Demand and Supply of Economic Knowledge in Transition Countries (Collective Review)[1] Until the 1989 "Velvet Revolution", Czechoslovakia was one of the most conservative socialist countries. Even compared to other former socialist countries in Central Europe, the Czechoslovak economy was exceptional in etatization, with only 4% of GDP produced by the private sector (and 10% produced by the cooperative sector) in 1989. After a promising discussion in the 1960s and then the defeat of the Prague Spring at the end of the 1960s, no significant experiments with the liberalization of the economic and political system were implemented in the 1970s and 1980s, and the rigid party nomenclature running the country had to live with the legacy of post-1968 normalization, when the more liberal segments of the Communist Party and of the Czechoslovak political and intellectual establishment were eliminated, expelled from the country, or isolated and persecuted for two long decades.
[2] Together with the rapid change in the political system and a radical economic reform, the transformation of the system of education and of research infrastructure started at the very beginning of the 1990s. In this paper, I try to trace interfaces between the past and present of Czech economic thought and identify its place in world economic thought.
[3] The first section of this paper describes the roots: the birth of Czech economic science in the second half of the 19th century, a short period of development of economic thought in independent Czechoslovakia after World War I, the first period of discontinuity and of domination by dogmatic Stalinism at the end of the 1940s and the beginning of the 1950s, the attempts to cultivate the economic doctrine of socialism in the 1960s, the second period of discontinuity in the 1970s, and a painful effort to overcome taboos in the 1980s. In the second section, I try to characterize the turning point in the development of the discipline at the beginning of the 1990s and changes in the infrastructure of economic research and education after 1993. The third section deals with continuity and discontinuity in the theoretical and methodological orientation of economic science in the country. The fourth section tries to evaluate the major theoretical and practical efforts of Czech economists in the first half of the 1990s, when the economic transition was designed. In the fifth section, I try to provide empirical evidence of the performance of Czech economists on the domestic and international academic market. The last section briefly outlines the prospects for development in the 21st century. Some factual information is provided in tables.
[4] An objective evaluation of events by somebody who was a part of them is almost impossible. The final evaluation of the past requires more temporal distance from the events. My view may be incomplete and some names and events may be missing. Nevertheless, I hope this text sufficiently illustrates two conclusions: first, a totalitarian regime can cut intellectuals and the academic community off from contacts with the international community and for some time even suppress some segments of research and the free exchange of ideas; but no political suppression can fully eliminate independent economic thinking (as was convincingly demonstrated in Havel et al., 1997); and second, in the emerging democratic environment of the 1990s, the Czech economic community succeeded in a relatively short time in returning to world academic standards. 2 (Note2: Writing this paper, I benefited from the outstanding comprehensive study by Havel, Klacek, Kosta, and Šulc (1997), the guidebook on the history, problems, failures, and efforts of the Czech economic community during the difficult years of 1945-1990.)
[5] The development of Czech economic thought 3 (Note3: By Czech economic thought, I mean the ideas of the people who declared themselves to be related to Czech society. Such outstanding personalities as Carl Menger (who studied several months in Prague), Friedrich von Wieser (who was a teacher at the German part of the Charles University in Prague), Eugen von Böhm-Bawerk (who was born in Brno), and Joseph Schumpeter (born in Moravia) had territorial relations to the Czech Lands (Bohemia and Moravia).) passed through several stages in different political environments.
[6] The first stage began in the middle of the 19th century and finished in the years of the First World War. Its dominant feature was the integration of the Czech Lands in a specific economic and cultural entity within the Austro-Hungarian monarchy when political power was centralized in Habsburg Vienna and when the interests of the Czech nation were promoted only slowly and with difficulties. It was represented by three personalities and by three different approaches. 4 (Note4: In this part of the paper, I use the evaluation of František Vencovský, 1997.)
