of their own but are prepared to accept a ready-made system of values if it is only drummed into their ears sufficiently loudly and frequently. It will be those whose vague and imperfectly formed ideas are easily swayed and whose passions and emotions are readily aroused who will thus swell the ranks of the totalitarian party.”

The German people were exhausted after WWI. Like the rest of the globe, their economy had already taken the fiscal hits associated with the costs of long-term war. They wanted prosperity and they would take it however they could get it if it meant a guarantee of putting food on the table.

But they had also just finished fighting a war. Women were widowed, limbs were lost, and morale was at an all-time low as the entire globe was pointing its fingers at Germany.

When Joseph Goebbels was tasked with manipulating the German people into not only submission but full-blown fanaticism, he knew exactly what to do: unite the people in a common cause and direct them to a desired end. He also knew that a good propaganda campaign involved repeating certain slogans and rhetoric over and over again until it became second nature to the people, as Hayek explains above.

By utilizing a brilliant propaganda campaign that played to the sympathies felt by all Germans in the post-WWI climate, Hitler and his followers were able to hoodwink an entire nation.

But the real evil genius of the Third Reich’s propaganda campaign was its utilization of a common enemy that the whole populace could blame. This brings us to Hayek’s third reason the worst get on top:

“The third and perhaps most important negative element of selection enters. It seems to be almost a law of human nature that it is easier for people to agree on a negative program—on the hatred of an enemy, on the envy of those better off— than on any positive task. The contrast between the “we” and the “they,” the common fight against those outside the group, seems to be an essential ingredient in any creed which will solidly knit together a group for common action. It is consequently always employed by those who seek, not merely support of a policy, but the unreserved allegiance of huge masses.”

The German people were mad, tired, and frustrated with their situation. Blaming the nations responsible for making their country pay reparations was not sufficient since, at the time, Germany lacked the ability to do much about it. Instead, the enemy became anyone who wasn’t like everyone else.

Don’t Give up Your Power

Though Hitler’s detestation of the Jewish population is no secret, they were not the only people on his list. Anyone who didn’t have German blood coursing through their veins was a threat to the fatherland and had to be stamped out.  

Most people would protest that they would be guilty of condemning entire segments of the population to death, but what is important to understand about Germany in WWII is that most Germans did not understand the magnitude of the situation.

They had capitulated power because they were desperate for change. But by relinquishing that power, they allowed horrible, unchecked atrocities to occur. But as Hayek says, there is “an increasing tendency among modern men to imagine themselves ethical because they have delegated their vices to larger and larger groups.”

This in itself hits at the very core of why all totalitarian regimes are dangerous. If individuals give up all their power to an authority, there are no longer any checks on power. All things that can be done will be done, and the people, through their own volition, have allowed this to come to pass because the ends were more important than anything else.

As Hayek says:

“It is even more the outcome of the fact that, in order to achieve their end, collectivists must create power—power over men wielded by other men—of a magnitude never before known, and that their success will depend on the extent to which they achieve such power. Power, and the competitive system is the only system designed to minimize by decentralization the power exercised by man over man.”

Few politicians are ever elected on a platform of brutality of epic proportions. Had the German people known what the end results of the Third Reich would be, I doubt the majority would have complied. But it is always easier to make these claims in hindsight.

So how, as individuals, can we do our best to ensure we do not let this happen again? How do we do our absolute best to ensure that we are not tempted in the face of economic uncertainty or foreign threats? The answer is constant vigilance.

Be wary of any politician who is eager for the masses to give up their power, and when faced with such a decision, remember the creed so commonly associated with the great Ludwig von Mises, “Tu ne cede malis sed contra audentior ito,” do not give in to evil but proceed ever more boldly against it.

The Unstoppable Changes In Today’s Organizations And Institutions.

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Today, we think of organizations, both in the commercial and the non-profit fields, as legal entities with operations, a budget, a structure (e.g. of business units and their supply chains), and a cadre of mostly permanent employees, remunerated via wages and salaries.

