History of IES
History of IES
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ON THE HISTORY OF ECONOMICS AT THE INSTITUTE OF ECONOMIC STUDIES, CHARLES UNIVERSITY
The following text was written by Vladimír Benáček, Emeritus Associate Professor at IES and a curator of the exhibition "35 Years of Economics at Charles University: A Retrospective". 
Economics at Charles University was re-established on
* June 1st 1990 and *June 1st 1993
Even though IES is relatively young, established provisionally as the Department of Economics on the 1st June 1990, its roots reach further back to the so-called "central planning" under totalitarian rule. How come, you may ask, are you proud of the shameful communist past? Not at all! To the contrary, we are proud of the pro-Western past of our first teachers and their hands-on expertise. Thus, they were ready to propose Western economics curricula, backed by their own unique research, as early as January 1990, mere six weeks after the fall of Communism, as the first university in the country.
Actually, the history of IES could serve as an exceptional case study of how the communist system functioned, including its genetic Kafkaesque absurdities, such as running a system of 24 integrated multisectoral neoclassical econometric models in disguise of a "system supporting the decisions of central planning", which the hand-picked connived planners had to approve every year formally but, in practice, fended it off the Ministry as much as they could. Their reason was simple: the models required at least some free pricing, some markets and some entrepreneurship, which the planning lacked. Moreover, the Communist world was full of similar follies.
Let us therefore go step by step from the starting point of the Prague Spring of 1968, following the underpinning references. How did we come to have teachers who were fully proficient in neoclassical and institutional economics and econometrics when Communism had blacklisted and purged these topics for 41 years? The key is that they came from the Academy of Sciences—Economic Institute (EI) and/or its Economic-Mathematical Laboratory (EML). Both institutions rescued a highly anomalous creative microclimate that was very different from the dull totalitarian institutions.
In 1968, the EI staff of 120 was full of researchers who believed that Marxism was merely an ideological illusion unable to compete with axiomatic and empirical economics in explanatory power. They were also aided by the de-Stalinisation years of 1962-68, when contacts with the West and study visits were gradually allowed. Key figures like Karel Kouba, Luděk Urban, Oldřich Kýn, Luděk Rychetník, Luboš Hejl, Bohuslav Sekerka, Josef Goldmann, Jiří Skolka, Ota Šik, Bohumil Urban, Pavel Pelikán, and Jiří Kosta formed the first generation of brilliant economists who broke the Marxian constraints. All of them were the leaders of the economic reform of the Prague Spring of 1968, for which they were severely punished after the Soviet occupation. Our first reference provides more information about their publication alongside the Nobel Prize winners.
Feinstein, C. H. (ed.) (1967). Socialism, Capitalism and Economic Growth: Essays Presented to Maurice Dobb. Cambridge: Cambridge University Press:
It took EI 6 years (1969-74) to recover from the totalitarian pressures and to establish a diplomatic regime in which the 25% minority of quantitative economists were tolerated by the largely pseudo-Marxist verbal “investigators”. This allowed EML in 1974-75 to design and launch The System of 24 Models for Middle-Range Planning, which looked like something from another world. It was inspired by the research of L. Klein's Wharton Model and R. Stone's System of National Accounts (both of whom earned Nobel Prizes for their work). The idea of EML was to monitor and forecast the entire Czechoslovak economy, including labour, human capital, investments, physical capital, consumption, exports, imports, government services, and public budget – all broken down by 28 industries and subject to policy scenarios. See more about the System of Models.
Bouška a kol. 1976: Systém ekonomicko-matematických modelů pro střednědobé plánování. Praha, ČSAV EML/EÚ, VP 43.
See an example of the collective study based on the System of 24 Models with estimated scenarios dedicated to predictions up to 2010 (!), which the central planners were not able to absorb due to the institutional curbs, such as missing markets or private property, which the Chinese Communist leaders were mysteriously capable to transpose into their command system.