[7] František Ladislav Chleborád (1839-1911) wrote the first Czech book on economics, in which he explained the major theoretical concepts of his time, Soustava národního hospodářství politického (The System of Political National Economy), 1869. Chleborád declared himself a follower of the American economist Henry Charles Carey and the German economist Friedrich List. In his book, he categorically rejected socialism, both Marxist and utopian. His social and moral enthusiasm for the economic advance of the Czech nation outweighed specialized theoretical reflections.
[8] The pure scientific approach was realized by Josef Kaisl (1854-1901). The interests of this highly erudite economist linked practical political activity (he was a Czech deputy of the Austrian Imperial Council in Vienna and for a short time a Minister of Finance in the Austrian government) with his profession of lecturer at Prague University. His main works were Národní hospodářství (National Economy), 1883, and Finanční věda (Financial Science), 1892 (also published in German and Italian). He concentrated on the sphere of financial science and was a prominent follower of the historical school in economic science.
[9] The Austrian subjective school of the theory of marginal utility found its prominent interpreter in Albín Bráf (1851-1912). Albín Bráf pursued mainly his university activities at the Faculty of Law of Charles University in Prague (although he was for a short time a Minister of Agriculture in the Austrian government). His complete university lectures, texts, and essays were published in Spisy Albína Bráfa (The Writings of Albín Bráf), 1913-1915. He drew his knowledge mainly from the German theorists Adolf Wagner and Albert Schäffle and from Carl Menger of the Austrian school. He was critical of the English classics and categorically rejected Karl Marx. His methodology was eclectic and he simply accepted the knowledge he regarded as useful. On the other hand, he could be regarded as a Nestor and the teacher of the whole generation of Czech economists who were active later in independent Czechoslovakia.
[10] The birth of Czech economic thought in the second half of the 19th century did not bring a significant original contribution to economic science; it was rather a mediation of the achievements of world economic thought to the Czech elites under conditions of emerging capitalism in the Czech Lands. 5 (Note5: Apart from Chleborád, Kaizl, and Bráf, the partial approaches dealing with selected subjects of economic theory prevailed. This includes the critical analysis of Marxism in the work of Tomáš G. Masaryk (1850-1937), the first President of Czechoslovakia, Sociální otázka (The Social Question), 1898.)
[11] The founding of Czechoslovakia in 1918 created a new situation favorable to the further development of Czech economic thought. This came at a time when new concepts appeared in world economic thought that also strongly influenced Czech economists - the culmination of the Austrian school in the works of Ludwig von Mises, Friedrich August Hayek, and Joseph Schumpeter; the shift in financial theory in the works of Irving Fisher and Gustav Cassel; and the new revolutionary approaches of John Maynard Keynes and others. On the other hand, economic science responded to the economic events of the 1920s and 1930s and was influenced by the practical problems that arose in the new situation of creating a national economy.
[12] It is possible to trace three major tendencies in the development of Czech economic thought in pre-war Czechoslovakia (Vencovský, 1997).
[13] The neo-liberal stream was represented by Alois Rašín (1867-1923), an outstanding politician and the first Minister of Finance of independent Czechoslovakia. His currency reform and fiscal policy were based on the principles of a balanced state budget with minimal budget incomes and expenditures and the gold standard in monetary policy. Rašín presented his theoretical views in the book Národní hospodářství (National Economy), 1922.
[14] The second tendency was represented by Karel Engliš (1880-1961), probably the most original Czech economic thinker. He was the author of what is called the teleological theory of national economy (from Greek "telos", aim or goal), based on the idea that the cognition and understanding of all economic processes should reflect the purposefulness, intentionality, and choice of aims and means in the behavior of all economic subjects. He described his system of economics in many works, the main extensive monograph being Soustava národního hospodářství (The System of National Economy), 1938 (also published in English). Engliš’s scientific activity was associated with the newly established Masaryk University in Brno (he was one of its founders in 1919 and its first Rector) and Charles University in Prague (he was its last Rector before the communist takeover in 1948). He was also an outstanding practitioner, a Minister of Finance in six pre-war governments, and Governor of the National Czechoslovak Bank from 1934-1939.
