Hayek and the Fall of the Wall

Thom Lambert —  10 November 2009

As we reflect back on the remarkable events of twenty years ago, and as we witness more and more centralized economic planning in our own society, we should pause to remember what the fall of the wall revealed.

Consider Alan Greenspan’s account (The Age of Turbulence, pp. 131-32):

Controlled experiments almost never happen in economics. But you could not have created a better one than East and West Germany, even if you’d done it in a lab. Both countries started with the same culture, the same language, the same history, and the same value systems. Then for forty years they competed on opposite sides of a line, with very little commerce between them. The major difference subject to test was their political and economic systems: market capitalism versus central planning.

Many thought it was a close race. West Germany, of course, was the scene of the postwar economic miracle, rising from war’s ashes to become Europe’s most prosperous democracy. East Germany, meanwhile, became the powerhouse of the Eastern bloc; it was not only the Soviet Union’s biggest trading partner but also a country whose standard of living was seen to be only modestly short of West Germany’s. . . .

The fall of the wall exposed a degree of economic decay so devastating that it astonished even the skeptics. The East German workforce, it turned out, had little more than one-third of the productivity of its Western counterpart, nothing like 75 percent to 85 percent. The same applied to the population’s standard of living. . . . The extent of the devastation behind the iron curtain had been a well kept secret, but now the secret was out.

Hayek, it seems, was right. May we never forget.

Thom Lambert

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I am a law professor at the University of Missouri Law School. I teach antitrust law, business organizations, and contracts. My scholarship focuses on regulatory theory, with a particular emphasis on antitrust.

One response to Hayek and the Fall of the Wall

  1. 

    I was curious as to your thoughts on the reported 9% increase of productivity in our own economy in the third quarter of this year despite a more centralized economic plan. Do you see this as just a short term trend that will be corrected in the long term, as a product of previous policy that was more market friendly just now being seen or something else altogether?