Society is questioning today’s forms of organization.

There are some questions that begin to arise about the continued functionality of this form of organization. People worry about an excessive focus on the short-term, and about unseemly bonuses for C-Suite managers tied to profit targets, and about reported violations of ethics and norms. Hierarchies feel oppressive and unresponsive to new ideas. Social impact, quality of life impact and community development impact become part of a skeptical analysis.

Today’s organizational forms will disappear.

It’s entirely reasonable to think about this organizational form declining in the future, perhaps disappearing.

Organizational evolution is tending towards firms as a cluster of projects, each project having a specific end in mind. The project will assemble labor and capital as needed, and the specific types of labor and capital can be flexibly added and subtracted at each project stage as needed. Many contractors and vendors are rented rather than owned, and consumed by the unit – an hour of computing power, a crane leased for a day or a week, a loan to finance inventory for as long as it takes to get from China to New York.

Some of the contract labor might be engaged in the same way – entering the project with specific skills to address specific tasks, and exiting when the task is done, to go on to another project at another company. The walls of these firms are permeable, with labor and capital moving in and out as needed. Teams and resource clusters are ad hoc, flexible and ever changing. These companies and many others are already redefining the work structures that will replace the old hierarchical models.

Our institutions will change, too.

With all of this organizational change going on, we can expect to find our institutions changing, too. The term “institution” can be a little bit loose in modern parlance. Let’s take it to mean the norms of behavior that people in a society or nation follow. The organizations that become institutionalized follow from the norms of behavior.

The emergent norm of “No taxation without representation” gave rise to the U.S. Constitution, Congress, the Executive branch of government and the administrative state, and the Judiciary. Norms of behavior such as “Get a high school diploma and a college degree to advance in the workforce” gave rise to our current educational institutions and an institutionalized pathway for most of us. “A career is upward progress on the rungs of the corporate / professional hierarchical ladder” is a norm giving rise to institutionalized jobs, training and assessment.

The new norm may be something like “Make yourself as uniquely useful as you can as a collaborator with other knowledgeable actors” and may result in institutionalized education, institutionalized professions, and institutionalized jobs withering away to be replaced with totally new forms.

The individual drives all this change.

In all these future scenarios, uncertain as they are, there is one consistency. The individual is at the center. It’s a heightened responsibility for your own future; it’s a call for active management of your life path while happily bearing the future uncertainty. It’s the entrepreneurial attitude.

You’ll think of it as knowledge gathering and curation, and you are in charge. You will actively navigate your own career, making frequent changes of emphasis and taking new pathways from time to time as circumstances change around you. You might be an employee for part of your career, a freelance contributor to projects and teams for another part, and an entrepreneur for a third part. You will be at the center of your own health care: managing your own wellness, taking charge of all your data, managing your behavior in response to the data and the diagnostics available to you, and choosing your own team of doctors and specialists and healthcare service providers (presuming that healthcare can be made universally accessible and affordable with choices through the healthcare system). You will be at the center of your own media cloud, acting as your own editor, taking responsibility to be sure the news information you receive is useful, accurate, and aligned with your interests.

Opportunity and Responsibility.

The new individualism comes with great opportunity and some responsibility. It requires us to take charge, assess ourselves and our contribution objectively, augment ourselves with the right technology and assemble the right tools, always embracing continuous change and lifelong learning.

It’s unstoppable.

The institutional resistance may be high, but the progress of individualism promises to be unstoppable.

Spontaneous Order Can Be Found All around Us

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The world we live in is full of unpredictable, individual actors. This alone has been enough to justify state intervention in almost every aspect of our lives since the very first governments were formed among men. Yet, even though the world is full of chaotic moving parts, there is an organic order that occurs when individuals of all species are left to their own devices.

The belief in this natural alignment is what Hayek referred to as “spontaneous order” and examples can be found all around us, both in human society and in nature.

