3 - Monetary-fiscal management for macroeconomic equilibrium and growth

Summary

Two observations instead of an introduction

1. All too often we hear someone say: ‘The problem is that Marxists only told us how to convert a capitalist economy into a planned economy, but now we have to face a completely different problem which never occurred in the past: how to convert a planned economy into a market economy’ (Ivan Angelov at a WIIW-seminar on ‘The Reforming Eastern Economies and the OECD’, 14–16 March, 1990).

2. ‘We only have to look up the textbooks by the outstanding macroeconomists to know what we have to do. I would wish the Austrian School of Economics would enjoy the same high appreciation in the West that we give to von Mises, von Hayek, and others’ (Vaclav Klaus, Minister of Finance of Czechoslovakia, at a lecture in Vienna, 14 March, 1990).

These two observations characterize the span of opinions about feasibility of reform in a relatively short period of time.

Reudiger Dornbush expressed his view on this problem with his well-known lucidity at a seminar organized by IIASA and the World Bank on 8 March, 1990: ‘As long as experts and politicians consider the case of their country to be a very special one there is no way for finding a solution of the major problems of most of the reforming countries in Central and Eastern Europe’. And, indeed, there is practical experience of how to move from an administered system to a market-led economic system, if we only consider the cases of the Federal Republic of Germany and of Austria after World War II.