[15] The third tendency, the Keynesian stream in Czech economic thought, was represented by Josef Macek (1887-1972). In response to the Great Depression, Macek said that the state budget should be one of the most important means to start production and should substitute for the shortage of private investments. His major and comprehensive work is Sociální ekonomika (Social Economics), published in five volumes from 1945-1948.
[16] In November 1939, the Czech universities were closed by the occupying power and scientific life was fully paralyzed. After a short period from 1945-1948, the leading Czech economists (Karel Engliš and Josef Macek as the most prominent, and many others) were persecuted and any economic ideas that contradicted the Stalinist version of political economy were abolished. Economic science was completely subordinated to the political needs of the new ruling establishment. A period of discontinuity started in 1948.
[17] No theoretical Marxist economics were represented in Czech economic thought in the pre-communist period. The only Marxist who taught economics at a university (the Higher School for Political and Social Sciences) before February 1948 was Pavel Hrubý (1914-1994), but he fell victim to the purges not much later than his "bourgeois" colleagues. The main textbooks used at the time were Stalin’s "Questions in Leninism", "Economic Problems of Socialism in the USSR", and translations of Russian textbooks.
[18] There were a few qualified economists who supported the Communist Party policy. Most of them belonged to the pre-war leftists who emigrated to the United Kingdom and came back to Czechoslovakia in 1945: Ludvík Frejka (1904-1952), Josef Goldmann (1912-1984), Bedřich Levčík (1915), and Eugen Löbl (1907-1987). All of them were persecuted in the 1950s (Frejka was executed in 1952, Löbl arrested and condemned to a life sentence in 1952, Levčík dismissed from his position, and Goldmann arrested in 1952). Because of a shortage of qualified and loyal economists among reliable Communist Party members, all the decisive posts in economic education and research had been filled by mostly young people educated in accordance with Stalinist doctrine, many of them at universities in the Soviet Union. But most of them later became prominent critics of dogmatic Stalinist doctrine.
[19] The development of economic discussion in Czechoslovakia was always closely related to the political atmosphere in the USSR. The first round of debate started after Stalin’s death in the mid-1950s. The reform proposals at that time did not exceed the framework of traditional Marxist political economy, focusing on "improving" the planning mechanisms. The second round of discussion started at the beginning of the 1960s, partly as a response to an economic crisis in Czechoslovakia in the early 1960s, partly under the influence of discussions in the USSR (Nemchinov, Novozhilov, Kantorovich, Aganbegjan, Liberman, Lisickin) and in other Soviet bloc countries. The general framework of the discussion can be characterized as a "market socialism doctrine" with some elements of Keynesianism; attacking the state property form; and preferring a collective or group property design for the socialist economy, decentralization, and the employment of economic interests in a "socialist market mechanism". The most prominent economist of this period was Ota Šik (1919), whose book Ekonomika, zájmy, politika (Economics, Interests, Politics), 1962, opened critical discussions about the official economic doctrine. Josef Goldmann, Karel Kouba, Otakar Turek, Bohumil Komenda, Čestmír Kožušník, Bedřich Levčík, and Jiří Kosta were among the active participants in the intense discussions in 1965-1968. 6 (Note6: Together with Ota Šik, Josef Goldmann was the most famous Czech economist abroad. During the Second World War, he worked with Michał Kalecki in London. Shortly after the war, he played a major role in designing the successful two-year plan of post-war reconstruction; he was arrested and sentenced in the 1950s and rehabilitated in the 1960s, and then he joined the Institute of Economics of the Academy of Sciences in Prague, where he educated a group of younger economists (Havel, 2002).) While the leading reformers did not reject Marxist doctrine in principle, discussion in the second half of the 1960s also brought a new line of thought based on mainstream Western economics, represented by the first studies by Václav Klaus (1941) and Lubomír Mlčoch (1944).