Music Festivals

Throughout our lives, we have been told that there must be some sort of authority present in order to keep humankind in line and lead us to desired ends. This, it is believed, is the only way in which a society of individuals can be made to conform and coexist with each other.

But this is not so, as anyone who has ever attended a music festival can attest.

In my adult life, attending music festivals has not been a main priority. But set on trying new things, I accepted an invitation to electronic dance music (EDM) festival.

I will admit that upon walking through the gates of the Atlanta Motor Speedway, I was intimidated by the hordes of people all marching to the beat of their own drummer. As an avid individualist, I thought this would be my own slice of heaven, but I was mostly just terrified by the eccentricities of other festival goers. How would we all be able to dance next to each other without anyone fighting or getting hurt?

As I began walking toward the main stage where a crowd of thousands had gathered to watch their favorite DJ, I was taken aback by what I saw before my eyes. From a distance, it appeared that the entire crowd was moving as one. But this couldn’t be possible. I had walked around with these people all day and there was no way each unique spirit had made a coordinated effort to dance in unison.

But as I made my way through the crowd and to the very center of the action, I had a different perspective. There was no unity at all, in fact, each dancer still maintained their individuality perfectly. Yet, everyone was dancing to the same beat.

In the world of EDM, there are a few moments within in each song where the beat begins to escalate. Before this happens, each individual in the crowd is his own. He, or she, dances and sways in whatever capacity they feel so inclined. And believe me, this can manifest itself in all sorts of ways.

But as the music builds and intensifies, something quite extraordinary happens to the crowd, they work as one without sacrificing their individualism and without being led by any being.

And while I didn’t have the words to describe what I was witnessing at the time, I would later watch a lecture that perfectly summed up my music festival encounter.

Synchronized Individuals

Mathematician Steven Strogatz presented a TED Talk some years ago on the topic he refers to as “sync.” Explaining how all organisms are capable of “syncing” together and working as one without some sort of puppet master pulling the strings, Strogatz begins his talk by asking the audience to clap.

With any precognition, the audience manages to clap as one. But even more fascinating, the audience begins to pick up speed in unison as well. Again, this group had never been gathered together before this presentation. There was no plan in place and aside from the Strogatz inviting them to applaud, there was no leader. Yet somehow, the crowd managed to clap as one.

Explaining this phenomenon Strogatz says:

This is a room full of intelligent people, highly sensitive, some trained musicians out there. Is that what enabled you to synchronize? So to put the question a little more seriously, let’s ask ourselves what are the minimum requirements for what you just did, for spontaneous synchronization. Do you need, for instance, to be as smart as you are? Do you even need a brain at all just to synchronize? Do you need to be alive? I mean, that’s a spooky thought, right? Inanimate objects that might spontaneously synchronize themselves. It’s real. In fact, I’ll try to explain today that sync is maybe one of, if not one of the most, perhaps the most pervasive drive in all of nature. It extends from the subatomic scale to the farthest reaches of the cosmos. It’s a deep tendency toward order in nature that opposes what we’ve all been taught about entropy. I mean, I’m not saying the law of entropy is wrong — it’s not. But there is a countervailing force in the universe — the tendency towards spontaneous order.

Anyone who has ever watched a nature documentary has seen this occurring within the animal kingdom. Flocks of birds flying in unison and even swerving as one in order to escape a predator. Human beings are no different.

Commenting on spontaneous order as it applies to the animal kingdom Strogatz says:

There are just three simple rules. First, all the individuals are only aware of their nearest neighbors. Second, all the individuals have a tendency to line up. And third, they’re all attracted to each other, but they try to keep a small distance apart. And when you build those three rules in, automatically you start to see swarms that look very much like fish schools or bird flocks. Now, fish like to stay close together, about a body length apart. Birds try to stay about three or four body lengths apart. But except for that difference, the rules are the same for both.

What was particularly fascinating about these rules is that they are the same that I observed at the music festival while attendees were dancing. Commenting on the fourth rule Strogatz says, “There’s a fourth rule: when a predator’s coming, get out of the way.”

