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Reason: Your teacher, Ludwig von Mises, wrote Socialism in 1920. It became the opening round in a controversy that is still brewing over whether a socialist economy was even logically possible. Socialist economists, particularly in Eastern Europe, have thanked Mises for his thoughtful criticisms and have generally engaged in a thought-provoking discourse with Mises, Lord Robbins, and yourself for the past half-century. What is the present state of the debate?
Hayek: I've always doubted that the socialists had a leg to stand on intellectually. They have improved their argument somehow, but once you begin to understand that prices are an instrument of communication and guidance which embody more information than we directly have, the whole idea that you can bring about the same order based on the division of labor by simple direction falls to the ground. Similarly, the idea [that] you can arrange for distributions of incomes which correspond to some conception of merit or need. If you need prices, including the prices of labor, to direct people to go where they are needed, you cannot have another distribution except the one from the market principle. I think that intellectually there is just nothing left of socialism.
Reason: Could socialist economies exist without the technology, innovations, and price information they can borrow from Western capitalism and domestic black markets?
Hayek: I think they could exist as some sort of medieval system. They could exist in that form with a great deal of starvation removing excess population. It's all a question of why should an economy not continue to exist. But whatever economic advance Russia has achieved was, of course, achieved by using the technology developed by the West. I know that the Russians would be the last ones to deny it.
Reason: A very interesting part of your social philosophy is that value and merit are and ought to be two distinct qualities. In other words, individuals should not be remunerated in accordance with any concept of justice, whether it be the Puritan ethic or egalitarianism. Do you find many free-market advocates falling into this thinking, that value and merit should be equated in a "truly moral society"?
Hayek: I think there is a little shift recently as a result of my outright attack on the concept of social justice. It is now turning on the problem of whether social justice has any meaning at all and, of course, social justice is essentially based on some concept of merit. I'm afraid I have shocked my closest friends by denying that the concept of social justice has any meaning whatever. But I haven't been persuaded that I was wrong.
Reason: Well, then, why isn't there any such thing as social justice?
Hayek: Because justice refers to rules of individual conduct. And no rules of the conduct of individuals can have the effect that the good things of life are distributed in a particular manner. No state of affairs as such is just or unjust; it is only when we assume that somebody is responsible for having brought it about.
Now, we do complain that God has been unjust when one family has suffered many deaths and another family has all of its children grow up safely. But we know we can't take that seriously. We don't mean that anybody has been unjust.
In the same sense, a spontaneously working market, where prices act as guides to action, cannot take account of what people in any sense need or deserve, because it creates a distribution which nobody has designed, and something which has not been designed, a mere state of affairs as such, cannot be just or unjust. And the idea that things ought to be designed in a "just" manner means, in effect, that we must abandon the market and turn to a planned economy in which somebody decides how much each ought to have, and that means, of course, that we can only have it at the price of the complete abolition of personal liberty.
Reason: Is Britain irrevocably on the road to serfdom?
Hayek: No, not irrevocably. That's one of the misunderstandings. The Road to Selfdom was meant to be a warning: "Unless you mend your ways, you'll go to the devil." And you can always mend your ways.
Reason: What policy measures are currently possible to reverse the trend in Britain?
Hayek: So long as you give one body of organized interests, namely the trade unions, specific powers to use force to get a larger share of the market, then the market will not function. And this is supported by the public because of the historic belief that in past the trade unions have done so much to raise the standard of living of the poor that you must be kind to them. So long as this view is prevalent, I don't believe there is any hope. But you can induce change. We must now put our hope in a change of attitude.
I'm afraid many of my British friends still believe, as Keynes believed, that the existing moral convictions of the English would protect them against such a fate. This is nonsense. The character of a people is as much made by the institutions as the institutions are made by the character of the people. The present British institutions contribute everything to change the British character. You cannot rely on an inherent "British character" saving the British people from their fate. But you must create institutions in which the old kinds of attitudes will be revived which are rapidly disappearing under the present system.