Axel Leijonhufvud is a so-called “Post-Walrasian” (or disequilibrium Keynesian/coordination Keynesian), and – like Post Keynesians – he is critical of neoclassical synthesis Keynesianism based on neo-Walrasian theory. The leading economists in the Post-Walrasian movement are Don Patinkin (1922–1995) and Robert W. Clower (1926–2011), as well as Axel Leijonhufvud. What is most fascinating is that Robert M. Barro and Herschel I. Grossman made contributions to early Post-Walrasian thought, but moved away from it and became members of the New Classical school.
Leijonhufvud presented a bold new interpretation of Keynes’s General Theory and a critique of the neoclassical synthesis in On Keynesian Economics and the Economics of Keynes: A Study in Monetary Theory (New York and London, 1968).
Both Clower and Leijonhufvud became heterodox macroeconomists after the 1970s, and seem to share these common ideas:
(1) they criticise neo-Walrasian theory, and in particular the supposed market clearing mechanisms summed up in the metaphor of the “Walrasian auctioneer” who clears all markets;All in all, that is not a bad critique of modern economics, and there is a great deal here Post Keynesians can agree with. The Post-Walrasians believe that market economies can lead to unemployment equilibriums and that there are no automatic mechanisms for fixing this. They think that Keynes’ theories, properly understood, will have an important place in a future macroeconomics.
(2) a dynamic disequilibrium approach to economics and interpretation of Keynes’s theory;
(3) the recognition that incomplete information of economic agents prevents market clearing mechanisms;
(4) we have an economic world of slow price adjustments and sometimes false price signals: the Walrasian assumption of instantaneously or near instantaneously adjusting prices is a myth, and once it is rejected we see there is no guarantee at all that decentralised market systems will coordinate economic activity to create full employment, and
(5) the idea that what is needed today is a reconstructed “Post Walrasian macroeconomics” which is derived from Marshallian microfoundations, not Walrasian microfoundations.
In the previous comment on my last post, I am told that if I “read more Axel Leijonhufvud” my blog would be much improved. I frankly think that most of what Leijonhufvud says is also said by Post Keynesians, but Post Keynesians do it better. For example, Leijonhufvud’s view on what causes recessions:
Leijonhufvud rejects interpretations based on wage rigidity, and he rejects explanations of depression that depend on monopolies, labor unions, and the like. These interpretations of involuntary unemployment imply that “if ‘competition’ could only be restored, ‘automatic forces’ would take care of the employment problem” ... Leijonhufvud notes that Keynes was critical of such explanations (Meltzer 1988: 267).A very good discussion of the similarities and differences between Leijonhufvud’s thought and the Post Keynesians can be found in Littleboy (1997). In short, Leijonhufvud errs in thinking of the money supply as exogenous, and pays insufficient attention to uncertainty in the Keynesian/Knightian sense.
Finally, we can hear from the man himself. Here is an interesting interview with Leijonhufvud held at the Central European University (Budapest) during the Institute for New Economic Thinking conference (held from September 6–8, 2010). I note that Leijonhufvud’s comments on the poor state of private sector balance sheets at the moment (from 10.35) seem to approach the Post Keynesian concern with debt deflation.
Leijonhufvud, A. 1968. On Keynesian Economics and the Economics of Keynes: A Study in Monetary Theory, Oxford University Press, New York and London.
Littleboy, B. 1997. “On Leijonhufvud’s economics of Keynes,” in G. C. Harcourt and P. A. Riach (eds). A ‘Second Edition’ of the General Theory (vol. 2), Routledge, London.
Meltzer, A. H. 1988. Keynes’s Monetary Theory: A Different Interpretation, Cambridge University Press, Cambridge.