Paul Mattick 1946

Serfdom in a Free Society

Source: Western Socialist, Boston, USA, September 1946;
Transcribed: by Adam Buick;
Proofed: and corrected by Geoff Traugh, August 2005.

The Road to Serfdom. By Friedrich A. Hayek, University of Chicago Press, 1944 (250 pp.; $2.75).
Full Employment in a Free Society. By William H. Beveridge. W. W. Norton & Co., New York, 1945. (429pp; $3,75).

Both these books are dedicated to the “socialists of all parties.” Hayek wants to discourage them, Beveridge tries to offer encouragement. Both writers speak in the name of science and deal with the reality of, and the need for, capitalistic planning. But what appears to Hayek as the road to serfdom seems to Beveridge the highway to a free society.

Russia and Germany prove to Hayek that socialism does not lead to freedom. The most important guaranty of freedom, he maintains, is a system of private property. Planning and freedom cannot go together. Without a labor market and an industrial reserve army, for example, discipline can be maintained only by corporal punishment, for which reason socialism implies slave-labor. The “collective freedom” of which the planners speak is, in Hayek’s opinion, “but the unlimited freedom of the planner to do with society what he pleases.”

If planning there must be, it should be planning for, not against, competition. And this, Hayek holds, should not be too difficult for “the tendency toward monopoly and planning is not the result of any objective facts but the product of opinion.” The movement towards totalitarianism stems mainly from the two great vested interests: organized capital and organized labor. These interests are detrimental to social well-being.

Although Hayek’s heart bleeds for both the poor capitalists and the poor workers, he puts the blame for their predicament on their own doorsteps. “The success of liberalism,” he says, “became the cause of its decline.” It was “impatience with the slow advance of liberal policy, which instigated Marxism and it was Marxism that led to fascism.” Having been offered the finger of freedom, the lower classes were stupid enough to grasp for the whole hand, only to be punished with the new serfdom of state-capitalism which, for Hayek, stands for “socialism.”

Blames Marxism

Hayek blames Marxism for the totalitarian trend but his knowledge of this dangerous doctrine is apparently less than scanty. He understands Marx’s concept of the accumulation of capital, for instance, only in the restricted technological sense of the “concentration of industry.” This concentration, however, is for Marx just one aspect of the accumulation process. Moreover, Hayek assumes that Marxism fosters industrial concentration in the interest of the emerging totalitarian state. He, himself, thinks it preferable that the means of production should be in “many hands.” But for the Marxist, the problem is not one of transferring control over the means of production from many into fewer and eventually into one hand, but doing away with control over the means of production by “hands” as such, whether single or plural.

Hayek thinks it better to have the means of production in many hands, but he does not say in how many. At what point should the concentration process of industry be brought to an end? In reality, of course, it cannot be brought to an end unless capital accumulation is stopped, that is, unless capitalism itself is abolished; and Hayek is out to save it. But he cannot admit that in and of itself capitalism leads to state-capitalistic systems. It is for this reason that he describes the growing fascism within the capitalist structure as an abundance of liberalism. But since the “success of liberalism” involved the progressive destruction of capitalistic liberties, it may as well be described as the emerging totalitarianism.

Hayek’s bankruptcy

Contrary to what Hayek wants his readers to believe, the “success of liberalism” has fostered, not disturbed competition. Hayek’s competitive society has always been monopolistic, viz., the capitalist monopoly over the means of production and the monopolistic position of the state. And if the competitive society has had its monopolies, the monopolistic society has not ceased being competitive. There is no need to restore competition; it has never left us. All that has happened is that capitalism and capital accumulation have spread. Because of the process of accumulation, Hayek’s competition has become monopolistic competition, and monopolistic competition has led to competition between totalitarian states. In the totalitarian state all layers are engaged in it to the point of death. Thus capital has finally triumphed over all of humanity. The “ideal” capitalism is always the present one, and whether Hayek likes it or not, the principle of capitalist competition is fully realized only in total war.

