Axel Leijonhufvud (1933–2022)

On 2 May 2022 Axel Leijonhufvud passed away at the age of 88 years. He, whose most-read piece was “Life Among the Econ” (Leijonhufvud 1973), a satirical essay in the form of an anthropological field study, could himself look back on a long life in that tribe. He was generally known as Axel, since his surname of noble Swedish origin was too difficult to spell and pronounce for most of the Econ. Axel belonged to the macro division, and was for thirty years based at UCLA, the University of California, Los Angeles. He was also an honorary member of the European society of historians of economic thought (ESHET). At the first ESHET conference (in Marseille 1997), Axel gave a keynote lecture on “Mr. Keynes and the Moderns”; at the tenth conference (in Porto 2006), he gave another one, that time on “The Uses of the Past.”

Talking about “The Uses of the Past,” Axel compared the evolution of economic thinking to the growth of a decision tree (Leijonhufvud 2006). He pointed out that currently prevailing modes of theorising have a history. They have developed out of earlier decisions about modelling standards. At the time when these were established, they may have contributed to scientific progress by offering feasible and plausible strategies for reducing complexity. Yet, Axel argued, the analytical choices made in the past also created blinders, which may critically limit the scope of economic theorising in dealing with present problems. The history of economic thought can be used for detecting the blind spots by “backtracking,” Axel’s term for looking at research questions of theories that branched off in other directions at lower junctures of the Econ tree. If such older theories offer perspectives on what is beyond the scope of standard theory, climbing out on those older branches by way of analytical reconstruction or other methods could even help to develop new approaches to problems faced both in theory and in the economies of the real world.

Axel admitted that “[b]acktracking from the present to put essentially anachronistic questions to long dead authors is a strange way of dealing with the past. It seems a very different, a suspiciously different, enterprise from that of writing ‘proper’ doctrine history” (Leijonhufvud 2006, 6). Moreover, he cautioned, “[b]acktracking will only help… if one can regain some sense of the ‘alternative futures’ that once were – although they never happened” (Leijonhufvud 2006, 6). That is a veritable challenge, as it requires a deep understanding of the analytical content of the theories from the past and a broad understanding of their contexts in economic history and of the present issues that they are adapted for.

Axel amply demonstrated that he was up to this challenge, beginning with his doctoral dissertation On Keynesian Economics and the Economics of Keynes (Leijonhufvud 1968). That was probably not his most-read work (see above), but certainly his most-cited one, because it presented a fundamental reinterpretation of Keynes’s theory in stark contrast with Keynesian macroeconomics at the time. The latter came predominantly in the shape of the Neoclassical Synthesis as a framework that accommodated both full-employment equilibrium and Keynesian underemployment. Even if the Walrasian auctioneer was not explicitly invoked, general equilibrium defined the benchmark position, in which all intertemporal plans for consumption and production are fully coordinated. Keynes’s General Theory of underemployment was reduced to a theory of special cases in which unemployment was essentially explained by the stickiness of wages or other frictions in the price mechanism. According to Axel, the Neoclassical Synthesis was thus based on a tacit assumption of system stability. In the absence of frictions, the price mechanism would automatically return the economy to full employment with perfect coordination of all plans, “as if” the Walrasian auctioneer or some other contrivance of costless re-contracting had matched them before any transactions could take place at false prices.

The core message that Axel, by contrast, presented as the economics of Keynes was the existence of a genuinely macroeconomic coordination problem: The inherent incompleteness of information in large systems of interdependent markets, in which myriads of interacting agents take their own decisions, leads time and again to massive failures in making their plans match. In this spirit, Axel set the focus on the behaviour of market systems when they move “out of the corridor,” within which the price mechanism would automatically return them towards equilibrium at full employment and monetary stability. He was, in particular, concerned about the emergence and the social consequences of high inflation, financial crises and mass unemployment. In his reconstruction of Keynes (modified with some Robertsonian insights), such instability is essentially caused by failures of the intertemporal price mechanism to make plans for future production and consumption compatible with each other. Market rates of interest are conditioned by expectations that do not automatically bring them to the right level. If they happen to be at a wrong level, Axel argued, price and wage adjustments in goods and labour markets tend to aggravate rather than mitigate the stability problems stemming from the savings-investment imbalances. In a range of variations, Axel made such macroeconomic coordination problems the principle theme of his further work – witness the titles of his major essay collections Information and Coordination (Leijonhufvud 1981) and Macroeconomic Instability and Coordination (Leijonhufvud 2000).

When the old Keynesian economics of the Neoclassical Synthesis were displaced by “New Classical Economics,” and thereafter replaced by New Keynesian economics in a New Neoclassical Synthesis, Axel became even more irritated about the conventional disregard of coordination problems (Trautwein 2020). While he conceded that macroeconomic modelling had made much technical progress since the 1960s, especially so in the world of dynamic stochastic general equilibrium (DSGE) modelling, he insisted that it remained stuck in the frictions approach. Axel expressed what he found fundamentally wrong with this in the other ESHET keynote, the one on “Mr Keynes and the Moderns”. There he drew an unconventional dividing line between “that great tradition of adaptive and evolutionary theory that stems from the British Classical School” and “the modern one, whose hallmarks are optimizing choice and equilibrium” (Leijonhufvud 1998, 169–170). Denying the “New Classicals” (Lucas, Sargent et alia) the “Classical” label, Axel put them into the category of the “Moderns,” “where they have to cohabit with the New Keynesians and sundry others whose company they usually shun, while Keynes himself becomes the last of the great classical theorists,” and his General Theory “a generalization of classical theory” (Leijonhufvud 1998, 169–170).

