Hayek contended, partly from first principles and partly from his analysis of British developments, that liberty is fragile, easily harmed but seldom extinguished in one fell swoop. Instead, over the years “the unforeseen but inevitable consequences of socialist planning create a state of affairs in which, if the policy is to be pursued, totalitarian forces will get the upper hand.” Hayek did not premise his case upon an a priori conception of natural rights. Instead, he asserted that liberty had developed from an a posteriori recognition of humans’ inherent limitations – particularly the restrictions of their knowledge and reasoning. Most importantly, no planner or group of planners, however intelligent and well resourced, can possibly obtain and process the countless bits of localised and tacit information required such that a government plan meets its objectives. Only price signals emitted in an unhampered market enable harmony and efficiency to arise spontaneously from many millions of individuals’ plans. Hence government intervention in the plans of individuals, even if undertaken by men of good will, inevitably leads to loss of liberty, economic stagnation (at best) and war and impoverishment (at worst).  
  

Hayek also pointed to an even greater danger. “At least some of the forces which have destroyed freedom in Germany,” he warned, “are also at work [in Britain and, by implication, America]. The character and the source of this danger are, if possible, even less understood than they were in Germany … Few are ready to recognise that the rise of Fascism and Nazism was not a reaction against the socialist trends of the preceding period but a necessary outcome of those tendencies … As a result, many who think themselves infinitely superior to the aberrations of Nazism, and sincerely hate all its manifestations, work at the same time for ideals whose realisation would lead straight to the abhorred tyranny.” National Socialism, in short, was not a German cultural phenomenon: it was a socialist economic phenomenon.

  
          Socialism, then – including the allegedly “moderate” and “responsible” variety championed today by business schools and business executives, investment bankers and funds managers, management consultants and MBAs, central bankers and Treasury economists, and “conservative” politicians – begets tyranny as well as stultification. Hayek did not maintain that any tendency towards socialism leads quickly or automatically to totalitarianism. Instead, The Road to Serfdom “is a warning that unless we mend the principles of our policy, some very unpleasant consequences will follow which most of those who advocate these policies do not want.” Alas, in 1976 Hayek reckoned “both the influence of socialist ideas and the naïve trust in the good intentions of the holders of totalitarian power have increased markedly since I wrote the book.”  
  
          On 24 September 1944, The Road to Serfdom was the subject of the lead review in The New York Times Book Review. Henry Hazlitt, the author of Economics in One Lesson (Laissez Faire Books 50th Anniversary Edition, 1996) and a Newsweek columnist, enthused that Hayek “has written one of the most important books of our generation … It restates for our time the issue between liberty and authority with the power and rigour of reasoning that John Stuart Mill stated the issue for his own generation in his great essay “On Liberty.” It throws a brilliant light along the direction in which the world has been heading, first slowly, but now at an accelerating rate, for the last half-century. It is an arresting call to all well-intentioned planners and socialists.”  
  
          Tomas Jezek, who became the Czech minister of privatisation after the collapse of communism, has said that if the “ideologists of socialism would single out the one book that ought to be locked up at any price and strictly forbidden, they would surely point to The Road to Serfdom.” If these ideologues of socialism, i.e., the “socialists of all parties” to whom Hayek dedicated the book, wish to avert the repetition of the multiple and unprecedented catastrophes that they caused during the twentieth century – and threaten to repeat in our own time –, then they could do no better than to read it and heed its lessons. Investors, too, who are notoriously prone to complaisance and overconfidence, can benefit greatly from its sobering message.  
  
The Road’s Present Terrain and Contour 
  
          In order to appreciate Hayek’s insights fully, one should read The Road to Serfdom carefully and from cover to cover (see also the pictorial summary published in Look magazine). To glimpse its relevance for our day, consider two points. First, although “hot socialism [i.e., the nationalisation of banks and heavy industry, the collectivisation of agriculture and so on] is probably a thing of the past, some of its conceptions have penetrated far too deeply into the whole structure of current thought to justify complacency. If few people in the Western world now want to remake society from the bottom according to some ideal blueprint, a great many still believe in measures which, though not designed completely to remodel the economy, in their aggregate effect may well unintentionally produce this result. [Accordingly], the advocacy of policies which in the long run cannot be reconciled with the preservation of a free society is no longer a party matter.” “Conservative” politicians: are you listening? 
  

“If few people in the Western world now want to remake society from the bottom according to some ideal blueprint, a great many still believe in measures which, though not designed completely to remodel the economy, in their aggregate effect may well unintentionally produce this result.”