To be sure, Hayek’s attack upon those who refer to totalitarian serfdom as a “new freedom” is fully justified. But when he speaks on behalf of the “old freedom” of liberal capitalism, he only matches “mere words” with “mere words.” He should know, and probably does know, that his proposals in both national and international fields, for arresting the capitalist tendency toward totalitarianism cannot be realized, and, even if they could be realized, would bring forth only once more what they intended to destroy. This hopeless situation reduces the economist, Hayek, to a mere propagandist for free enterprise. Hence the popularity of his book, which is no more than a testimony of the bankruptcy of its author and of the interests he represents.


Beveridge is the propagandist of Hayek’s “adversaries.” He represents an extended form of totalitarianism in distinction to Hayek’s restricted brand. Consequently, there is more “pro-Marxism” in Beveridge than there is “anti-Marxism” in Hayek. Marx is merely plundered, however, never mentioned by Beveridge and even this only second-handedly by way of Keynes. Beveridge regards this work as a sequel to his previous Report on Social Insurance. This time, however, he writes not as a “temporary Minister,” but as a “private citizen” concerned with unemployment, which interests him not so much because of its “physical” as because of its “moral” evils. “The greatest evil of unemployment is not the want which it may bring,” he says, “but the hatred and fear which it breeds,” just “as the greatest evil of war is not physical but spiritual, not the ruins of cities and killing of bodies, but the perversion of all that is best in man’s spirit.” Planning for Full Employment, then, serves first of all the spiritual regeneration of man.

After the sermon, the work begins. Man’s regeneration must be justified by the use of statistical data, close argument, technical terms and various appendices as well as an index. We learn that want is a lack of income and the absence of want, the result of enough income. For most people an income implies employment. To abolish want, employment must be guaranteed. Only the state can do this efficiently. It must be enabled to plan for full employment.

Full employment means “there should always be more vacant jobs than unemployed men,” that “the labor market should always be a seller’s market rather than a buyer’s market.” There must be an end to all restrictionist practices, whether exercised by capital or organized labor. Of course, there can be no absolute abolition of unemployment. In some of its forms it is a necessary accompaniment to economic change. But unavoidable unemployment should be short-termed and should be satisfactorily dealt with by way of social insurance.

The labor market in the past has always been a buyer’s market. Beveridge realizes that to alter this would change many existing institutions. Hayek fears that these changes would evolve into slave-labor. But Beveridge, although admitting the danger, believes in the possibility of avoiding it. He thinks it possible “to make Britain again” (what it never was) “a land of opportunity for all.” He admits, of course, that “the problem of maintaining full employment is more complicated in a free society than it would be under a totalitarian regime.” But from his present point of view he still thinks it attainable. If it should be shown by experience, however, “that abolition of private property in the means of production was necessary for full employment, this abolition would have to be undertaken.”

Beveridge refuses to take part in the present-day quarrels between private property and state control because, either separately or mixed, he is in favor of both. And because he favors both, he thinks himself on neutral ground and imagines that his proposals are equally necessary and applicable to liberalism, to a mixed economy, to the totalitarian state, or even to “socialism” as he understands it.

Apparently Beveridge knows that it is not the market but capitalist control over the means of production which forces the workers to accept their miserable conditions. Exploitation goes on regardless of the market-weather, though it goes on even better in the presence of unemployment. But even the complete loss of the labor market leaves all essential control-measures intact. The forced-labor camps need not be installed at once, the right ideology, together with the right labor organizations, should still be workable in countries like America and England.

In diagnosing unemployment, Beveridge found that “the relation of total demand to total supply is the most important single element in the problem.” The war confirmed “the possibility of securing full employment by socialization of demand without socialization of production.” To avoid unemployment the state must set up “a long-term program of planned outlay directed by social priorities and designed to give stability and expansion to the economic system. Its main instrument is a new type of budget, instrumental not only for determining public outlay, but also for influencing private outlay.”