Axel characterised the Classical research programme as an endeavour to uncover the laws of motion of the economy, in which the agents follow specified aims, but do not always attain them. They adapt and learn by trial and error. Time matters in the understanding of adaptive behaviour, because the sequencing of decisions is important. It matters, too, in thinking about the evolution of the institutions that condition the agents’ behaviour. The Moderns, by contrast, proceed from the logical principles of efficient allocation in which behaviour is optimising ex ante (1998: 170), not only by intent, but also in terms of outcome, unless they are hindered by political interventions or other types of frictions. In the Classical research programme general equilibrium and macroeconomic stability are emergent properties whose occurrence (or failures to do so) is to be studied. The Moderns postulate them as continuously fulfilled conditions sine qua non, as they deem rigorous analysis of system behaviour “out of equilibrium” to be impossible.

In later years, Axel propagated state-of-the-art approaches that return to the Classical region on the Econ decision tree and study adaptive behaviour in macroeconomic agent-based models. In 1991, he had started the Center of Computable Economics at UCLA, and when he moved to the University of Trento (Italy) in 1995, he joined the Cognitive and Experimental Economics Laboratory (CEEL). He remained active in directing the Trento Summer Schools in Adaptive Economic Dynamics until 2018, helping to bring leading economists to speak there and to interact with him, his colleagues and, most of all, with many young researchers from all over the world. The description of the summer school (still available at https://event.unitn.it/aed-summerschool/) reads in the typical style of Axel:

The goal of the program is to develop those subfields and methods that we envisage will enable economists 10–15 years hence to more adequately address questions and problems that are not satisfactorily treated today… We look for prospective students motivating their application by stating: “This subject is not taught at my university.”

Throughout his academic life, Axel inspired students and colleagues to think out of the box. This transpired also markedly from a recent conference on Coordination Issues in Historical Perspectives which was held in Nice (France), at the very same university that had conferred the degree of doctor honoris causa on Axel in 1995. Since a number of friends, colleagues and former students of Axel participated, one session was devoted to sharing personal memories of how they met and interacted with the man, or how they were influenced by his work even if they had not met him personally. Suffice it to mention a few comments made by three colleagues who had known Axel from early on: David Glasner who had been an undergraduate and graduate student at UCLA from the late 1960s onwards, Peter Howitt who spent a year as graduate student there in the early 1970s, and David Laidler who had met Axel the first time when the latter still was a graduate student at Northwestern University in the 1960s.

One thing that both Glasner and Howitt noted was that Axel “never had any airs of importance about him,” that “he more than many other professors welcomed the company of students who had come up to chat with them in his office” (Glasner). “He had that personal ability to treat everyone that he met on the same terms and on very warm terms” (Howitt). This remained a characteristic even after Axel’s rise to stardom. To underline how famous Axel became after the publication of his 1968 dissertation, Laidler remembered a department seminar at the University of Manchester in the early 1970s, when people drove hundreds of miles from all over the North of England to come and hear Axel give his talk – something that Laidler had never seen happen before or since at a department seminar. “That was how big his impact was on the profession at that time.”

That impact largely faded away when the “New Classicals” – or Moderns, as Axel would say – made their breakthrough. Yet, Axel remained highly respected in the profession, even in the camps of the adversaries. Howitt remarked that he was struck by Axel’s “ability to get along with, and even form very close friendships with people with whom he had some serious scientific disagreements”. He mentioned the friendship with Laidler, the monetarist, but also with Don Patinkin, who rejected Axel’s reinterpretation of Keynes. Howitt remembered that Tom Sargent, the leading “New Classical” gave a warm testimonial at a conference in honour of Axel at UCLA in 2006, where he also made it clear that he appreciated Axel’s ability to understand deep mathematical economics even if he did not practice it. That was about as much praise as Axel could get from that camp for his “pedestrian” use of English language instead of formal models. He was indeed able to quickly identify the limitations, if not weaknesses, of theories dressed up by sophisticated mathematics. He did so by employing subtleties of natural, if not literary, language, or by taking recourse to powerful metaphors. All this was done with shrewd humour and gentle irony. It remains an open question whether Axel’s sense of humour was derived from his superb command of language, or the latter from the former. In the language of the Stockholm School, from his country of origin, he would probably suggest that it was a cumulative process of circular causation.

Axel’s humour, as displayed in his “Life Among the Econ,” has frequently been mistaken for a frivolous lack of respect for the discipline and its subject. It was, on the contrary, a sign of a long and serious struggle with both. The final word in this obituary belongs to David Laidler:

I think that Axel’s humour, his irony was a cover for something that sometimes got almost as serious as despair about the complexity of economic life, about how much we needed good economic analysis to cope with it, and how little we were doing to provide that. I think he was one of the most serious economists that I ever met, and I think that’s how we should always treat his work.

Acknowledgments

I am grateful for contributions and comments made by David Glasner, Peter Howitt, David Laidler and other participants of the conference on Coordination Issues in Historical Perspectives, at the Université Côte d’Azur in Nice, 8–9 September 2022.