Axel Leijonhufvud and a Bit of Autobiography

31 May 2006 at 8:25 am 4 comments

| Nicolai Foss |

As blogging is an inherently narcissistic undertaking, I hope I will be excused for the following piece of autobiographical indulgence.

I began studying economics at the University of Copenhagen in 1983. The three first years essentially followed a micro and macro division (with a strong dominance of macro stuff). The macro part, particularly in my second year, was positively awful. The intention clearly was that macro should lead directly to econometrics, so all teaching and reading material centered on analyzing the causal structure of one silly Keynesian model after another.

The indoctrination with Tinbergen-style Keynesianism was rather massive, but there was one paper in the syllabus that dealt with monetarist and new classical critiques of Keynesianism. Naturally, this paper (though dismissive of the critics of Keynesianism) triggered my interest in those writers who were somehow in opposition to the tedious Keynesianism that we were taught. Hunting expeditions to the library ensued.

In this way, I discovered a book by a Henry Hazlitt, called The Failure of the New Economics, which was virulently anti-Keynes, and somewhat primitive in its reasoning. Some further search uncovered a book in distinguished blue binding, and an intriguing title in golden letters, On Keynesian Economics and the Economics of Keynes: A Study in Monetary Theory by an author with a familiar Scandinavian name, Axel Leijonhufvud. I was completely captivated by this book, and it became my economics bible until I graduated from the University of Copenhagen.

Leijonhufvud presented macro economics in way that made sense (of course, my professors considered him a "minor verbalist" although some admitted, when pressed, that he had a "fine intuition"). He had — with Robert Clower — been one of the first economists to make a reasoned call for micro-foundations in macro-economics, stressing that micro-foundations should be built on rationality assumptions but with great attention to information assumptions.  He argued that aggregation was something highly problematic. Implied in this was a break with the general equilibrium model. Modelling should be done, not by postulating ad hoc rigidities, but by examining adjustment processes, "false prices", "rationing," etc.

Leijonhufvud claimed in the book to be able to re-construct Keynes as following exactly such a program.  This "economics of Keynes" was a far cry indeed from the "Keynesian economics" that I hated.  Leijonhufvud had a great style and he made a provocative argument. Naturally, I became a diehard Leijonhufvudian.  Leijonhufvud's book also led me to discover the work of Hayek, and later Kirzner and Mises, as well as Shackle and Loasby.  I think it also led me in the direction of Herbert Simon, and therefore ultimately towards the muzzy management stuff that I currently do.

OK, enough of autobiography. What prompted this post was my discovery of this very interesting interview by Brian Snowdon with Axel Leijonhufvud. Leijonhufvud covers his early career, the writing of the 1968 book and its interpretation, discusses the corridor hypothesis, and offers reflection on contemporary work on growth, business cycles and macro-economics.  Highly recommended!   Here is a very nice paper by Peter Howitt (perhaps the most Leijonhufvudian contemporary macro economist) on the 1968 book.  And here is some recent info on Axel Stig Bent Leijonhufvud.

Entry filed under: - Foss -, Recommended Reading.

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4 Comments Add your own

  • 1. Peter Klein  |  31 May 2006 at 10:47 am

    Another economist strongly influenced by both Leijonhufvud and Hayek is Roger Garrison. The following remarks from the preface to Garrison's Time and Money are particularly pertinent to some of this blog's favorite themes:

    "Leijonhufvud, who was also a participant at the conference on Meltzer's book, has influenced my own thinking in more subtle — though no less substantial — ways. Leijonhufvud (1968) is a treasure-trove of Keynes-inspired insights into the workings of the macroeconomy, and Leijonhufvud (1981) links many of those insights to the writings of Knut Wicksell in a way that the Austrian economists, who themselves owe so much to Wicksell, cannot help but appreciate. Though Leijonhufvud has often been critical of Austrian theory, he has always seen merit in emphasizing the heterogeneity of capital goods and the subjectivity of entrepreneurial expectations (1981b: 197) and has recently called for renewed attention to the problems of intertemporal coordination (1998: 197-202). "

  • 2. Peter Boettke  |  1 June 2006 at 7:13 am

    Leijonhufvud’s coordination Keynesianism was a critical part of my own education as well. When I was earning my graduate degree the world of economics had decidedly moved in the new classical direction, but I was fortunate enough to have professors that looked to Leijonhufvud’s work for a more reasonable microfoundations. It was the Leijonhufvud-Yeager sort of macroeconomics that we were taught to appreciate at that time. Steve Horwitz’s Microfoundations and Macroeconomics: An Austrian Perspective tries to summarize this teaching.

  • 3. Nicolai Foss  |  1 June 2006 at 7:21 am

    Perhaps the first explicit link between Leijonhufvud and Austrianism (apart from the links that Axel himself established) was made by Gerald P. O’Driscoll in Economics as a Coordination Problem (1977). L. was the Chairman of O’Driscoll’s committee.

  • 4. Tomas  |  7 February 2008 at 11:01 pm

    I ve found On Keynesian Economics… in a way almost identically. I used to stay long hours in Congress Public Library (Buenos Aires), and some day some quite intriguing title appeared in the searching PC. Even more intriguing taking into account that I was rather confused about the meaning of standard macroeconomics. So I studied that oasis-book, so far almost the only one that, in a historical sense, relates economics with thinking.
    I use to say that Leijonhufvud has achieved some kind of theorem about the relation between (monetary) regimes and microeconomics. Indeed, if you take a look in his writings chronologically, it is possible to realize that after that book, he departure towards microfoundations and gradually reached monetary regimes theory. So the economy may be said to run within that two-sided world.
    Among the authors Leijonhufvud let me, apart from Keynes itself, are such like Ingo Barens, and even further, through Keynes, it made it possible for me to understand the exchanges.

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