ANTI-EQUILIBRIUM
On economic systems theory
and the tasks of research
by
JANOS KORNAI
Professor of Economics
Institute of Economics
Hungarian Academy of Sciences
A
1971
NORTH-HOLLAND PUBLISHING COMPANY
AMSTERDAM • LONDON
CONTENTS
LIST OF TABLES
. . . . •.
' . . . . . . • . . -
LIST OF FIGURES
FOREWORD
xii
. . . . . . '
. . . . . - . • . .
O N THE STRUCTURE OF THE BOOK
. . .-.,. . . .
xiii
. : . ,,
xv
' . . . . . . . . . . . . . . . .
5.1. Principles of Notation
5.2. Principle Notations
5.3. Definitions
5.4. Statements
. XVJii
xviii
.r . . . . xviii
xx
xx
PART I: STARTING POINTS
1. INTRODUCTION: SCOPE O F THE SUBJECT
1.1. The Systems-Theoretical Approach
1.2. A Critique of Mathematical Economics
1.3. Criticism and Positive Theory
1.4. The Present-Day Economy
3
,
. . . , . . . ; . . . . .
,••-,••
2. THEORY, FORMAL MODEL AND REALITY
2.1.
2.2.
2.3.
2.4.
2.5.
2.6.
7
What D o We Call a "Theory"?
'. .-'-.
7
Theory versus Intellectual Experiment
11
Economic Real-Science Theory versus Decision Theory . . . .' 12
Economic Theory versus Econometrics . . :' . " . . . . . . . 15
The Significance of the Formal Model .
16
The Indicators of the Maturity of a Real Science
16
3. T H E BASIC CONCEPTS O F GENERAL EQUILIBRIUM THEORY
3.1.
3.2.
3.3.
3.4.
3.5.
3.6.
3
4
5
6
.
.
18
Character of the Survey
"18
Basic Assumptions
•.••••
19
The Conceptual Framework
. . . . . . . . . . . . . . .
23
The Questions to Be Answered
24
What Should Be Considered a Related Theory? . . . . . . . .
26
First Summary Evaluation .:
27
VI
CONTENTS
PART I I : CONCEPTS AND QUESTIONS
4. THE GENERAL MODEL OF THE ECONOMIC SYSTEM
4.1. A "Language" to Describe the Economic Systems Theory . .
4.2. Organization and Unit
4.3. Input, Output, State .
4.4. Real Sphere and Control Sphere
,
4.5. Products
4.6. Information
4.7. The Response Function: An Introductory Example
4.8. The General Form of the Response Functions
4.9. Comprehensive Definitions
4.10. The Unit and the Economic System as "Automata"
4.11. A "Dictionary" of Some Current Economic Concepts . . . .
4.12. Comparison
5. INFORMATION STRUCTURE
5.1. Three Main Classes of Information Flows
5.2. Further Classification of Information Flows
5.3. The Complexity of the Information Flow Structure
5.4. Complex Structure of the Price-Type Information Flow . . . .
5.5. Control Sub-Systems
5.6. Comparison
6. MULTI-LEVEL CONTROL
6.1. The Types of Subordination and Superordination
6.2. The General Concepts of the Vertical and Horizontal Relationship
6.3. Once More about the Information Flow
6.4. Actually Existing Systems Are Multi-Level
6.5. Comparison
.•
7. CONFLICT AND COMPROMISE WITHIN THE INSTITUTION
7.1.
7.2.
7.3.
7.4.
7.5.
7.6.
7.7.
Notion of the Institution
Functional Organizations of the Productive Firm
Manyfold Character of Motivation
Conflicts and Compromises
Acceptable Compromise
Comparison
Recapitulation: Microstructure
35
35
37
38
39
42
43
45
47
50
51
53
56
58
58
60
62
67
69
72
76
76
80
83
83
85
89
89
89
91
92
95
97
98
CONTENTS
8. T H E DECISION PROCESS
YU
j
.
