Friedrich August von Hayek, “The German Economy”

Published in The Times on December 31, 1976, and republished in the supplied 2022 version, this letter to the editor contests Nicholas Kaldor’s characterization of West Germany as a leader in socialist policy. Hayek’s brief intervention turns on the distinction between social provision and the institutions governing economic coordination.

Sir, For Lord Kaldor (in your issue of December 24) to describe a country that for 27 years has known no nationalization, no price controls, no exchange controls, no investment controls and whose now governing “social democratic” party has publicly committed itself to a market economy as “much ahead in ‘socialist policies’ of either France, Britain or Italy” suggests an ignorance of the policies he himself has been advising which is somewhat astounding.

For Hayek, the decisive evidence is the absence of nationalization and administrative controls, reinforced by the governing party’s commitment to markets. A party’s socialist associations do not establish that its economic arrangements are socialist. The editorial note explains that Kaldor had emphasized worker–shareholder joint control and extensive social-security benefits. Hayek does not directly assess those institutions; he instead shifts the criterion of comparison to market freedom and the feasibility of planning.

The second paragraph supplies the historical and causal claim underlying this classification:

It is unfortunately true that Ludwig Erhard’s decision of 1949 to scrap all price controls, which made socialist planning impossible and laid the foundation of Germany’s prosperity, has recently been somewhat watered down by his successors—with what result, we shall see.

Price decontrol thus does double argumentative work: it marks a break with socialist planning and explains subsequent prosperity. Hayek acknowledges a recent weakening of that settlement but leaves its consequences unresolved. The letter’s significance lies in this compressed dispute over what counts as socialism: welfare provision and participation in enterprise governance, or control over economic allocation. Its claim for market-led prosperity is forceful, but asserted rather than demonstrated within the letter.