János Kornai and general equilibrium theory

Abstract

This paper explores the evolution of Kornai’s thought on general equilibrium theory (GET) and his position on mainstream economics. Three moments in this evolution will be highlighted, starting by his rejection of GET and advocating disequilibrium in Anti-Equilibrium (1971). While Kornai does not treat the “equilibrium paradigm” as irrelevant, he suggests an alternative paradigm, namely economic systems theory that he further develops in the 1980s as “system paradigm”. Economics of Shortage (1980) marks a second phase in which Kornai distinguishes Walrasian equilibrium from normal state or Marshallian equilibrium. In this phase, he supports Marshallian equilibrium rather than disequilibrium. Finally, By Force of Thought (2006) is a critical self-appraisal in which Kornai considers Anti-Equilibrium as a “failure” and acknowledges GET as a benchmark of an ideal competitive market. He now advocates a Walrasian equilibrium as an abstract reference model, but refuses to consider this model as a description of reality. In this sense, he rejects the New Classical economics. Paradoxically, however, his original heterodox concept of “soft budget constraint”, irreconcilable with standard microeconomics, has been integrated into new microeconomics as an optimal intertemporal strategy of a maximizing agent in the absence of credible commitments. It will be argued that Kornai’s so-called failure is rather related to his half-in, half-out mainstream position, while his institutionalist system paradigm is still a heterodox research project of the future.