Money and the Market: What Role fir Government?

Abstract

As communism is at last assigned to its rightful place in the dustbin ofhistory, those who survive it have to come to terms with the task of sorting out the dreadful mess it has left behind. Perhaps the only benefit of having lived through communism is that many ofthose who have done so have a sound grasp of the dangers of government interference in markets. Such understanding leads naturally to a free-market outlook, and many in the former Soviet empire fully understand that the new order must be a liberal one if they are to have any future worth having. But therein lies an immense problem. We understand that the present situation is a total mess, and we understand that once the transition is made, the new market economy will function smoothly and efficiently, andprovide the prosperity and economic security that are so desperately needed. The problem, however, is howto get from here to there, and on that issue we are all to a greater or lesser extent flying by the seats of our pants. We understand reasonablywell howhealthy free-market economieswork, but nursing a chronically sickeconomy to health is a far more difficult problem that none of us is well equipped to handle, and the problem will not wait until we feelwe are ready for it. An immense chasm lies between the present mess here and economic health over there, and we need to think carefully about the transition ifthe countries of the former Soviet bloc are to avoid falling in it as they attempt to make the leap. Were we dealingwith a particular industry, the bakeryindustry, say, the solution would be relatively straightforward. We would first