János Kornai’s Anti-Equilibrium was ahead of its time when it was written, and even today, when system dynamics software is extensively used in engineering and other disciplines, it remains ahead of its time in economics, which is still hampered by the dominant equilibrium-dominated modeling approach and the subjective beliefs that the truly sterile state of equilibrium is preferable to the real dynamic instability of actual capitalism. The dead-end in which economic theory finds itself is easily escaped if we adopt the system dynamics approach Kornai recommended in 1971, and derive macroeconomics directly from the structure of the macroeconomy.

https://www.kornai-janos.hu

PS.

Imo, yes, random walk stochastic process.

@Stefen: Your ref to Kornai evoques old memories from my PhD years. Not an easy read... If I understand well, there is no "equilibration" tendencies in an economic system. If no rationality, no need for micro foundations?

Thank you Hubert Escaith for sharing your reflections. Kornai's work indeed can evoke complex and nostalgic memories, especially given its depth and sometimes challenging prose.

To clarify your interpretation: Kornai emphasized the fundamentally disequilibrium nature of real-world economic systems—highlighting persistent shortages, queues, and the absence of a natural tendency toward equilibrium in centrally planned economies. His approach often contrasted with classical models that assume markets tend toward equilibrium states.

Regarding "equilibration" tendencies, Kornai's perspective suggests that in many practical economic systems—particularly those characterized by shortages and rationing—there isn't a strong natural drive toward equilibrium in the classical sense. Instead, these systems are marked by ongoing adjustments, shortages, and surpluses, reflecting disequilibrium dynamics.

As for rationality and micro foundations: Traditional economic models often rely on individual rationality and optimize behavior to explain market outcomes and equilibrium. Kornai’s insights imply that, especially in disequilibrium contexts (like planned economies), micro rationality may be insufficient or less central to understanding systemic phenomena. Instead, macro-level constraints, institutional features, and systemic disequilibria dominate, reducing the necessity or applicability of micro-founded rationality assumptions.

Kornai's analysis , dear Hubert Escaith ,suggests that in certain economic systems, especially those with persistent disequilibrium features, the classical notion of systems naturally tending toward equilibrium and the reliance on micro rationality as a foundation may not hold. Instead, systemic constraints and disequilibrium dynamics are central, challenging the standard micro-macro linkages.

Stephen I. Ternyik Thanks. I remember well (being French, the Hungarian school of decentralised planning was quite "à la mode", and there was a number of publications on how to mix market and central planning. And it was the beginning of research on what became known in Anglo-Saxon countries the "Principal-Agent" theory). Back to your comment. In the 1970s, the economics of disequilibrium was also "à la mode". But the name changed for "equilibira under constraints", because in the end, the constraint was determining the local "equilibrium", even if it was a second-best situation. So, as long as you were able to identify the supply or the demand constraints (a big if, in practice), you were theoretically supposed to be able to compute the "constrained market outcome". But this line of research was abandoned, as far as I know.

Yes Hubert Escaith .While earlier disequilibrium models emphasized deviations from full market clearing, this newer perspective recognized that real-world markets often operate under various restrictions—such as budget constraints, resource limitations, or institutional barriers—that shape the feasible set of allocations.

The key idea is that these constraints effectively determine a local "equilibrium," even if the outcome is not globally optimal or first-best. Instead of assuming markets naturally gravitate towards a perfectly competitive equilibrium, economists began to analyze how constraints influence the set of feasible solutions and how agents' optimizing behavior within these limits leads to a "second-best" equilibrium. This approach acknowledges that the presence of constraints can prevent the attainment of the ideal Pareto-efficient outcome but still results in a stable and predictable state given the circumstances.

The shift from disequilibrium to "equilibrium under constraints" reflects a more realistic and nuanced understanding of market outcomes, emphasizing the role constraints play in shaping economic equilibria—even when those equilibria are suboptimal from an overall welfare perspective.

