The socialist world of Eastern Europe is undergoing its second revolution of the 20th century, moving away from a centralized government to one which is more democratic. One of the central questions of this transition is how economic mechanisms may be used to help effect the change. Focusing on the example of Hungary, this text examines the problems faced today by all Eastern European economies, in the light of the rapidly changing political situation. The author criticizes the current practice of state ownership, calling instead for the steady liberalization of the private sector. He proposes a surgical operation for stabilization that would put an end to inflation, balance budgets and open the way for more realistic market prices. The text also examines the political necessities for a successful economic transition. It outlines welfare policies necessary for the human execution of economic change and highlights the connections between political democracy and economic stabilization.