Honorable mention goes to Friedrich A. Hayek for “What Price a Planned Economy?” :It is a fable that governments interfered with banking in order to restrict the issue of fiduciary media and to prevent credit expansion. The idea that guided governments was, on the contrary, the lust for inflation and credit expansion. They privileged banks because they wanted to widen the limits drawn to credit expansion by conditions prevailing on the unhampered market or because they were eager to open to the treasury a source of revenue. For the most part both of these considerations motivated the authorities. They were convinced that the fiduciary media are an efficient means of lowering the rate of interest, and asked the banks to expand credit for the benefit of both business and the treasury. Only when the undesired effects of credit expansion became visible, were laws enacted to restrict the issue of banknotes—and sometimes also of deposits—not covered by specie. The establishment of free banking was never seriously considered precisely because it would have been too efficient in restricting credit expansion.
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Many governments never looked upon the issuance of fiduciary media from a point of view other than that of fiscal concerns. In their eyes the foremost task of the banks was to lend money to the treasury. The money-substitutes were pacemakers for governmentissued paper money. The convertible banknote was merely a first step on the way to the nonredeemable banknote. With the progress of statolatry and the policy of interventionism these ideas have become general and are no longer questioned by anybody. No government is willing today to give any thought to the program of free banking because no government wants to renounce what it considers a handy source of revenue. ... Radical inflationism, although not admitted explicitly, is an essential feature of the economic ideology of our age.
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But even if the 100 per cent reserve plan were to be adopted on the basis of the unadulterated gold standard, it would not entirely remove the drawbacks inherent in every kind of government interference with banking. What is needed to prevent any further credit expansion is to place the banking business under the general rules of commercial and civil laws compelling every individual and firm to fulfill all obligations in full compliance with the terms of the contract. If banks are preserved as privileged establishments subject to special legislative provisions, the tool remains that governments can use for fiscal purposes. Then every restriction imposed upon the issuance of fiduciary media depends upon the government's and the parliament's good intentions. They may limit the issuance for periods which are called normal. The restriction will be withdrawn whenever a government deems that an emergency justifies resorting to extraordinary measures. If an administration and the party backing it want to increase expenditure without jeopardizing their popularity through the imposition of higher taxes, they will always be ready to call their impasse an emergency. Recourse to the printing press and to the obsequiousness of bank managers, willing to oblige the authorities regulating their conduct of affairs, is the foremost means of governments eager to spend money for purposes for which the taxpayers are not ready to pay higher taxes.
But the agreement about the ends of planning is, in the first instance, necessarily confined to some blanket formula like the general welfare, greater equality or justice, etc.
Agreement on such a general formula is, however, not sufficient to determine a concrete plan, even if we take all the technical means as given. Planning always involves a sacrifice of some ends in favor of others, a balancing of costs and results, and this presupposes a complete ranging of the different ends in the order of their importance. To agree on a particular plan requires much more than agreement on some general ethical rule; it requires much more than general adherence to any of the ethical codes which have ever existed; it requires that sort of complete quantitative scale of values which manifests itself in the actual decisions of every individual but on which, in an individualist society, agreement is neither necessary nor present.
This fact — that a measure of agreement which does not exist is required in order to translate the apparent agreement on the desirability to plan into concrete action — has two important consequences.
In the first instance it is responsible for the conspicuous inability of democratic assemblies to carry out what is apparently the expressed will of the people, because it is only when it comes to translate the vague instructions into action that the lack of real agreement manifests itself. Hence the growing dissatisfaction with the "talking shops" which fail to carry out what to the man in the street seems a clear mandate.
The second effect of the same cause, which appears wherever a democracy attempts to plan, is the general recognition that if efficient planning is to be done in a particular field, the direction of affairs must be "taken out of politics" and placed in the hands of independent, autonomous bodies. This is usually justified by the technical character of the decisions to be made, for which the members of a democratic assembly are not qualified.
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Hence, in order to be able to extend action beyond the questions on which agreement exists, the decisions are reserved to a few representatives of the most powerful "interests."
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Democratic government worked successfully so long as, by a widely accepted creed, the functions of the state were limited to fields where real agreement among a majority could be achieved. The price we have to pay for a democratic system is the restriction of state action to those fields where agreement can be obtained; and it is the great merit of a liberal society that it reduces the necessity of agreement to a minimum compatible with the diversity of individual opinions which will exist in a free society.
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But it is a fatal delusion to believe that authoritarian government can be confined to economic matters. The tragic fact is that dictatorial direction cannot remain confined to economic matters but is bound to expand and to become "totalitarian" in the strict sense of the word. The economic dictator will soon find himself forced, even against his wishes, to assume dictatorship over the whole of the political and cultural life of the people.
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The decision on the relative importance of conflicting aims is necessarily a decision about the relative merits of different groups and individuals. Planning becomes necessarily a planning in favor of some and against others. The problem here is, of course, not that the different people concerned have not the most decided opinions on the relative merits of their respective wishes; it is rather that these opinions are irreconcilable.
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That the government which claims to plan economic life soon asserts its totalitarian character is no accident — it can do nothing less if it wants to remain true to the intention of planning. Economic life is not a sector of human life which can be separated from the rest; it is the administration of the means for all our different ends. Whoever takes charge of these means must determine which ends shall be served; which values are to be rated higher and which lower — in short, what men should believe and strive for. And man himself becomes little more than a means for the realization of the ideals which may guide the dictator.
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