Winning a Gamble with Communism

The Hungarian János Kornai is the most famous, and certainly the most influential, economist to have emerged from postwar Communist Europe. His reputation is based on three books, Overcentralization, Economics of Shortage, and The Socialist System, which knocked away the intellectual foundations of the publicly owned, bureaucratically planned economy. In one sense, he was in the line of critics of central planning such as Ludwig von Mises and Friedrich von Hayek, who had argued in the 1930s that it could not be efficient. But Kornai was the first of these critics who wrote from the concrete experience of a centrally planned economy. His books were a stylized rendering of an actually existing socialist economy, not an imagined one, written by someone who—while cultivating extensive contacts with Western scholars and holding, from the mid-1980s, a dual appointment at Harvard University—elected to stay and work in Hungary right through the postwar years.

Hayek had argued that the central planning authority could never concentrate all the necessary knowledge of the economy in one place; Kornai emphasized instead its inability to provide the right incentives. His evocative phrase “the soft budget constraint” pinpointed the main economic problem of this kind of system—namely, that while there may be limits on spending by a public agency, those who break the limits will not face serious consequences. This concept has passed into both economic and political discourse, and the phrase remains an indispensable tool for thinking about the “Sovietized” parts of modern capitalist economies such as health care and educational systems. It is no surprise that after the collapse of the Communist world had robbed him of his subject, Kornai turned his attention to these often dysfunctional features of Western economies, as well as to the problems of the transition from Communist to post-Communist systems.

His autobiography thus promises to be of exceptional interest, and this promise is not disappointed. Its title is designed to show the influence of thought on events; it is “irregular” because the memoirs are interspersed with reflections on politics and economics and are largely silent about his private life. Its chief interest is likely to be threefold: as an account of the scope of intellectual and personal freedom under communism; as a little-known chapter in the history of economic thought; and, for this reader most importantly, as the story of a love affair with ideas. This is Kornai’s real private life, and despite his prosaic style, his memoirs convey, as few others do, the inner world of intellectual creation. His attempts at honesty about his own motives, while admirable, are less successful, because he shies away from psychological self-exploration.

János Kornai was born in Budapest in 1928. He changed his family name Kornhauser to Kornai in 1945 to disguise its German-Jewish origin. He himself had not heard one anti-Semitic remark in his eight years at the Imperial German School from 1933 to 1941, despite the currents of anti-Semitism during Admiral Horthy’s regime. In 1944, all this …

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