At music festivals, where alcohol is sold in abundance, predators come in the form of rowdy dancers who may not be completely aware of their surroundings. But again, without any preplanning, the crowd is able to swerve and sway and hold space in order to protect themselves. And while it appears to be done as a group it is not. As Strogatz says, “Even though it looks like they’re thinking as a group, they’re not.”

Similar observations can be made on a crowded Manhattan street. Anyone looking down from a skyscraper window would be amazed that so many people are capable of walking, each at their own pace and to their own respective destination, without colliding. Yet, every single day this happens and individuals are able to bob and weave and navigate their way around each other without placing a great deal of thought on the matter.

Central planners will often use the unpredictability of individuals as grounds for legislating almost all aspects of our lives. But when individuals are left to their own devices, not only does the world continuing spinning as it always has, people actually benefit from this great freedom.

Halfway Point: Suggested Readings to Accompany the Road to Serfdom

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Reading The Road to Serfdom while simultaneously liveblogging my thoughts has been far more intellectually grueling than expected. However, taxing as it has been, I am pleased to say that I have finally made it to the halfway point of my Hayekian liveblogging journey.

Looking back on the first half of the book, there is a lot of reading I wish I had done beforehand. And as many have expressed that they have been reading the book along me, I thought it might be useful to provide some helpful reading suggestions. 

Individualism: True and False

Understanding the role individualism plays in the economy is one of the most important concepts to grasp before diving into The Road to Serfdom. But for those who may not want to dive headfirst into Hayek’s essay Individualism: True and False before beginning this classic, here are ten essential takeaways.

The Law

Before digging into the heart of free market economics with The Road to Serfdom, it is important to understand the foundation of the classical liberal tradition. The reoccurring themes of natural law, government restraint, and ominous warnings of socialism found throughout Hayek’s work can all be traced back to Bastiat’s The Law. Though as you will see later, Bastiat was hardly the first to write of such things.

This timeless body of work is still so extraordinary today largely because it managed to articulate in 75 pages, what took many philosophers thousands of pages to explain. The Law is essential to understanding these basic principles that are the basis for much of Hayek’s beliefs.

The Second Treatise on Government

Without John Locke’s Second Treatise on Government, The Law may well have never existed. What Bastiat’s sums up, Locke traces in absolute detail. From natural rights to contract theory, Locke took from philosophers throughout history and laid out what he believed to be the most civilized society capable in a world of individual choice.

His work continues to be the staple for any belief that government should be restrained for the sake of individual liberty.

Know Your History 

It is important to understand the political and economic climate in which Hayek conceived The Road to Serfdom.

The very real threat of state totalitarianism was fresh in the minds of every single person around the globe. These warnings are not hyperbolic by any means. The individuals alive in the world during its time were tired of war and were desperate to prevent this same global devastation from ever occurring again.

Perhaps the greatest and most easily digestible books on this matter that I could suggest come from a series called, Uncle Eric written by Richard Maybury. The series, while aimed at young adults, offers the most compelling and well-summed up histories on the topics of both WWI and WII. They will give you a very clear picture of the time this book was written and the economic factors involved.

The Curse of Machinery 

There is a common thread you will see throughout Hayek’s work and my own corresponding liveblogs: A very real fear of technology and its impacts on economic policy. To understand the commonality of this problem, Henry Hazlitt’s chapter “The Curse of the Machinery” in his classic Economics in One Lesson is an essential read. 

Hazlitt uses history to explain the myth that this technological progress is bad for workers. This is most helpful to understanding our current climate where fear of innovation is used to justify policies like the universal basic income.

 

Hurricane Season and the Broken Window Fallacy

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In the wake of natural disasters or other acts of God, mainstream economists love to perpetuate the myth that unnecessary destruction is somehow good for the national economy.

As hurricane season hit the United States earlier this fall, the same typical accusations were made. Economists and other pundits were quick to suggest that while devastating, hurricanes Harvey and Irma were somehow good for the economy.