,
8.1. Decision: Elementary Decision Process
8.2. The Possible Decision Alternatives . .
8.3. The Sets of Alternatives
8.4. Choice of the Decision
8.5. The Example of National Economic Planning
8.6. Comparison
.
100
102
105
. 108
110
Ill
9. DECISION ALGORITHMS
114
9.1. General Concept of the Decision Algorithm
9.2. Declared Rules versus Conventions
9.3. Standard versus Fundamental Decision Processes
114
116
117
10. PREFERENCE, UTILITY FUNCTION, RATIONALITY: A SURVEY
122
10.1. The Concept of Preference Ordering
10.2. Dynamic versus Static Interpretation
.^ 10.3. Revealed Preferences
10.4. Recurring versus Non-Recurring and Comparable versus NonComparable Decisions
10.5. Deterministic Decision versus Uncertainty
10.6. Descriptive-Explanatory versus Normative Theory
10:7. Fields of Application: The Consumer, the Firm, the Government
11. PREFERENCE, UTILITY FUNCTION, RATIONALITY: A CRITIQUE
11.1. On the Static, Descriptive Interpretation
11.2. Consistency of the Comparable Decisions
11.3. Changes in the External Conditions of the Decision
11.4. Changes in the Relative Position of the Decision-Maker
11.5. Other Effects Influencing the Preferences
11.6. Uncertainty
11.7. Superfluous Link in the Explanation of Decisions
11.8. The Norms of Clever Behaviour
11.9. Government Decisions
12. ASPIRATION LEVEL, INTENSITY
12.1.
12.2.
12.3.
12.4.
12.5.
Notion of the Aspiration Level
Notations of the Extensive Indices
Tension
On the Emergence of the Aspiration
From Aspiration to Decision
100
122
124
125
128
129
130
131
133
. . .
133
135
137
139
141
142
146
148
151
154
154
159
160
161
161
viii
CONTENTS
12.6. The Example of National Economic Planning
12.7. Intensive Indices: Introductory Examples
12.8. Economic Examples
12.9. Definitions of Intensity
12.10. Comparison
,;;165
,167
169
"171
173
13. AUTONOMOUS FUNCTIONING OF THE SYSTEM
.
13.1. Analogy of the Living Organism
13.2. Autonomous Function—First Approach
13.3. Stocks and Reserves
13.4. Delimination of Autonomous and Higher Functions
13.5. Major Statements: Comparison
176
176
.177
178
181
. 185
14. ADAPTATION AND SELECTION
188
14.1. Adaptation and Selection in the World of Living Organisms 188
14.2. Primary and Secondary Adaptation
/ 189
14.3. Adaptive Properties . . : . . .
: 190
14.4. Selection
: 196
14.5. Comparison
V 198
14.6. "Quantum-Economics"
200
15. CLASSIFICATION AND AGGREGATION
•. 203
1! 203
204
.207
15.1. Individual Description and Aggregation . •
15.2. Example: The Investment Functions
15.3. Typology, Classification
16. THE COMPREHENSIVE CHARACTERISTICS OF THE OPERATION OF ECO-(
NOMIC SYSTEMS
210
16.1. The Desiderata
16.2. The Performance of the System
16.3. Comparison of Systems
16.4. The Questions Posed by the GE Theory
210
213
215
216
PART HI: PRESSURE AND SUCTION IN THE MARKET
17. THE MARKET
'
17.1. Delineation of the Subject
17.2. The Elementary Contracting Process
17.3. The Definitions of the Market
17.4. Information Structure of the Market
17.5. Comparison
. . 221
.221
,222
i 226
.227
s 228
CONTENTS
IX
18. DEMAND AND SUPPLY, INTENTION TO BUY AND TO SELL
.
. .
.
18.1. The Commonplaces
18.2. Distinction of the Control and Real Processes . . . . . . .
•• 18.3. The Maturing of Selling and Buying Intentions .
18.4. Interrelations of Selling Intention, Selling, Production and
Stock
:
. . ' . . .
" 18.5. Comparison
19. PRESSURE AND SUCTION
19.1.
