The Foundational Role of Private Property
There is growing interest in socialist ideas, especially among college-age Americans. To be precise, 62% of young Americans between 18 and 29 years old have a favorable view of socialism, according to a 2025 survey by Cato Institute and YouGov. This makes Friedrich A. Hayek’s The Road to Serfdom, a critique
of the dangers of collectivism and central planning, as relevant today as it was when written in 1944.
Hayek argues that socialism, defined as state ownership and control of the means of production, leads to the erosion of individual freedoms and the rise of totalitarianism. He argues that true democracy and civil liberties can only thrive in a competitive system based on private property rights, warning that
under socialism, “democracy will inevitably destroy itself.” Northwood University, embodying The Northwood Idea’s resolute commitment to private property, free enterprise, and individual liberty, stands as a powerful guardian of Hayek’s legacy against the encroaching shadows of “reinvented” collectivism.
Rather than embracing the implication of Hayek’s ideas, that those wishing to preserve democracy and individual freedom should support capitalism and reject socialism, modern socialists and progressives tend to deny the modern validity of Hayek’s hypothesis. They dismiss the warning of the dangers of socialism as an overreaction to mid-20th-century threats like Nazism and Stalinism. Any sin committed by a socialist in the process of a socialist revolution is simply dismissed as not truly socialist, but rather the act of a totalitarian fascist. Some suggest that regulated capitalism with social safety nets refutes Hayek’s argument. For instance, Nobel laureate Joseph Stiglitz, in Road to Freedom (2024), refers to Hayek’s hypothesis as simply “wrong.” Henry Farrell, a Professor at Johns Hopkins University, refers to it as a “rather idiotic claim.” Columbia University economist Jeffrey Sachs argues that democratic socialism, as characterized by welfare spending, high taxation, and redistribution, without descending into authoritarianism, readily disproves Hayek’s hypothesis.
However, the stains of history on socialism are undeniable, hence the need to rebrand it to “democratic socialism.” If Hayek thought these two words were inherently incompatible, there is now a mass of people in America who think otherwise. And in the very heart of New York City, the city, which is a symbol of capitalism and freedom, we see the potential rise of a socialist mayor.
The ones who believe that Hayek was wrong in claiming that democracy and socialism are incompatible completely misunderstand what he was warning us about. Hayek’s definition of socialism was state ownership of the means of production. That is, decisions about how much to produce, where to produce it, and when to produce or deliver a good or service are made by a centralized government agency. This was the common understanding of the term by socialists, economists, and politicians at the time Hayek wrote The Road to Serfdom. In fact, those advocating for the welfare state at the time believed socialism, by eliminating capitalist profits and inefficiencies, was necessary to fund a welfare state. Ironically, belief in the superior efficiency of socialism over capitalism was stubbornly clung to until the 1980s, but few, if any, economists make that disproven assumption after the collapse of the Soviet Union.
Understanding the historical definition of socialism is crucial because only by doing so can we truly understand what Hayek was warning us about. Hayek saw something uniquely threatening to democracy and individual freedom when the state owned the means of production. Perhaps it is not surprising that if the government is strong enough to dictate and direct economic affairs, it will also have the ability, if it wishes, to dictate and direct other personal matters. Such as who we choose to compose political assemblies, what we can or cannot say, and whether we can or cannot bear arms. Even the socialist scholars Lange and Lerner in The American Way of Business (1944) agreed with that. According to them, “private ownership of the means of production provides economically independent citizens and thus forms a bulwark of political democracy.”
That private property is the foundation of the capitalist profit & loss system and plays an essential role in preserving limited government and promoting individual responsibility is, of course, no surprise to Northwood University students. They learn Dale Haywood’s Free Enterprise Philosophy in a 12-Cell Matrix featuring private property as the first key component. Private property, prices, and profit & loss provide the information, incentives, and innovation that drive economic prosperity and safeguard individual liberty. A limited government that safeguards civil liberties can exist only in an environment of robust property rights.
One curious fact about The Road to Serfdom is that Hayek’s concerns about the authoritarian threat of socialism were not entirely original. He was building upon the very concerns that many social scientists and even socialists of his era held. Harold Lasswell wrote that “by its very nature and purpose, planning demands the surrender of liberties” (1937). Lord Beveridge, in Planning Under Socialism (1936), noted that “It might appear impossible to set up a government capable of socialism, at least without risking essential liberties.” The connection between socialism and the abridgement of individual liberty was conceded even by the socialists of Hayek’s era.