In late August and early September, the usual headlines sprung up claiming that “Devastating Storm May Actually Boost US GDP.” But worse than this false rhetoric is the fact that many do fall prey to this line of thinking and begin to subscribe to it. 

And while classical liberals and Austrians will be the first to tell you that “creative destruction” is an integral part of the market process, this is definitely not what they had in mind.

Luckily, 19th-century French economist Frédéric Bastiat predicted this situation nearly two centuries ago when he wrote his great parable, the broken window fallacy.

What Is Seen

When economists falsely predict economic stimulation after a disaster leaves wreckage in its wake, they are only seeing one very small portion of the problem. As Bastiat points out in his What Is Seen and What is Not Seen:

“There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”

What is obviously seen after a disaster, is an economic boom arising in specific industries during the aftermath of a horrible storm. Since storms create massive wreckage in need of repair, there will almost certainly be an influx in the economy when it comes to corresponding industries. And, to play to Bastiat’s parable, one such example is the glass industry.

Since many windows will have been broken in both residential neighborhoods and metropolitan areas, it is certain that these disasters will benefit the glass industry. And since there is a boost in that one particular area, economists falsely believe that this boom will trickle down and positively impact the entire economy as a whole. But this is simply not the case.

You cannot observe a net positive in one area without also taking note of how this impacts other sectors as well.

As Bastiat writes:

“In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.”

Yet, many scoff at this warning and believe that the obvious consequences are all that matter.

Describing a similar scenario Bastiat writes:

“Have you ever been witness to the fury of that solid citizen, James Goodfellow, when his incorrigible son has happened to break a pane of glass? If you have been present at this spectacle, certainly you must also have observed that the onlookers, even if there are as many as thirty of them, seem with one accord to offer the unfortunate owner the selfsame consolation: “It’s an ill wind that blows nobody some good. Such accidents keep industry going. Everybody has to make a living. What would become of the glaziers if no one ever broke a window?”

But what of these unseen consequences? Well, many of these mainstream economists neglect to see beyond the obvious.

What Is Not Seen

 Continuing to explain why so many economists comprehend this situation incorrectly, Bastiat writes:

“Suppose that it will cost six francs to repair the damage. If you mean that the accident gives six francs’ worth of encouragement to the aforesaid industry, I agree. I do not contest it in any way; your reasoning is correct. The glazier will come, do his job, receive six francs, congratulate himself, and bless in his heart the careless child. That is what is seen.”

But in the instance of storms, the individual families or businesses that now have to buy new panes of glass are spending valuable resources to rebuild what existed only a few days ago. They are essentially double spending. Had a storm or disaster not hit, that money could have been spent elsewhere. So these mainstream economists fail to account for consequences that were initially unseen.

Bastiat writes:

“But if, by way of deduction, you conclude, as happens only too often, that it is good to break windows, that it helps to circulate money, that it results in encouraging industry in general, I am obliged to cry out: That will never do! Your theory stops at what is seen. It does not take account of what is not seen.”

If that money was, instead used to pay for something else in a different sector, economic stimulation still would have occurred. However, it would not have come at the expense of something that was already paid for, like the initial window prior to the storm. Bastiat comments on this as well, saying:

“It is not seen that, since our citizen has spent six francs for one thing, he will not be able to spend them for another. It is not seen that if he had not had a windowpane to replace, he would have replaced, for example, his worn-out shoes or added another book to his library. In brief, he would have put his six francs to some use or other for which he will not now have them.”

Why Does this Myth Survive?

It is far easier to explain to people what can easily be seen in front of their eyes. The money spent on reconstruction immediately after a storm, for example, is very tangible. Many are experiencing these initial “booms” in corresponding sectors.

But trying to Explain what is unseen is much more of a feat. But without the consideration of both the seen and the unseen the entire economic picture is not complete.

“And if we were to take into consideration what is not seen, because it is a negative factor, as well as what is seen, because it is a positive factor, we should understand that there is no benefit to industry in general or to national employment as a whole, whether windows are broken or not broken.”

