The Logic of a Shortage Economy: A Critique of Kornai from a Kaleckian Macroeconomic Perspective

The basic concern of policy makers in socialist countries is how to eliminate an economic shortage.' Hungary and other socialist countries have decided to decentralize decision making and introduce market forces. The experience so far of Hungary and Yugoslavia (stagilation, indebtedness, etc.), however, has cast doubt on this policy and calls for alternative approaches in both economic theory and economic policy. The present paperpursues this topic using Kalecki 's macro-profit theory applied to a socialist economy. Neither socialist nor capitalist economies are normally in equilibrium in the General Equilibrium sense of no excess demand or supply in any market. The problem in capitalist economies can be attributed to the lack of effective demand, while socialist economies face continuous shortage resulting from excess demand, i.e., aggregate demand always exceeds aggregate supply in the socialist economy. Several reforms in the socialist economies have been so introduced in the hope of eliminating or at least reducing this shortage. But the economic history of both Hungary and Yugoslavia shows that, despite several rounds of economic reforms, the problem has remained. Moreover, a rise in the intensity of shortage was observed in Hungary after The author is President of the Kaldor Foundation, Budapest. The help, encouragement, and careful editing of Paul Davidson, who contributed greatly to the final form of this paper, are gratefully acknowledged. The comments of Amit Bhaduri and Alfred Eichner are also highly appreciated. The author is, of course, responsible for the fimal form of the paper.