It would be better to reproduce what I posted on May 29, 2025 at 7:37 pm

as a Reply to Lars Syll's blog article The problem with equilibrium models https://rwer.wordpress.com/2025/05/29/the-problem-with-equilibrium-models/

Everybody can read my reply if he or she visits its comments page,

https://rwer.wordpress.com/2025/05/29/the-problem-with-equilibrium-models/#comments

as you can easily find my reply, because it appears as the first reply among seven (or more) replies. Unfortunately, by the laziness or neglect (?) of the moderator of the question page (probably Lars Syll himself) it appeared public only more than a week later. As the Blog is normally updated more than two times a week, few person had the chance to read my Reply. I am happy that I can discuss the same question in the ResearchGate thanks to Hubert Escaith who has picked up the problem as this question page.

• Doubt and criticism on equilibrium (concept and framework that define or formulate an economic state or path) are quite old. We can cite Kornai Jànos’s Anti-Equilibrium (1971), Nicholas Kaldor’s “Irrelevance of Equilibrium Economics” (Economic Journal 1972), and Joan Robinson’s “History versus Equilibrium” (Indian Economic Journal 1973), to cite only three of the most famous books and papers. In the first decade of 1970’s (just a half century ago), there were a tide of criticism on equilibrium as framework of economics.
• What happened after those days? The arrival of GSGE (General Stochastic General Equilibrium) models that remain main framework for mainstream macroeconomics (including theoretical and empirical works). The lesson we can derive from this history (a half century of criticism) is that criticizing equilibrium is not enough. Without constructing a new theory that is free from equilibrium, there will be no way out from the long-continuing disaster.
• As I often cite, it takes a theory to beat a theory. (I thank Gerry Holtham for reminding readers of this Blog of my favorite phrase.)

https://rwer.wordpress.com/2025/05/21/neoliberal-economics-fiction-based-on-absurd-assumptions/#comment-204002

I personally tend to agree with the comments from David H. Chester in the https://rwer.wordpress.com/2025/05/29/the-problem-with-equilibrium-models/ discussion:

"What this kind of model does provide is a regular trend towards equilibrium, which is also named as having inherent stability.

I find it very unsatisfactory (if not impossible) when the model being used for representation of the whole macroeconomics system does not contain this latter feature, because it implies that it is quite capable for getting further and further away from an equilibrium condition over a long time, (that is it is unstable) and this is not feasible in practice."

Indeed, if there is no rationality in an economic or social system (pure random walk), at the extreme, we are in a purely chaotic system. Which is obviously not the case: if after thousands of years, Homo Sapiens is still present on Earth, it must be because there seems to be some kind of rationality in the way Sapiens make their decisions. It may not be the Neo-Classical equilibrium, probably closer to a situation of several possible "attraction" states (which may not be the Walrassien equilibrium, but that are at least locally stable). So, trying to identify these "attractor states" remains a fundamental task.

PS. By the way, the end-result of a system made of many pure (apparently) random walks do not need to be unstable. The exemple is the stock market: the individual behaviour of a stock driven by supply and demand forces may look as a random walk, but the addition of these apparently random walks follows some rational path, driven for example by monetary and fiscal policies or international trade developments. Even if Marxian say that the capitalist system is prone to crisis, these crises are a mode of systemic regulation (id est, a way to "return" the system to some more "normal" situation, whatever is the way you qualify "normality".

Have the beginning of Principal-Agent theory anything to do with decentralized planning or "indicative planning" thought that was quite popular in 1970's (and even in 1980's) in Japan.

Hubert Escaith 's story about general disequilibrium or General Equilibrium theory with Rationing as it was later called (in 1980's) is very important, if we do not believe Whig history of economics as science. Indeed, in 1980's, there were two burgeoning trends in 1970's: One was disequilibrium analyses lead by various French economists which transformed itself to General Equilibrium theory with Rationing. The other was Rational Expectation theory that proliferated against many conscious-minded economists' expectation. (One of such fighters was Hirofumi Uzawa.)

As for a detailed history of what happened with GET with Rationing, please

read Romain Plassard and Matthieu Renault 's paper:

Article General Equilibrium Models with Rationing: The Making of a '...

This movement failed, as Hubert Escaith pointed it, but we should learn why GET with Rationing failed, whereas Rational Expectations economics succeeded in a mundane reputation.