[20] It was an irony of history that most of the reform proposals generated by this discussion were fully implemented (for a restricted time) only after the defeat of the Prague Spring in 1968; and their measurable positive effects contributed to the stabilization of the Gustáv Husák normalization regime at the beginning of the 1970s.
[21] While the period of the 1970s and 1980s can be considered the second discontinuity interval in the development of Czech economic thought (the first being 1948-1956), the development is not fully comparable to the 1950s.
[22] Most of the actors in the 1960s discussions had to leave the universities and research institutions; some of them, anticipating the purges, left the country. Blacklists efficiently prevented most reform economists from publishing at all. Economics was in a special situation, along with other social sciences and the humanities. Considered ideologically sensitive, the social sciences were under the direct supervision of the Communist Party nomenclature (for example, each district committee of the Communist Party in districts with institutions of higher education had a position of Secretary for Higher Education). Scientific and pedagogical degrees were subject to approval by district party committees. In the 1970s and 1980s, an obligatory part of dissertations in economics was a chapter of "Criticism of bourgeois economic theories", in which specific denunciation of home "revisionists" was greatly appreciated. There was a numerus clausus on non-Party members’ employment as university teachers, and an academic career was almost unthinkable without Communist Party affiliation. International contacts and mobility were practically restricted to COMECON and less-developed countries and were strictly controlled by the Party nomenclature and secret police. Thus, the situation of economic science in communist Czechoslovakia was even more complicated than in some other CEE countries (especially than in the more liberal Hungary and Poland). Restrictions and repressions segmented the Czech economic community into three different groups: official, unofficial, and exile (Havel et al., 1997).
[23] Promotion rules strongly influenced the research orientation of the "official" segment of Czechoslovak economists. The main research topics, supported by inefficient state research programs, were "Automation of management systems of socialist enterprises" and "Tools and instruments of the centrally planned economy", at best trying to square the circle to find a combination of centralization and decentralization in economic behavior that could be acceptable to Party nomenclature, at worst merely repeating ideological fictions about "the best of all possible worlds" represented by "real socialism". Even loyal or "factual" studies without any critical components but containing facts and figures throwing light on negative trends in the economy were not recommended for publication, but classified as "secret" or "for internal use only" (e.g. macroeconomic studies by Josef Goldmann). The only place where standard modern economics was taught alongside the political economy of socialism was the Graduate School of the Institute of Economics of the Czechoslovak Academy of Sciences (Havel et al., 1997). The group of younger economists related mostly to the Institute of Economics (Miroslav Toms, Mojmír Hájek, , Antonín Kotulan, Václav Klaus, Karel Dyba, Jan Klacek, and Tomáš Ježek) contributed to the enriching of economic knowledge by applying analytical apparatus from the neoclassical theoretical background. Even some titles of Western economic classics were translated into the Czech language (Arrow, Allen); a more significant part of the relevant literature came to the country in Russian translations; and Western journals and books were generally accessible in scientific libraries.
[24] It is interesting that the only part of economic science that never lost contact with international development was operations research and econometrics: on the one hand, highly formalized mathematical methodology was beyond the understanding of ideological supervisors; on the other hand, the philosophy of "the theory of the optimal functioning of socialist economy", imported from Moscow, was successfully used by mathematically oriented economists to justify some intellectually interesting programs of quantitative economic research. This orientation allowed faculties of mathematics and physics to involve themselves informally in economic research and education; and some economic disciplines were presented as part of mathematics (mathematical programming, game theory, econometrics). The Laboratory of Mathematical Economics (Ekonomicko-matematická laboratoř) of the Institute of Economics, headed in the 1970s and 1980s by Jiří Bouška; the Department of Econometrics at the School of Economics in Prague (VŠE), headed by Bedřich Korda until 1968, when he left the country, then for several years by Jaromír Walter and from the 1970s until now by Miroslav Maňas; and the Department of Informatics and Operations Research at the