He continues:

“Two very different masters teach him this lesson: experience and foresight. Experience teaches efficaciously but brutally. It instructs us in all the effects of an act by making us feel them, and we cannot fail to learn eventually, from having been burned ourselves, that fire burns. I should prefer, in so far as possible, to replace this rude teacher with one more gentle: foresight…”

Both these two “masters” as Bastiat calls them, are vital to understanding the economy. You must account for both. Otherwise, this fallacy continues to be spread as if it is economic doctrine, just as it does each time hurricane season rolls around.

Bastiat sums up his argument by writing:

“From which, by generalizing, we arrive at this unexpected conclusion: “Society loses the value of objects unnecessarily destroyed,” and at this aphorism, which will make the hair of the protectionists stand on end: “To break, to destroy, to dissipate is not to encourage national employment,” or more briefly: ‘Destruction is not profitable.”

Regulations Harms and Voluntary Exchange Repairs

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Like all entrepreneurs, Beto Matias saw an opportunity to support his family while simultaneously creating value for his community.

Finding a prime spot right outside UC Berkeley’s football stadium, Matias began selling his craft hot dogs to willing consumers. No one complained about the quality of Matias’ hot dogs, nor did anyone have any objections to his presence outside of the stadium. But that didn’t stop the state from intervening.

Street Theft

Officer Sean Aranas approached Matias as he was going about his business and asked to see identification. Matias, in complete compliance with the officer’s demands, began sifting through his wallet in search of his identification. But this is where the story took a devastating turn.

Before Matias was given the opportunity to hand Aranas his ID, the wallet was ripped from his hands. And instead of merely examining his identification, Officer Aranas proceeded to confiscate the $60 Matias had in his wallet at the time. It was not until after this strong-arm mugging that the officer finally explained to Matias that he was being cited for failing to obtain a business permit.

Luckily, one of Matias’ customers filmed the entire encounter on his smartphone and the video has since gone viral.  

Martin Flores knew something wasn’t right when he saw the officer reach for Matias’ wallet. Thankfully, as so many of us are trained to do in the digital age, he pulled out his smartphone and immediately began documenting the encounter. And he did so just in the nick of time.

In Flores’ footage, viewers see the wallet physically taken from Matias as his hard-earned money is stolen right before his eyes. In the background, Flores can be heard saying, “That’s not right.”

Flores even took his role in the matter one step further and while filming, inquires why the officer deemed it necessary to target this innocent vendor over the loud display of public intoxication that was occurring directly across the street. The only response Aranas supplied Flores with was, “Yeah, well he doesn’t have a permit. He doesn’t have a permit.”

Penalized for Hard Work

To be sure, Matias never denied his lack of a business permit. But he was shocked and taken aback by Aranas’ actions. To be handed an arbitrary citation is one thing, but to have your cash simply snatched by an officer of the law is especially egregious.

Matias later told Telemundo 48:

I had already shown him my ID. They saw that I was not doing anything wrong, neither stealing nor anything, I was just working to support my family.

Unfortunately, this kind of thing happens every day.

The most innocuous activities now require state permission: from selling hot dogs to playing tennis. No one can economically survive without a job. And yet, for many, our government makes it impossible to do so without first running an obstacle course of red tape. For a country founded on freedom of opportunity, something has gone horribly wrong.

In the American workforce, over 30 percent of jobs require an occupational license before an individual can legally earn a living. To make matters worse, many of these permits and licenses target those in the most vulnerable socioeconomic brackets. Not only are these licenses often expensive and require a great deal of paperwork, they are completely arbitrary.

As often as “public health and safety” is cited as justification, licensing does very little to ensure this. It doesn’t matter how well-intentioned the state may be, a permit cannot prevent food poisoning. Occupational licensing has, however, been extremely successful in limiting the number of individuals entering a given work sector. It has also helped protect established industries from unwanted competition, for example, shutting down a “rogue” hot dog vendor operating without a license.

