Control and Coordination of Economic Activity

Abstract

The particular point of view of the present paper is that it looks upon the economy as a control system. This approach was pioneered in the 1950s by Simon (1952), Tustin (1953), Phillips (1954) and Geyer and Oppelt (1957). Lange (1965) attempted an early synthesis. In the 1970s the idea became widespread and developed in two directions. The first and more popular one applied control theoretical models to economic policy-making. In this case the structure of the controller is considered to be given and the problem is to find values (time-paths) of the control variables such that the functioning of the economic system be acceptable (most often, stable and/or optimal) according to certain criteria. The second direction is related to the theory of economic systems, and this is where the present paper also belongs. A descriptive and explanatory theory of economic mechanisms is aimed at, which might be useful in the choice, change or construction of controllers. Although this research was certainly motivated by, and the findings often applied to, problems emerging in centrally planned economies, with particular reference to mechanism reform in East European countries, the theoretical framework is conceived in a more general setting. This research was initiated by Kornai (1971) and pursued further in Kornai (1980), and Kornai and Martos (1981).