János Kornai was born in 1928, in a century of bloody and tragic twists and turns. His homeland, Hungary, was especially a dangerous place during the 20th century. Among other things, it fell under both totalitarian regimes: Nazism and Communism.
Kornai’s personal life was also shaped by that century. His father became a victim of the Holocaust. He was assigned to a special labour-service corps of the Hungarian Army, into which Jews were drafted as a supplementary force destined to perish. Kornai, however, was fortunate enough to survive the war. For him the arrival of Soviet troops literally meant liberation. No wonder that the young Kornai, who had been destined to perish, became a Communist. His turn towards Communism was heavily influenced by the reading Das Kapital in 1947. He became a journalist of the central newspaper of the Hungarian Communist party. However, one of the show trials of the Stalinist era opened his eyes and changed his life-trajectory. Kornai, the formerly devoted communist journalist, increasingly distanced himself from the regime. He became a supporter of reforms and opted for an academic career as economist in 1955. He participated in the 1956 revolt, and after the bloody re-imposition of communism by Russian troops, he abandoned his Marxist beliefs.
Nonetheless, the reinstalled regime, led by János Kádár, had increasingly distanced itself from the openly repressive practices of the Stalinist period. In this new era, Kornai could return to follow his academic work.
At the beginning of his research career, he criticized the over-centralization of state planning and argued for a more decentralized market-mimicking socialist economy. In the reform-era of the Kádár-regime, from the late fifties to the early sixties and onwards, his academic work also contributed to the regime’s cautious, limited and selective marketization and liberalization reforms. The so-called goulash socialism brought prosperity compared to the high Stalinist period in Hungary. However, Kornai was keenly aware of the internal contradictions and deep-seated problems of the so-called happiest barracks of the Soviet camp. In the eighties, he became one of the most important modern critics of the then existing socialism. His ground-breaking work, The Economics of Shortage, argued that there are deep-seated internal reasons for the inevitable and unsolvable problems of the socialist system. His analyses of the systemic malfunctions of socialism are a staple for those who really want to know why Marx’s socialist utopia is inoperable and anti human. His theoretical constructs, such as deficit and surplus economy, soft and hard budget constraint, which he developed for the analysis and comparison of the ideal systems of socialism and capitalism provided an important starting point and theoretical framework for further research.
During his long academic career Kornai had arrived at a vision close to the position of Austrian School of Economics. This was primarily based on his experience in a functioning socialist system. At the same time, he became one of the greatest pro-market thinkers of our time. Despite the shared vision, he never considered himself as belonging to the Austria School, although he admitted his intellectual debt to Mises, Hayek, Kirzner and especially to Schumpeter.
The reason for the shared vision is that key figures of the Austrian School, like Eugen von Böhm-Bawerk and Ludwig von Mises at the turn of the century and in the early twenties took on the challenge of criticising Marxism and the Marxist utopia of socialism. They showed that the “scientific” work of Marx had insurmountable contradictions and socialism bound to lead to failure. Also, the members of the Austrian School contrasted the benefits of a market economy with the inbuilt problems of the utopian Marxian vision of socialism. They argued most forcefully among the economic schools that capitalism is a dynamic economic system, and this dynamism is the key to human progress. Also, the Austrians were eminent among those who argued that the cause of the dynamism of capitalism is private property, entrepreneurship and competition.
One of the last important books of Kornai’s life is Dynamism, Rivalry and the Surplus Economy. The main theme of the book is the comparison of socialism (state planned economy) and capitalism (market economy). Comparison of the economic system of the shortages with the system of the surpluses.
Socialism produces shortage, capitalism produces surplus. The basic reason for this difference, according to Kornai, is that there is no opportunity and space for innovation in socialism unless it is considered important by the centralized planning state for some political purpose. Therefore, there is no room for entrepreneurs, whose function is to apply inventions in an innovative way. In contrast, the most important feature of capitalism is that it gives the entrepreneur freedom to realize inventions and satisfy consumer demand.
Kornai’s argument is by and large the same as the position of the Austrian School of Economics. One of the major differences is the method of inquiry between the Austrians and Kornai. Menger, the founding father of Austrian school, first established that the goal of economic theory is to discover cause and effect linkages in economic life.
Kornai, using the contemporary language of positivist economic thinking, arrived at the same position that of Menger and Mises, who used a theoretical language, which is now considered outmoded by the mainstream literature. Kornai first discovers the economic facts, then analyses them and finally seeks to identify causal relationships. At the end, he arrives at basically the same positions as Menger: economic life is dynamic, the engine of dynamism is human invention and entrepreneurship, and there are cause and effect linkages, which shape human behaviour.
He would have deserved the Nobel Prize in Economics. What a pity that, with his death, he deprived the Nobel Prize Committee of the opportunity to recognize Kornai’s enormous significance not only in building economic theory, but also in undermining the scientific legitimacy of the Marxist vision of socialism and state planning.
It is even more painful that with his death he was deprived of the opportunity to educate us: interested lay readers, his fellow scholars, and last but not least, politicians. It is a pity, because the average citizens, scholars and politicians of our time are not acknowledging the benefits of capitalism but support economic policies furthering state interventionism. It is a bitter situation, as he learned through his own experiences, that state planning is a non-workable system. He forcefully argued that only a capitalist economic system can dramatically improve people’s lives and quality of life. He also believed that capitalism is also a necessary condition of democracy, and of avoiding totalitarian regimes, which were so abundant in the last century.