But of the many things licensing does, protecting the consumer is most certainly, not among them.

The market has its own means of protecting consumers through feedback. Even before platforms like Yelp and Google allowed for a free flow of review culture, word of mouth has always served to help keep business owners accountable.

Additionally, consumer loyalty says a lot about a product or service. This is not the first time Matias has sold hot dogs from his cart, and his consumers keep coming back. And “shockingly” enough, no one has died or even reported any instances of foodborne illnesses.

The quality of a service speaks for itself, and this is something that cannot be obtained through a government license.

Outsourcing Justice

Stories like Matias’ occur every day in this country. Unfortunately, many victims of state abuse are never vindicated. But our digital age is changing all this.

Not only is video footage like Flores’ helping to keep law enforcement accountable for their actions, but crowdsourcing is helping to right the wrong done to Matias, something the state is unlikely to do anytime soon — or ever.

After the footage went viral, social media activists started a GoFundMe page to mitigate the financial losses felt by Matias and his family. The original fundraising goal was set at $10,000. But since the campaign’s launch on Monday morning and the continuous sharing of the footage of the encounter with the officer, over $80,000 has been raised to help cover Matias’ pay for legal fees and recoup his losses. And the donations keep pouring in.  

As for the officer involved, an online petition calling for his immediate termination has already garnered 20,000 signatures. However, the university seems apathetic to the entire incident, claiming that the officer was conducting business as usual.

A representative did make a statement saying:

We are aware of the incident. The officer was tasked with enforcing violations related to vending without a permit on campus. UCPD is looking into the matter.

In other words, Officer Aranas was “just doing his job.” And unfortunately, the promise of the UCPD “looking into the matter,” does little to calm the fears of many Americans who are tired of having to read about these stories on a weekly basis. Even worse, are the many Americans forced to become part of this narrative as a result of bureaucratic licensing.

But fortunately, social media has acted as the arbiter of justice. And while Officer Aranas’ future in law enforcement is probably just as secure as it was before the incident occurred, at least voluntary crowdsourcing has provided the means to keep the Matias family afloat and perhaps, help him expand his venture and add even more value to his community.

Individuals Should Be in Control of Their Own Economic Fates

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Typically, Hayek’s chapter titles leave nothing to the imagination. But as I encountered the “Who, Whom” title of chapter eight in The Road to Serfdom, I had to do a doubletake.

Having the modern luxury of Google at my fingertips, I soon learned that Hayek’s title was actually a Bolshevist slogan made popular by Lenin in the 1920s. It was later shortened by Leon Trotsky who used it in his article titled Towards Capitalism or Towards Socialism?

“Who, Whom” refers to the overall question of who will overtake whom. Or, put differently, which ideology will survive: socialism or capitalism.

But what was most unfortunate about this slogan was the corresponding propaganda campaign that was used by these socialists to entice followers to join their ranks; it all became about class struggle and equality. But what socialists view as equality and what equality really means in the marketplace are two entirely different beliefs.

There Is No Equality

Those who believe in the power of markets believe that true equality comes from each individual’s ability to equally pursue his or her dreams without fear of intervention from a governing authority.

But the socialists have distorted this term into something that can never exist, no matter how much they may wish it. The socialists would like to see everyone made equal through some planned economy directed to a specific end. That end being equal pay and status.

Unfortunately, no two people are born the same. Each person has unique skills and experiences that set him apart from all others. The only way in which two people can be made to be the same is through a complete government takeover of every aspect of our lives. Or, in other words, nothing short of ultimate force would bring about this goal. Which is exactly what Hayek warns about in chapter eight of The Road to Serfdom.

What socialists forget, or perhaps never understood to begin with, is that the free market is the only vessel from which equal access to our ambitions can be achieved without trampling on the ambitions or rights of others.

Under free market capitalism, a man is not prescribed his destiny at birth. The child born in the streets and swaddled in rags can grow up to be an entrepreneur, creating value, jobs, and driving the economy. So long as he has the ambition and will to do so, of course.