Modelling of the Long-Run Evolution of the Economic Structure – 1987…. (V. Benáček - J. Hlaváček - D. Loula J. Štach — J. Vokálová MODELOVÁNÍ DLOUHODOBÉHO VÝVOJE STRUKTURY EKONOMIKY II. Zobrazení dopadu vybraných faktorů na formování struktury Praha 1987)
These were the EML-EI workers practicing the non-Marxian economics, where an asterisk marks a former researcher of EML or EI who became a future teacher at the IES:
Jiří Hlaváček* (working on a new theory of producers), Martin Černý* (leading the team of translators of Allen's Mathematical Economics and the mastermind of all 24 models of EML), Dušan Tříska* (consumption functions, new theory of contracts), Monika Hollmannová* (theory of firms), Josef Zieleniec* (alternative economics), D. Loula (demography), D. Gluckaufová (fuzzy sets), D. Rottová (econometrics) and Vladimír Benáček* (theories of trade and international finance). The circle included other workers from EI: Michal Mejstřík* (economics of innovation and trade), Lubomír Mlčoch* (new theories of firm), Oldřich Dědek* (macroeconomics and banking), Pavel Kysilka* (planning failures), Pavel Mertlík* (economic policies), Ivo Koubek* (micro), Július Horváth* (macro), Tomáš Ježek (privatisation, policies and Hayek), Karel Dyba (models of trade), Vladimír Dlouhý (macro and econometrics), Jan Mládek (econometrics of consumption), Alena Zemplinerová (imperfect markets), Aleš Bulíř (macroeconomics), Vít Bárta (banking), Eva Zamrazilová (macro), Alena Nešporová (labour economics), Lívia Klausová (policies), Aleš Čapek (finance), Karel Kříž (policies), Jiří Křovák (statistics), Václav Kupka (investments), or Roman Češka (privatization), among others. Additionally, there were external contacts: Karel Kouba*, Zdeněk Tůma*, Petr Zahradník, Marie Bohatá, Milan Sojka*, Josef Vavroušek*, Václav Klaus and Miloš Zeman. The majority of these became public leaders, government members, and international policy advisers during the transformation after the fall of Communism.
Their meetings took various forms. Formal meetings included research defences, peer classes in microeconomics (Tříska/Hlaváček), macroeconomics (Dlouhý), and statistics (Benáček), as well as seminars at the CS State Bank (V. Klaus) and Sportpropag (M. Zeman). The last two seminars were banned in 1986 and 1984, respectively. Survival as an academic economic elite required both courage and mockery, including hypocrisy (unfortunately). Informal meetings took place in various hidden nooks, offices, or homes. The discussions were heated, fostering a deeper understanding of the economy and economics. Publishing in the West was not allowed until Quandt and Tříska edited the book Optimal Decisions. from the Micromodels Conference in March 1989.
Participants of the Micromodels international conference of March 1989 – future experts in the economic transitions in the world
*** F4: Quandt R., Tříska D. 1990: Optimal Decisions in Markets and Planned Economies. Boulder (Colorado), Westview Press.
This volume had domestic predecessors since it was preceded by two pathbreaking books, both published by the EI. The first was The Theory of the Firm by Lubomír Mlčoch (1970). Apparently, the first authentic non-Marxist microeconomics textbook in the Communist countries.
F5: Mlčoch L. 1970: Teorie firmy. ČSAV EÚ, VP….
Nonetheless, L. Mlčoch worked on another three path-breaking papers before this book:
A) Alternatives of Enterprise Behaviour in Socialism – 1967, Politická ekonomie, no. 11. The paper proved that simple decentralisation of central planning is not a solution to its efficiency problem.
B) Gross Production, Gross Income and Efficiency – 1968, Politická ekonomie, no. 7, offering a unique axiomatic analysis of the “extensive growth” embodied in central planning.
C) Alternative Goals of Enterprises in the Socialist Economy – 1970, CSEP/12. CZECHOSLOVAK ECONOMIC PAPERS NO. 12 Alternative Goals of Enterprises in the Socialist Economy (An Application of the Marginal Theory of the Firm) Lubomír Mlčoch This paper applies the marginal theory of the firm to examine the roles of enterprise motives, incentives, ownership, and the institutional framework of socialism. After the Soviet tanks ended the quest for an alternative to central command, writing such papers was a heresy. As a punishment for his ideological trespasses, Dr Mlčoch was forced to “repent” by spending 15 years in an electrical corporation and was banned from any academic activity, which he refused to accept. In fact, he kept studying the real socialist economic behaviour “on the spot”, which made his research unparalleled.
The second path-breaking textbook was Microeconomics by Hlaváček and Tříska (1986).
Hlaváček J., Tříska D. 1986: Úvod do mikroekonomické analýzy. Praha, EÚ EML – dodat plnou referenci.
The social status of all the aforementioned individuals underwent a dramatic shift as Communism began to collapse. As the barriers crumbled, many of the former outsiders rose to become leaders in government, banking, industry, and international institutions. Some focused on reorganising economics research and teaching, establishing two top institutions: IES and CERGE-EI.
Who were the individuals who formed the Department of Economics in June 1990 and transformed it into IES in 1993? And what were the curricula at the start?
F7: citace knihy
The next publication presents the state of economics within EML and its environment from 1970 to 1989. We hope this evidence will convince you that our initial hypothesis that the first IES teachers were exceptionally well-prepared to deliver authentic blue-chip BA and MA programs in mainstream economics, irrespective of the communist ideological traps in their ways in 1970-89. No other university in Czechia could have started its economics program in 1990 with such a competitive staff. IES has maintained its legacy as the top institution in Czech economic education and research since 1990 to this day.