Yoshinori Shiozawa "Have the beginning of Principal-Agent theory anything to do with decentralized planning or "indicative planning" I tend to say "yes". Two reasons: on the theoretical ground, the issue to solve was to align the deciders' decisions (the agents) with the objectives of the central planner (the Principal). The trick was to identify a set of price incentives that would be render the local production an optimal for the agent and for the principal. This was a response to the issues that arose when objectives were set in quantities. The second reason is that I learned (superficially, in my case: I am not a brilliant mind) the topic in Toulouse under the guidance of Pr. JJ Laffont who formalised it using Game Theory. Death came too early for him to have a much-deserved Nobel price, but his close friend and co-author J. Tirole got it for him.

It seems there is a "decalage de temp" or "time difference" between Hubert Escaith and me. My above post refers to Hubert's post on four days ago.

As for "rationality of human agents" problem, which is really important question, I will argue in my later posts.

Hubert Escaith thank you for the information. I have never studied Principal-Agent-Principal problems. It is natural I do not know the background of the theory. Have you ever studied under the direction of J.-J Laffont? He must not be much older than you. After Wikipedia, he was three and a half years younger than I and passed away at least twenty one years before me. It is a sad story but you had a precious time with such a great economist.

Principal-Agent problems compose a specific part of theory of firms or theory of organizations. After Weinstein and Coriat, two currents can be traced:

Article Les théories de la firme entre « contrats » et « compétences »

One is the chain that starts from Coase and restated in 1970's by the economists such as Alchian, Demsets, Williamson and probably followed by Laffont and Tirole and others. The other current is that started by H. A. Simon and succeeded by March and Cyert and many others.

The first strand concentrates on contract, incentives and others. The second focused on the boundedness of our rationality. The most famous term by Simon is bounded rationality. This is what I want to pick up as the question of rationality in the argument of macroeconomic dynamics. Two currents above cited are ordinarily viewed as two different aspects for understanding firms or organizations. The question of rationality is also an aspect of the market process.

It is only by chance that I cite Weinstein and Coriat. I am preparing a talk about H. A. Simon.

While macroeconomics traditionally relies on equilibrium models, incorporating disequilibrium dynamics, like agent-based models, offers realistic insights into complex, evolving economies.

Chuck A Arize : Thanks for suggesting agent-based modelling. In my days (I am an old timer), their use was reduced to relatively simple "computer-based simulators cum game-theory" used for training students on some business or trade negotiation aspects. I suppose it is now possible to implement much larger models multiple-agent multiple countries players and shock them the boostrapping way to estimate expected outcomes. In this case, I suspect agents are facing the usual constraints and must react to changes in the environment and to other players' moves. Interesting, indeed. Can you suggest some examples applied to macroeconomics?

I had a chance to read Mehrdad Vahabi's recent book The Legacy of Janos Kornai / Collected Economic Essays on Janos Kornai (2025). I recommend to read

Chapter Presentation of Part III

As it is well known, in 1971, Janos Kornai published the famous book

Anti-Equilibrium: On Economic Systems Theory and the Tasks of Research.

It was one of papers that ignited an anti-equilibrium movement together with

Nicholas Kaldor's two papers:

The irrelevance of equilibrium economics. Economic Journal 62(38): 1237-1255, 1972.

What wrong with economic theory. Quarterly Jounal of Economics 89(3): 347-357, 1975.

Kaldor wrote much later a lectured book: Economics without Equilibrium. University College Cardiff Press, 1985.

These papers and books were my main inspiration in doing economics. I made a firm determination that I will never use the equilibrium framework for may economics papers. Inmy understanding, it was rewarding. Without this determination, it would have been impossible to write with two of my colleagues

Microfoudnations of Evolutionary Economics

https://link.springer.com/book/10.1007/978-4-431-55267-3

Kornai's Anti-Equilibrium was one of major inspirations both for Morioka and me. Without it, it may not have been possible to arrive at our result. However, for Kornai, the story was a bit too sad and tragic. As it is clear in the Introduction to Part III of Vahabi's book (and more details in Chapter 11 of the book), Kornai changed his position vis-à-vis Anti-Equilibrium and came to regret to have written Anti-Equilibrium. Probably Kornai was too isolated and discouraged by the fact that there were so few followers of his anti-equilibrium position. This was a ad story but I believe he should not have regret it. Anti-Equilibrium was a guiding post for the new evolution of economics. Equilibrium economics is deemed to fail in the long run. Our book is only a step stone for future development.