Friedrich August von Hayek: Addendum: Review of Planwirtschaft und Verkehrswirtschaft

Hayek’s book review, originally published in German in 1933 and presented here in its 1997 English translation, examines Carl Landauer’s attempt to reconcile socialist aspirations with modern economic theory. Its central objection is that Landauer’s comparative case for planning presupposes what it must establish: a determinate measure of social satisfaction and a workable mechanism for allocating productive resources under state ownership. Hayek nevertheless treats Landauer as a serious interlocutor, praising his intellectual courage, theoretical knowledge, and willingness to confront difficulties often neglected by socialist writers. The review moves from value theory and comparisons of productivity to monopoly, business cycles, and finally socialist calculation, maintaining this distinction between respect for the author and dissatisfaction with his argument.

The opening identifies the book’s principal omission:

It slights the critical theoretical questions concerning the possibility of an economic calculus in a socialist commonwealth, and its theoretical arguments, moreover, seem to be open to many objections.

Hayek traces these weaknesses to Landauer’s explanation of prices directly through subjective valuation. Against this approach, he insists that prices depend not only on individual valuations but also on differences in purchasing power. Identical consumer needs, productive resources, and technical knowledge therefore do not establish that planned and market economies would produce the same goods through the same processes. State control of productive facilities would change income distribution and consequently effective demand. Landauer’s supplementary assumption that consumers’ social position remains unchanged does not adequately establish that redistribution, including complete income equality, would leave production essentially unaltered.

This objection concerns the meaning of economic objectives as much as their implementation. An injunction to satisfy needs as fully as possible does not determine production unless the relative importance of different individuals’ needs has also been specified. Hayek accordingly challenges Landauer’s treatment of an ideal market economy and a completely rational planned economy as equivalent versions of an optimum:

All this assumes an unambiguous yardstick for global social satisfaction, which does not in fact yet exist.

The accompanying discussion of value sharpens the point: market exchange value cannot simply be equated with the subjective valuations of all individuals through a uniform ranking of needs. Hayek is questioning the move from multiple individual valuations to a single supposedly scientific social assessment. Without an established standard, the claim that planning increases “productivity” is indeterminate. A dictatorial authority could impose a ranking, but that would supply an authoritative ordering of needs rather than demonstrate an independently valid measure of collective satisfaction.

A second criticism concerns the asymmetry of Landauer’s comparison. The market economy is assessed through its actual defects, while planning is assessed as an imagined arrangement. Hayek argues that monopolistic tendencies cannot simply be attributed to markets as such when tariff protection and government encouragement have contributed to cartel formation.

Thus he fails to demonstrate that tendencies he derives from his observation of today’s market economy are equally applicable to any conceivable market economy, and it is this conceivable market economy, which would be free of any socialist influences, to which his potential planned economy should be compared.

The conceptual move is to distinguish observed institutions from the economic principles blamed for their failures. Landauer must either compare actual arrangements or compare possible arrangements on comparable assumptions. For Hayek, the existence of monopoly in an intervention-shaped economy does not establish that monopoly is an inevitable consequence of market coordination.

The review’s concessions make this methodological criticism more pointed. Hayek praises Landauer’s understanding of business cycles, his rejection of purchasing-power explanations, and his appreciation of capital maintenance and formation. Yet he finds it inconsistent that this sophistication is not accompanied by equivalent concern about misinvestment under planning. Similarly, Landauer’s discussion of state control over monopolies recognizes difficulties that his account of socialism subsequently tends to overlook. Hayek approvingly cites Landauer’s observation that officials capable of objectively judging monopoly prices might best act as entrepreneurs themselves. The issue is whether the capacities demanded of regulators can simply be assumed when those officials become responsible for directing production.

The decisive section concerns socialist calculation. Landauer confronts the institutional design of socialism rather than declining to describe it, but devotes only seven pages to calculation. He proposes retaining markets in consumption and production goods, with enterprises buying from one another. Hayek’s objection is that this does not explain how prices would regulate the use of productive assets owned entirely by the state. A separate defence of calculation through value attribution leaves that institutional question unresolved.

How can this conceivably be done in the absence of a free capital market in which an interest rate is formed and which serves to ascertain which investments are appropriate and which are not?

This question targets Landauer’s assurance that the state can coordinate an investment programme with available resources. A proposed scientific calculus checking monetary calculation does not explain how investment alternatives would be evaluated. Hayek connects the deficiency to the arguments of Pierson and Mises, which he believes Landauer has not adequately confronted.

The review closes without examining the book’s sociological and transitional sections in detail, while reaffirming its perceptiveness and openness to discussion. Its relevance lies in the connection it draws between valuation, distribution, institutional comparison, and capital allocation. Hayek’s challenge is not merely whether planners could administer production efficiently, but whether Landauer has specified what efficiency means across different systems and explained how state ownership could sustain the price-guided investment decisions his proposal requires.