Economic Liberalism - on competition

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The dispute between the modern planners and their opponents is therefore, not a dispute on whether we ought to choose intelligently between the various posssible organisations of society; it is not a dispute on whether we ought to employ foresight and systematic thinking in planning our common affairs. It is a dispute about what is the best way of so doing. The question is whether for this purpose it is better that the holder of coercive power should confine himself in general to creating conditions under which the knowledge and iniciative of individuals is given the best scope so that they can plan most successfully; Or whether a rational utilisation of our resources requires central direction and organisations of all our activities according to some consciously constructed “blueprint”.
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The liberal argument is in favour of making the best possible use of forces of competition as a means of co-ordinating human efforts, not an argument for leaving things just as they are. It is based on the conviction that where effective competition can be created, it is a better way if guiding individual efforts than any other, It does not deny, but even emphasises, that, in order that competition should work beneficially, a carefully thought-out legal framework is required, and that neither the existing nor the past legal rules are free from grave defects. Nor does it deny that where it is impossible to create the conditions necessary to make competition effective, we must resort to other methods of guiding economic activity. Economic liberalism is opposed, however, to competition being supplanted by inferior methods of co-ordinating individual efforts. And it regards competition as superior not only because it is in most circumstances the most efficient method known, but even more because it is the only method by which our activities can be adjusted to each other without coercive and arbitrary intervention of authority. Indeed, one of the main arguments in favour of competition is that it dispenses the need for “conscious social control” and that it gives individuals a change to decide whether the prospects of a particular occupation are sufficient to compensate for the disadvantages and risks connected with it.
The successful use of competition as the principle of social organisation precludes certain types of coercive interference with economic life, but it admits others which sometimes may very considerably assist its work and even requires certain kinds of government action. But there is good reason why the negative requirements, the points where coercion must not be usedm have been particularly stressed. It is necessary in the first instance that the parties in the market should be free to sell and buy at any price at which they can find a partner to the transaction, and that anybody should be free to produce, sell, and buy anything that may be produced or sold at all. And it is essential that the entry into the different trades should be open to all on equal terms, and that the law should not tolerate any attempts by individuals or groups to restrict this entry by open or concelead force. Any attempt to control prices or quantitires of particular commodities deprives competition of its power of bringing about an effective co-ordination fo individual efforts, because price changes the cease to register all the relevant changes in circunstanes and no longer provide a reliable guide for the individual’s action.
This is not necessarily true, however,of measures merely restricting the allowed methods of prodution, so long as these restrictions affect all the potencial producers equally and are not used as an indirect way of controlling prices and quantities. Though all such controls of the methods of production impose extra costs, i.e. make it necessary to use more resources to produce a given output, they may be well worth while. To prohibit the useoof certain poisonous substances, or to require special precautions in their use, to limit working hours or to require certain sanitaty arrangements, is fully compatible with the preservation of competition. The only question here is whether in the particular instance the advantages gained are greater that the social costs which they impose.
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The Road to Serfdom
1943
Friedrich August von Hayek
Nobel Prize for Economics 1974