  The analogies between economics and classical mechanics can be extended from
constrained optimization to constrained dynamics by formalizing economic
(constraint) forces and economic power in analogy to physical (constraint)
forces in Lagrangian mechanics. In the differential-algebraic equation
framework of General Constrained Dynamics (GCD), households, firms, banks, and
the government employ forces to change economic variables according to their
desire and their power to assert their interest. These ex-ante forces are
completed by constraint forces from unanticipated system constraints to yield
the ex-post dynamics. The flexible out-of-equilibrium model can combine
Keynesian concepts such as the balance sheet approach and slow adaptation of
prices and quantities with bounded rationality (gradient climbing) and
interacting agents discussed in behavioral economics and agent-based models.
The framework integrates some elements of different schools of thought and
overcomes some restrictions inherent to optimization approaches, such as the
assumption of markets operating in or close to equilibrium. Depending on the
parameter choice for power relations and adaptation speeds, the model
nevertheless can converge to a neoclassical equilibrium, and reacts to an
austerity shock in a neoclassical or post-Keynesian way.