The Economics of J. Maynard Keynes

Theoretically, this idea is based on what Beveridge regards as the revolution in economic thought initiated by Keynes. Among other things, Keynes discovered in 1936 what had been known for almost a century, namely, that employment depends on spending and that the “automatism” of the market does not guarantee spending sufficient for full employment. Keynes discovered that not all savings are spent. If profit expectancy is small, there will be small incentive to spend. This results in insufficient capital expansion and unemployment.

Since unspent savings tend to produce depressions, it follows that depressions can be cured by spending savings. If the capitalists who make the savings find no way of investing them profitably, the state should find ways and means to invest them regardless of the profit outlook. The economic activity thus initiated will have cumulative effects, so that unprofitable investment here will bring for profitable investment there, and finally everybody will have gained.

The economic problem, then, is finding a technique of manipulation which, directly and indirectly, will foster investments for capital expansion. Beveridge’s application of Keynes’ principle is summed up in his suggestions to the Minister of National Finance. Each year the Minister must make one cardinal decision: “after estimating how much, assuming full employment and under the taxation which he proposes, private citizens may be expected to lay out a year on consumption and private investment, he must propose that year public outlay sufficient, with this estimated private outlay, to employ the whole man-power of the country . . . The state must spend more than it takes away from the citizens by taxation, in order to use the labor and other productive resources which would otherwise be wasted in unemployment.”

The state can do this, Beveridge points out, because it possess an unlimited command over the nation’s credit. It can tax and borrow and borrow again and repay with interest what it has borrowed by taxing once more. In brief, it can continue doing what it is doing now. No one should become alarmed by the probability of a steadily rising national debt. The real national income remains unaffected thereby; all that may result from the debt is a transfer of income between different layers of society. And even this may not necessarily happen, for “if the annual interest charge is paid out of the proceeds of an income tax which is proportionate to income, there is no transfer at all in consequence of the debt.”

Kaldor’s Proposition

For further details, Beveridge refers his readers to Nicholas Kaldor’s work on the Quantitative Aspects of the Full Employment Problem in Britain, which makes up Appendix C. Assuming that the government will plan the rate of national investment as a whole, and with a large series of other assumptions, Kaldor comes to the conclusion that there is theoretically no reason why the government, with the help of a National Investment Board, should not be able to insure stability and adequacy in the national outlay as a whole. This could be true, of course, provided that the large number of Kaldor’s hypotheses and assumptions were applicable to capitalist reality, provided the controllers and the controlled did all the things Kaldor’s theory requires and nothing which would disturb its working. But neither Kaldor nor Beveridge confront their theories with the realities of capitalism.

Both, nevertheless, approach the problem of full employment from the point of view of immediate needs and with regard to its long-run consequences. As the national income rises with capital accumulation, governmental policy must steadily be adjusted to maintain full employment. The rate of investment outlay must be increased or rising production must be fully absorbed by rising consumption. “Ultimately,” Kaldor states, “the government may have to raise the propensity to consume by more radical methods of income re-distribution — when it will no longer be possible to afford the degree of inequality of income that can be sustained during the period of relatively high investment.”

The realization of all the expectations based on Keynesian economics depends on an accelerated capital accumulation. The theory will work provided the workers can be exploited sufficiently to make it work. Although Keynes has said, and Beveridge affirms him, that “there is room for both: to promote investment and, at the same time, to promote consumption,” they still hold that investment comes first and consumption second. And though it is true that man must work before he eats, greater production in capitalism does not imply greater consumption for the workers. And it is the consumption of the workers, we presume, that Beveridge wants to raise. Up to now, a progressively increasing investment has been made possible by progressively decreasing that part of total production which serves the consumption needs of the workers. To be sure, the rapid development of labor productivity allowed for an increase in real wages. But the rising living standard in terms of wages was possible only because the rate of exploitation rose still faster. In this sense, of course, a progressive capital accumulation may still yield an increase in real wages despite the decrease of workers’ consumption relative to total production. But it makes no sense to refer to this process as a “re-distribution of income.”

