Friedrich August von Hayek, Worldwide Shortcomings of Wartime Planning (1951)

This periodical article presents Hayek’s statements at the Conference on the Economics of Mobilization, held April 7–8, 1951. Its successive interventions examine wartime planning through long-run military preparedness, inflation, the persistence of controls, planners’ attitudes, and the allocation of resources through prices. Hayek’s central contention is that mobilization cannot be judged solely by its immediate results: controls may weaken the adaptability needed in a future war while creating institutions and interests that make the restoration of market coordination increasingly difficult.

Hayek begins by challenging the division between immediate and long-run problems. Preparation for the next year or two may undermine military capacity over the next decade. Since military leaders may prepare for the last war, readiness must include the ability to redirect production toward unforeseen objectives. Market flexibility is therefore itself a strategic resource, rather than merely a peacetime convenience.

If that situation should arise, I am convinced that we shall be in a very much stronger position if we had not relied on directing our economy through general controls but had preserved the ability for readjustment which free enterprise on the whole constitutes.

This is a claim about resilience under uncertainty, not simply about maximizing current output. Hayek explicitly leaves its fuller elaboration aside. His contribution repeatedly identifies considerations he thinks the discussion has neglected, rather than supplying a comprehensive mobilization program.

The inflation discussion similarly turns on the difference between temporary expedients and cumulative consequences. Unlike earlier belligerents, governments can anticipate the scale of resources to be diverted from civilian use. Inflation consequently lacks the excuse of an unforeseen emergency. Hayek also argues that public attitudes have made a subsequent general price decline politically unacceptable, so wartime increases must now be regarded as permanent. More fundamentally, inflation’s intended effect depends on exceeding expectations:

There is, basically, no limit which you will not sooner or later reach, once you have to decide to use inflation as one of the instruments of finance; once people expect a given degree of inflation, it ceases to be effective for the purposes. You have to inflate a little more.

Inflation thus becomes a progressively escalating instrument rather than a readily containable adjustment. Hayek qualifies his account of its social consequences: redistribution depends on population structure, investment habits, and people’s capacity to adapt. Nevertheless, he identifies the erosion of a middle class supported partly by property income as a particularly serious threat to social stability, drawing on European experience ranging from catastrophic inflation to Britain’s more gradual depreciation.

The argument then shifts from monetary effects to the institutional afterlife of emergency measures. Hayek takes the incompatibility of permanently comprehensive planning with other liberties as a premise; the question he examines is whether controls can actually be removed. Their persistence, he argues, is not adequately explained by the emergency that originally justified them. Once market valuation gives way to politically determined remuneration, incomes increasingly reflect judgments about deservingness rather than the value of services to others.

Such a remuneration, according to imagined merit, is inevitably very different from the relative value of these services, and results inevitably in a system of remuneration which, no longer provides incentives and makes people produce just what is wanted.

The distinction between merit and economic value is essential here. Market remuneration is not presented as a judgment of personal virtue; its function is to direct effort toward demand. Politically established income structures weaken that function and make groups dependent on subsidies and the continuation of controls. Emergency intervention thereby generates constituencies for its own preservation.

European rent control supplies the concrete example. Hayek reports that, to his knowledge, no European belligerent of 1914–18 had subsequently abolished such controls completely. Controls combined with inflation transformed housing from a private industry into a service increasingly dependent on government provision or subsidy. His wider concern is that an administered price-and-income structure creates expectations and dependencies that cannot easily be dissolved when the emergency ends.

A complementary explanation concerns the people who administer planning. Recalling his observations in Britain and his discussion in The Road to Serfdom, Hayek argues that wartime direction can cultivate an enduring preference for control. Business leaders may find directing an entire industry more attractive than competing within it. This is a criticism of business interests when insulated from competition, not an identification of business leadership with market freedom. He nevertheless distinguishes backgrounds and experiences: some economists previously sympathetic to planning returned disillusioned, whereas non-economists often found centralized authority seductive. His comparison with the American experience remains explicitly tentative.

The closing interventions return to relative prices. Mobilization requires some activities to expand and others to contract. If no price or wage may fall, those adjustments necessarily exert upward pressure on the price level. Hayek therefore asks whether temporary unemployment and the friction of price declines might sometimes assist, rather than obstruct, the transfer of resources.

Any system of price fixing not only sanctions the existing price structure and gives a sort of moral justification for continuing with the prices which exist, but it generally flouts the principle that in wartime efficiency should be the main consideration.

Controls can also leave purchasing power available for goods whose production should contract, perpetuating the existing allocation. Relative-price changes instead mobilize entrepreneurs’ dispersed knowledge about economizing on materials—knowledge government cannot simply possess in full. Hayek concludes that declining demand should push prices below cost in nonessential industries, discouraging production and releasing resources. The article’s unifying move is to treat adaptability, incentives, and institutional reversibility as components of wartime effectiveness itself: apparently expedient controls may impair both immediate reallocation and the longer-run freedom to respond.