Mathematical Economics by R.G.D. Allen – the illicit and admired textbook
F8: Allen R.G.D. 1971: Mathematical Economics. Praha, Academia Publ. 
F8: Planning Process in a Company by L. Mlčoch – 1983, which is a unique concept for explaining the seeming paradoxes in the behaviour of agents in central planning.
F8: Planning Process in a Company by L. Mlčoch – 1983, – dodat plnou referenci. 
F9: Socialist Decision-making by J. Hlaváček, 1989. A unique pioneering text in the form of an axiomatic theory supporting the hypothesis that central planning or capitalism, without competitive and contestable markets in the sectors of private goods, degenerates into opportunistic counter-entrepreneurial behaviour.
F9: Hlaváček J. 1989: Socialist Decision-making. Praha, EML EÚ, VP č. dodat referenci.
The next exhibit concerns the relationship between innovation and exports by M. Mejstřík (1983), the future director of IES:
F10: Quality and Economic Effects of Export Model.
F10: Mejstřík M. 1983: Quality and Economic Effects of Export Model dodat referenci.
In contrast to the 1983 paper, the six years that elapsed and Soviet glasnost freed the Czech ideological constraints, allowing the author to present his ideas in the West (which was still rare): Mejstřík M. 1989: Quality, Effects of Exports and Export Subsidy, dodat referenci.
FOTKY SEM xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
F11: Disequilibrium, Quality and Planned Equilibrium Prices by M. Mejstřík – 1986, touching the fundamental weak points in the behaviour of socialist centrally planned enterprises.
Mejstřík M. 1986: Disequilibrium, Quality and Planned Equilibrium Prices. Praha, EÚ ČSAV, VP … dodat referenci. CHYBÍ SKEN KNIHY - DOHLEDAT ve výstavce
This research was unique in its novel, axiomatic treatment of disequilibria, which characterised the nature of planning and its inability to construct meaningful free-market prices under market disequilibria. The co-author, M. Toms, considered the best CS economist at the time, was unfairly not listed in alphabetical order, which would have better reflected the role of Dr Mejstřík in this study. It should be stressed again that publishing such studies in the West was not politically possible in Czechoslovakia. That was in contrast to more liberal Hungary, where János Kornai was allowed to publish his famous books on disequilibria as early as the 1970s.
FOTKY SEM
Next publication is an example of technicalities that had to be solved when working with production functions: F12: Disaggregation of an Absolute Increase in Variables by O. Dědek – 1986
F12: Dědek O. 1986: Disaggregation of an Absolute Increase in Variables. Ekonomicko-matematický obzor, č. Xxx, EML EÚ. dodat referenci
Meanwhile, the majority of EML and EI researchers grappled with the pitfalls of the socialist production economy. *** F13: D. Tříska (1988) focused on the behaviour of its consumers using a challenging axiomatic approach.
F13: Tříska D. 1988: The Decision-making of a Consumer in a Planned Economy. Praha, EML EÚ, VP xx Upravit referenci – v češtině. This publication is a trailblazing study of consumer behaviour in the “centrally planned” socialist economy, characterised by shortages, search, and other transaction costs. Although it methodologically surpassed the famous Korna's “Shortage” (1980), the fall of the Iron Curtain left that research without demand. New Czech semi-capitalist consumers suddenly had a glut of supplies.
International trade was the most important mirror that could reveal the truth: how planned economies, short of internal markets and prices, were trailing far behind market economies. *** F14: V. Benáček (1986) concentrated on the trade sector, where export prices and comparative advantages had to be estimated in a complicated sequence of model procedures.
*** F14: V. Benáček 1986: International Trade and Structural Change. Praha, EML EÚ, VP xxx.
If you think that present textbooks of microeconomics are too far from the reality and you want to taste alternative visions, you can purchase the non-conformist F15: Generalized Microeconomics where our founder Jiří Hlaváček and our teacher Michal Hlaváček explain the alternatives to homo oeconomicus: for example, adverse selection and moral hazard in objective functions of survival, redistribution, modelling the non-profit institutions, behaviour of agents in the command economies, modelling of externalities or economics of altruism and belonging to the community. Many of these ideas have roots in the days of totality, when the first author speculated about the behaviour of agents in which perfect markets fail or are missing.
F15: Generalized Microeconomics
Although bygones are bygones, the prestige of today´s IES, due to the economic know-how, emphasis on formal logic, and quantitative economics acquired at EML and EI and instilled in the IES's DNA by the founding staff long ago, is our heritage.
Všechny citované knihy jsou k dispozici k prezenčnímu nahlédnutí na IES, v případě zájmu o jejich prohlížení prosím napište na mail pr.ies@fsv.cuni.cz.