 
          As a second point, Hayek warned in The Road to Serfdom about the destruction of the legal foundation of liberty. Following John Locke, Hayek argued that personal liberty presupposes the rule of law. “Stripped of all technicalities,” this “means that government in all its actions is bound by rules fixed and announced beforehand.” Hayek draws an analogy between the rule of rule and good traffic regulations. Rules should be very few and very simple, and therefore easy for drivers to follow and police to enforce. They should also evolve slowly over time and leave drivers free to choose their own destinations. Good rules enable drivers to reach their destinations safely and in good time. Poor rules not only confuse drivers and help to cause accidents: if they are irregularly enforced, or enforced harshly for some drivers and leniently for others, they engender cynicism and contempt for the law. Accordingly, “the essential point [is that] the discretion left to the executive organs wielding coercive power should be reduced as much as possible.” Such discretion constitutes “despotism exercised by a thoroughly conscientious and honest bureaucracy for what they sincerely believe is the good of the country. But it is nevertheless arbitrary government.”  
  
          Whence comes the pressure for this discretion and capriciousness? From the fairest – indeed, the most sacrosanct, misunderstood and therefore insidious – word in today’s political lexicon (see in particular Hans-Hermann Hoppe, Democracy, The God That Failed: The Economics and Politics of Monarchy, Democracy and Natural Order, Transaction Books, 2002). Hayek does not make “a fetish of democracy. It may well be true that our generation talks and thinks too much of democracy and too little of the values which it serves.” Democracy, says Hayek, is a means of safeguarding peace and individual liberty, and its desirability depends upon the achievement of these ends in given circumstances. It is neither intrinsically desirable nor infallible. Indeed, “the fashionable concentration on democracy is not without danger. It is largely responsible for the misleading and unfounded belief that, so long as the ultimate source of power is the will of the majority, the power cannot be arbitrary. The false assurance that many people derive from this belief is an important cause of the general unawareness of the dangers we face. There is no justification for the belief that, so long as power is conferred by democratic procedure, it cannot be arbitrary.” Martha Stewart would surely agree.  
  
Exiting the Road: Some Thoughts for Investors 
  
          To invest is to allocate capital sensibly – that is, to the use that best serves consumers. Following Hayek, few, simple and dispassionately enforced laws – which governments must also obey – peace and unfettered markets furnish the environment that is most conducive to successful investment. One might therefore be tempted to draw bleak conclusions from The Road to Serfdom. Western governments, after all, have well and truly burst their constitutional banks. As a result, today’s world is upside down: it is arrogant politicians who tether docile subjects rather than vigilant citizens who restrain limited governments.  
  
          Moreover, few subjects object to the diminution of their liberties and the vast growth of their rulers’ ability to wreak havoc. This is perhaps because few realise the extent of either their subordination or their masters’ predations and mendacity. This, in turn, is perhaps because the modern state robs Peter to pay Paul such that more people identify themselves with Paul than with Peter. And perhaps attitudes are relaxed because in many countries the shackles have strengthened slowly over the years. Like the frog dropped into lukewarm rather than boiling water, no sudden shock to the system has jolted people from their complacency.  
  
          Are there grounds for guarded optimism? The first thing is to close the door on the twentieth century. “The important thing now,” said Hayek in the book’s conclusion, is that “we free ourselves from some of the errors which have governed us in the recent past … The first need is to free ourselves of that worst form of contemporary obscurantism which tries to persuade us that what we have done in the recent past was all either wise or inevitable. We shall not grow wiser before we learn that much that we have done was very foolish.”  
  
          The second thing is to open the door of the more distant past, i.e., to the deeds and ideals of our classical liberals forebears. “The young are right if they have little confidence in the ideas which rule most of their elders. But they are mistaken or misled when they believe that [contemporary “liberal” ideas are the same as the classical] liberal ideas of the nineteenth century, which, in fact, the younger generation hardly knows.” The choice is very stark: government authority or personal liberty. These choices are mutually exclusive and exhaustive; there is no “third option.” The vast majority of people seem to prefer the former to the latter choice. But a stalwart minority can and does select financial independence and disengagement.  
  
          The third and perhaps most important thing is to rejoice that each individual is endowed with a capacity of reason. True, Western universities do their damnedest to dull it, and from their point of view they usually succeed. But “mental muscle tone” returns when a regimen of diet and exercise is adopted.  
 
          Classical liberalism and sensible investing go hand in hand. The enduring lesson for intelligent investors and the enduring relevance of The Road to Serfdom appears in its closing words: “the guiding principle that a policy of freedom for the individual is the only truly progressive policy remains as true today as it was in the nineteenth century.”