But does the historical context and semantics of these debates from the 1940s really matter today? We believe they do. In fact, Hayek’s The Road to Serfdom and modern philosophies that embrace it, such as The Northwood Idea, are more relevant today. Especially when almost two-third of Americans under the age of 30 look upon socialism favorably. A misunderstanding of the term socialism, which leads to a mischaracterization of its empirical record, drives these trends.
Venezuela offers a stark illustration. In 2005, President Hugo Chávez declared the need to reinvent socialism based on cooperation rather than competition, rejecting “state capitalism.” This vision initially garnered praise from figures like Bernie Sanders, whose 2011 campaign website featured an editorial lauding Venezuela as a place where the “American dream” was more achievable due to greater income equality. However, Venezuela’s trajectory mirrored Hayek’s warnings: widespread expropriation of private property, price controls, and state dominance over key industries led to economic collapse and authoritarian rule under Nicolás Maduro. Rather than blame this failure on socialism, The New York Times twisted its definitions of capitalism and socialism to blame these undesirable outcomes on Venezuela’s move away from socialism to a “free market economy” (2020) and “brutal capitalism” (2024).
As Kristian Niemietz demonstrates in Socialism: The Failed Idea that Never Dies (2019), socialists repeatedly blame each failure of socialism not on the abolition of private property but on the failure to adopt “real” socialism. So, misinterpretations of the definition of socialism confuse debate and unfairly cast doubt on the relevance of Hayek’s The Road to Serfdom.
Modern socialists often do a bait-and-switch, advocating for state ownership of industry while claiming to be only advocating for socialism as defined by high welfare spending and progressive taxation. Under this lens, prosperous Nordic countries like Denmark, Sweden, Norway, and Finland appear as counterexamples to Hayek’s hypothesis, boasting strong social safety nets alongside high democratic freedoms. However, Hayek’s critique targets state ownership of the economy, not redistribution within a capitalist framework. There are, of course, separate and important economic critiques of redistribution and taxation on the grounds of efficiency. But the Nordic countries are not socialist systems and thus do not disprove Hayek’s hypothesis. In fact, the Nordics maintain robust private property rights, competitive markets, and modest levels of nationalization, aligning closer to Hayek’s vision of capitalism than socialism. The Nordic embrace of capitalism plays a role in preserving their democratic freedoms. Ironically, it is also their economic growth under capitalism that helps them “afford” the steep costs of their social safety net.
Empirically testing Hayek’s hypothesis in The Road to Serfdom requires looking at the systematic historical and modern data. Thankfully, a new dataset put out by Varieties of Democracy allowed us, along with our coauthor Nicholas Reinarts (Hood College), to look back all the way to 1789. In our paper “You Have Nothing to Lose but Your Chains?” published in Public Choice, we do not find a single violation of Hayek’s hypothesis. No country adopting heavy to complete state ownership of the economy was able to sustain democratic freedoms beyond a single transition year.
This is how important private property is in protecting civil liberties. This wisdom, in one form or another, was present at the birth of the United States. As Founding Father James Madison wrote, “Government is instituted to protect property of every sort; as well that which lies in the various rights of individuals, as that which the term particularly expresses. This being the end of government, that alone is a just government, which impartially secures to every man, whatever is his own.” Private property remains a fundamental principle of Western liberal democracies. Centuries later, Dr. V. Orvall Watts, the Godfather of The Northwood Idea, reminded us of that by highlighting the importance of private property. To him, a world that lives by the enduring moral principles of the Judeo-Christian ethic “require of us respect for the property rights of other people.”
The Road to Serfdom endures because it emphasizes the timeless importance of private property. Far from being debunked, Hayek’s work illuminates why socialist experiments, as defined by state ownership of the means of production, pave the way for serfdom by suppressing property rights of every sort, as defined by James Madison. Venezuela’s downfall, the Nordic success, and empirical patterns all affirm Hayek’s insights. In an era of rising interest in socialism and even the nationalization of key industries, we would do well to heed Hayek’s call for safeguarding private property as the shield of democracy.
No university does this better than Northwood.
About this Piece
This piece is featured on the cover of the September 2025 edition of When Free to Choose, Northwood University’s signature monthly publication dedicated to exploring the importance of free enterprise and other tenets of The Northwood Idea. Click here to subscribe to this complimentary publication. Also, mark your calendar for Aug. 26, 2025, when Daniel J. Smith will present a Northwood University Freedom Seminar keynote lecture in Midland, Michigan. Visit www.northwood.edu/freedom-seminar to learn how to watch this lecture online.