But this ability to change one’s stars belittles this notion of class warfare because in true capitalism one can move from one station to the next, making socialism completely irrelevant to the equation.

As Hayek says:

Under competition the probability that a man who starts poor will reach great wealth is much smaller than is true of the man who has inherited property, it is not only possible for the former, but the competitive system is the only one where it depends solely on him and not on the favors of the mighty, and where nobody can prevent a man from attempting to achieve this result.

Resentment

But through socialist doctrine, it was instilled in many that each of us deserves equal success just by simply existing. And even worse still was this underlying resentment that led many prominent socialists to believe that those born in lower classes are somehow more deserving of this success than someone born into “privilege.”

Hayek attributes much of this line of thinking to compulsory education.

Textbooks assigned during the course of government-forced education tell of greed and oppression at the hand of wealthy. And of course, the heroes are the working class underdogs who have managed, in spite of capitalism, to form labor unions and pass regulations all intended to make us all more equal.

As Hayek writes:

The resentment of the lower middle class, from which fascism and National Socialism recruited so large a proportion of their supporters, was intensified by the fact that their education and training had in many instances made them aspire to directing positions and that they regarded themselves as entitled to be members of the directing class.

Instead of seeking to change their situations through their own efforts, an entire generation now believed it was owed to them.

While the younger generation, out of that contempt for profit-making fostered by socialist teaching, spurned independent positions which involved risk and flocked in ever-increasing numbers into salaried positions which promised security, they demanded a place yielding them the income and power to which in their opinion their training entitled them.

But what is neglected here is a clear definition of who will be in charge of bringing about this great utopia where all things are equal. Such a system would have to be controlled by some all-powerful entity.

Arbiter of Fairness

For forced equality to occur, some entity has to be responsible for directing resources to make it so. And as history has shown us, this is always a role given to the state, by the state. As Hayek says, “In so far as government does anything at all, its action will always have some effect on “who gets what, when, and how.”

But somehow, socialists have convinced themselves that the state is a neutral source of redistribution, immune to succumbing to its own ends over the “common good” of the people. But this gives the state complete control over just about everything imaginable, as Hayek also warns:

What these people forget is that, in transferring all property in the means of production to the state, they put the state in a position whereby its action must in effect decide all other incomes.

He further adds, “That a government which undertakes to direct economic activity will have to use its power to realize somebody’s ideal of distributive justice is certain.”

Fight for Fifteen

We are seeing this play out today in our modern world with the “fight for fifteen” minimum wage movement. Desperate to achieve “fair” pay for all, many entry-level workers have demanded that the government take complete control of setting wage rates. But in reality, all this does is take the power to control one’s destiny out of the hands of individuals and into the hands of government.

Instead of working to earn this success, it is demanded that the government simply give it to us. Entry-level positions that were once seen as stepping stones to greater career ambitions are now seen as the ends themselves.

The young man flipping burgers desires to make as much as his supervisor because he feels it is owed to him. But that supervisor was once flipping burgers himself. It was his own ambition for something more that led him to want a higher status in life. And that drive resulted in him picking up extra shifts and proving himself until he reached an elevated position. This ability in itself is true freedom.

As Hayek says:

It is only because we have forgotten what unfreedom means that we often overlook the patent fact that in every real sense a badly paid unskilled worker in this country has more freedom to shape his life than many a small entrepreneur in Germany [1944] or a much better paid engineer or manager in Russia.

No human being can ever eradicate the differences that exist among individuals. And no one should want to. These differences have given us the robust marketplace we have today. Our different abilities and skills are proof that we live in a society where individuals determine their destiny and not some arbitrary authority.

As Hayek says:

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.

So, the question of “who, whom” is rather important because what this slogan really makes one reflect on is who is control of whom. For the socialists, they believe the government should control one’s status in life. For the capitalist, it is the individual and only the individual who is in charge of determining his own destiny.

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