19.2.
19.3.
19.4.
19.5.
. 19.6.
19.7.
_^ 19.8.
19.9.
19.10.
'.
. -. ; .
.-.'.-.
The Case of the Motor-Car and Textiles
The Increase in Volume
The Quality Concept
: . :
The Revolutionary New Products
GradualProduct Development . . . . . . ' . . .
Following the World Standard
Reliability of the Quality
F-Activities and Q-Activities
Comparison . . . . ;
21. THE CONSEQUENCES OF DISEQUILIBRIUM
21.1.
21.2.
21.3.
21.4.
21.5.
21.6.
21.7.
21.8.
229
230
233
237
238
240
The "Shortage Goods"
. . . . ' . . . 240
Compulsory Correction of the Intention to Buy . . . . . . 241
The Tension of the Buyer's Aspiration . . . . • / . ' . . . 244
The Seller in the Shortage Situation . . ' . . . ,
249
The Seller Queues
'.
250
General Definitions and Statements .
.252
The Problems of Observation and Measurement . . . . . . 257
On Demand and Supply Functions
258
Comparison
. ! . ' . . • . . . . . 259
Economic-Historical Starting Points
261
20. VOLUME AND QUALITY
20.1.
20.2.
20.3.
20.4.
20.5.
20.6.
20.7.
20.8.
20.9.
.
229
263
;
263
268
269
271
280
281
282
283
284
286
Volume and Inputs
: . . . . 286
Quality
. . •.
287
Relative Strength and Competition
.•.'...
293
Adaptation
•
'295
Selection and Concentration
297
Information Relation between Seller and Buyer
300
Survey of Effects—Counter-Tendencies
301
Tension
. . 303
X
CONTENTS
21.9. Intensity
21.10 Normative Standpoint
21.11. Comparison
.304
308
309
22. REPRODUCTION OF TENSIONS
313
22.1.
22.2.
22.3.
22.4.
22.5.
22.6.
22.7.
22.8.
Delimitation of the Subject
.313
Suction: Consumers' Intentions
-314
Suction "Tense" Production Plans, Structural Disproportions 316
Suction: Investments
317
Suction: A Combined Survey
319
Reproduction of Pressure
321
Transition from Pressure to Suction and Vice Versa . . . . 324
A Degression: The Reform of the Hungarian Economic Control and Administration
327
22.9. Comparison: Excess Supply and Excess Demand
329
22.10. Comparison: Macro- and Microeconomics
331
22.11. Further Research Projects
332
23. MARKET AND PLANNING
23.1.
23.2.
23.3.
23.4.
334
Two Extreme Views
Comparison of the Two Sub-systems
Factors Determining the Combination of Market and Planning
Comparison
334
335
337
342
PART IV: RETROSPECTION AND A LOOK FORWARD
24. ANTECEDENTS IN THE HISTORY OF THEORY AND RELATED TRENDS . . .
347
24.1. A Survey of the Discussion
347
24.2. Summing up the Antecedents
348
24.3. Consumption, Production and Market Theories
349
24.4. Barone's and Lange's Models of Socialism
350
24.5. Welfare Function, Optimization on a Global Social Scale . . 351
24.6. The Economy Controlled with the Aid of Shadow Prices . . 352
24.7. Neo-Liberal Ideas
355
24.8. Production Prices
356
24.9. Equilibrium Theory and Politics
357
24.10. How Can the Hardening of the Deficiencies Be Explained? . 359
25. REFORM OF THE EQUILIBRIUM THEORY AND THE NEW TRENDS
. . . .
363
25.1. Reform versus Breaking Away
363
25.2. On the Attempts to Relax the Basic Orthodox Assumptions 364
CONTENTS
25.3. New Economic Currents: Formalized Models
25.4. New Economic Currents: Non-Mathematical Works
25.5. Fragmentation of Economic Systems Theory
XI
367
. . . .371
372
26. EPILOGUE
374
REFERENCES
377
AUTHOR INDEX
391
SUBJECT INDEX
395