Theory and Practice

The only re-distribution possible by an accelerating capital accumulation is the familiar one of producing fewer rich men and more poor men. Greater investment, begetting still greater investment, implies not only the spending of “savings” on hand, but also the production of still greater “savings.” The surplus-value created must create still greater surplus-value to safeguard a sufficient rate of capital expansion. A point will be reached where the needs of continuous investment exceed the proceeds of current exploitation, because, as long as capitalism lasts, there is no limit to the first, but there are quite definite limits to the second. No matter how much credit the government may have and no matter how little it may fear the largest debt, the rate of investment to keep the accumulation process going will need more surplus-value than it finds on hand. At this point, of course, Kaldor and Beveridge would proclaim that “it is no longer possible to afford the degree of inequality of income” that prevailed during the period of relatively high investment and they would expect the state “to raise the propensity to consume” by governmental decree.

Apparently, then, Beveridge would like to end capital accumulation by way of the accumulation of capital. His immediate suggestions for increasing both investment and consumption would mean, however, doing twice as effectively what any capitalist system tries to do anyway, that is, raise the productivity of labor and reduce the cost of non-productive activities. “Radical re-distribution of income” looms in the future as the result of the immediately increased exploitation. Once more “socialism” is conceived of as the reward of unsocialistic behavior in the immediate present and in the near future. And once again it is conceived of as a gift from government.

Conflicts within Capitalism

The direction of investment, however, is not a question of governmental choice between various alternatives. To a certain extent it is influenced, no doubt, not by reasoning but by the struggle between different capitalistic interests and between capital and labor. Where the latter struggle is temporarily set aside by government action, the fight between capitalistic contenders still continues. Books like Hayek’s and Beveridge’s describe this struggle. But their opposing points of view are only reflections of the fight between the groups they represent — the fight for gaining or maintaining controlling positions in a system which defeats every control other than that which will secure the existence of that system. The fact that in this struggle the Beveridges and not the Hayeks are winning should indicate that the developmental trend is still determined by the uncontrollable pressures of capital accumulation based on an exploitative social relationship.

Who is the government which so wisely stops and starts accumulation in accordance with the changing needs of society? Once it was the executive of Hayek’s “competitors.” Then it became a capitalist monopoly among other monopolies. Now it is, or is in the process of becoming, the complete monopoly which determines national policy in its totality. It competes with similar monopolies and with monopolistic blocs for the largest share of world exploitation. The competitive strength of a nation consists in its productive capacity which is largely based on the size of its productive apparatus and labor force. The reality of the competitive struggles alone precludes investments to raise the “propensity to consume.” The uncompleted process of capital concentration enforces the continued planlessness of capital expansion. More than ever before accumulation makes no sense from a social point of view; it may serve the ruling groups quite well, but it does so only because it still us an accumulation for the sake of accumulation. This fact reduces Beveridge’s theory to an attempt to turn the necessities of today into tomorrow’s virtue and indicates the inability of capitalism to have an economic theory. Its economists merely give ideological support to changing capitalistic practices.


If Beveridge’s proposals for England, in spite of their naïveté, could serve government officials in their struggle with the organized will of private capital, his international proposals serve nobody and are merely ridiculous. They are based on the empty promises of the Atlantic Charter and on the senseless hope for an international authority engaged in a “good neighbor policy.” He envisions the possibility of a planned management of capitalistic international trade, benefiting every nation including the backward areas. It all depends on the good will of men. In Beveridge’s words capitalists, monopolists and governments are supposed to regard themselves as the agents of a policy wider than that of their own interests. The control of movements of capital, of exchanges, of raw materials and foodstuffs, imports and exports should be undertaken with a view to avoiding depressions and unemployment without plunging into war. Obviously, however, the rulers of today are not concerned with the niceties of modern economic theory. They are preparing for new wars and further destruction through which the crisis of capitalism asserts itself.