Hayek’s periodical article, written after an extended visit to Vienna, presents Austria’s reconstruction as a decisive problem for postwar Central Europe. Its central argument is that political independence cannot survive without economic self-support, yet continued Allied occupation prevents the recovery that would make self-support possible. Moving from an account of occupation’s destructive effects through an assessment of Austria’s productive potential to proposals for reconstruction, Hayek calls for military withdrawal accompanied by foreign credit and continuing economic advice. His concern is not simply Austrian poverty, but the conversion of economic dependence into political vulnerability.
The opening challenges the promise that Austria would be treated as a liberated country. Hayek argues that Allied inability to agree has produced treatment worse than that accorded to Italy and other voluntary German allies. Relief has narrowly prevented mass starvation, but prolonged occupation has depleted reserves and obstructed Austrian efforts to restore production. Although he attributes much of the damage to Russian action, he initially distinguishes consequences from intentions: measures that appear locally uncoordinated can nevertheless leave Austria open to Russian domination if the Western powers abandon an increasingly costly undertaking.
There can be no political stability in that part of Europe until Austria is no longer dependent on recurrent doles.
Dependence here is both a humanitarian emergency and a mechanism of power. Hayek consequently rejects visitors’ accusations that Austrians lack energy or determination. Local officials and Anglo-American experts have, he maintains, accomplished much under conditions they cannot control. The distinction between war damage and occupation damage is essential: Austria might initially have recovered through its own resources, but subsequent losses of equipment, materials, and human energy have undermined that possibility. Western participation in the occupation also entails responsibility, even where Russian conduct is the principal source of obstruction.
The article’s economic diagnosis begins with occupation charges, which Hayek reports had exceeded the country’s entire social product at current prices during the previous winter. Their negotiated reduction to a share of the national budget remains insufficient to remove inflationary pressure. Currency arrangements and inherited German price controls compound the problem: an official exchange rate below the schilling’s purchasing power encourages occupying forces to buy up scarce stocks cheaply, while fixed prices and wages discourage domestic production.
By now these official price and wage fixations at figures at which it is not worth while to produce or to work have become one of the gravest obstacles to the resumption of production.
Hayek thus treats impoverishment as more than a shortage of supplies. The rules governing exchange and remuneration prevent productive effort from becoming worthwhile. Russian-controlled industries further disrupt these arrangements by paying wages above the ceilings imposed on Austrian employers. Territorial division similarly impedes recovery, while confiscation of entire enterprises breaks the connections between industries. The seizure of plants painstakingly restored after earlier dismantling damages morale as well as productive capacity. Isolation from normal foreign trade makes these missing industrial links especially disabling: Austria lacks ordinary exchange facilities and access to its principal southeastern European markets and food suppliers.
Military withdrawal, however, cannot by itself secure independence. Hayek argues that Russian acquisition of enterprises prepares a durable economic foothold after troops leave. He therefore advocates counterbalancing participation by other powers, including in industrial property they could legitimately claim. His discussion of nationalization is correspondingly tactical. A government largely opposed to socialism has adopted it to resist foreign confiscation, while Russia has opposed the measure. Nationalization may serve this immediate purpose, but cannot supply the capital and executive personnel needed for successful production. Austria’s successive political upheavals have depleted its leadership as well as its material resources.
The article then turns from present handicaps to longer-term possibilities. Cooperation between the principal political parties, capable ministers, new industrial installations, and oil deposits offer grounds for qualified hope. Hayek also contests the Anschluss-era claim that Austria cannot sustain an independent economy. The pre-annexation export surplus and substantial reduction of foreign indebtedness demonstrate viability, although he explicitly leaves open whether the drastic deflation that achieved them was wise. The distinction matters: evidence that Austria can pay its way does not vindicate every policy previously used to do so.
The vicious circle that private investment will only become possible after political stability has been achieved, and that political stability will not exist until the first task of reconstruction has been completed, can now only be broken by a period of foreign assistance.
This circular dependence explains why Hayek supports substantial transitional aid rather than expecting immediate recovery through private investment. Citing UNRRA’s estimates for 1947, he places import needs at approximately $300 million and the required credits at $200 million, with exports covering scarcely more than a third of imports. Further delays make the anticipated timetable uncertain.
It would indeed be sheer waste of effort to try and secure her political independence without at the same time setting her economically on her feet.
The conclusion therefore joins two demands: occupation must end, but international engagement must continue. Foreign assistance can become reconstructive rather than merely sustaining only after military withdrawal. A joint commission of economic advisers could then provide expertise and support for difficult measures without appearing to represent one bloc alone. The article’s enduring conceptual move is to connect sovereignty with the institutional and material conditions of recovery: troops can depart while economic domination persists, and formally independent government remains precarious if its population must depend on externally controlled supplies and industry.
This work was divided into 1 sections when it entered the library's research corpus—an apparatus for search and citation, not necessarily the author's own table of contents. Each title opens its summary.
Put a question to this work; the Librarian answers from its 1 sections and cites the passage.
Ask the Librarian