Photo of Axel Leijunhufvud
VoxEU Column Macroeconomic policy

Axel Leijonhufvud: A life among the Econ, 1933 to 2022

Axel Leijonhufvud, who passed away in May 2022, was one of the most creative macroeconomists of his generation. This column, written by a long-time friend and colleague, outlines the development of his thought, including his work on Keynes and Keynesian economics; his enthusiasm for agent-based modelling; his insistence that good macroeconomists need to understand the past before they can understand the present or the future; his view that modern macroeconomics is a degenerative research programme that took a wrong turn in the 1950s; and his many contributions to policy discussions on VoxEU during the Global Financial Crisis and the ensuing Great Recession.

“Editor's Note: Since many of our younger readers are, with the idealism so characteristic of contemporary youth, planning to launch themselves on a career of good deeds by going to live and work among the Econ, the editor felt that it would be desirable to invite an Econologist of some experience to write an account of this little-known tribe.” (Leijonhufvud 1973b).

This opening quote appeared as an introductory footnote in what is perhaps one of Axel Leijonhufvud’s best known articles: a spoof anthropological study of the tribe of the Econ, packed with insightful observations from an “Econologist” who, writing in 1973, was “exiled nearly a decade ago to one of the outlying Econ villages (UCLA) and since then has not only been continuously resident there but has even managed to get himself named an elder (under what pretenses – other than the growth of a grey beard – the editor has been unable to determine)” (Leijonhufvud 1973b).

Axel Leijonhufvud studied political science as an undergraduate in Lund, Sweden, and economics at the PhD level at Northwestern University in the US, where he fell under the spell of Franco Modigliani, who taught there for a two-year period from 1960 to 1962 before moving to MIT. But although Axel was influenced by Modigliani, his interpretation of Keynes was original.

I first came across Axel’s writing as an undergraduate student at the University of Manchester where we were taught from his doctoral dissertation, published in the American Economic Review as “Keynes and the Keynesians” (Leijonhufvud 1967) and in book form as Keynesian Economics and the Economics of Keynes (Leijonhufvud 1968). This was transformative work that shot Axel to intellectual rock stardom.

Modigliani was the architect of the idea that the essence of Keynes’ General Theory was the assumption of wage rigidity. In contrast, Axel argued in his dissertation that Keynes’s General Theory (Keynes 1936) had nothing to do with sticky wages and prices, but was instead about inter-temporal coordination failure. Here he is in an interview with Brian Snowdon:

“I stand by my position that the neoclassical synthesis is utterly incorrect in its interpretation of Keynes. The important error that was built into that interpretation has had far-reaching implications” (Snowdon 2004).

Axel was part of a long tradition of independent thinking at the University of California, Los Angeles (UCLA), and he was responsible for recruiting me to the university in 1987. He never accepted mainstream interpretations of macroeconomics and was wary of consensus. And although Axel’s work was non-technical in nature, he recognised the importance of mathematics and was attracted to the formalism of theories in mathematical models.

Axel was a strong supporter of the teaching of economic history as part of the core curriculum, a subject that disappeared as a core subject from many economics departments in the 1980s. UCLA was an exception largely due to Axel’s insistence that a good macroeconomist needs to understand the past before she can understand the present or the future. He was instrumental in bringing Ken Sokoloff to UCLA and in supporting Ken’s successful efforts to attract Naomi Lamoreaux and Jean-Laurent Rosenthal there too.

In 2006, I was privileged to organise a conference in Axel’s honour at UCLA that was later published as a festschrift – Macroeconomics in the Small and the Large (Farmer 2009) – with contributions from his friends and admirers, one of whom, Ned Phelps, was a Nobel laureate and two more, Tom Sargent and Lars Hansen, went on to win the Nobel Memorial Prize in Economics subsequently.

Photo of Joe Ostroy, Gary Hansen, Roger Farmer, Axel Leijonhufvud, Ken Sokoloff, John Riley and Mike Intriligator

This photo was taken at the conference dinner on the evening of August 30th 2006. It features, from left to right, Joe Ostroy, Gary Hansen, Roger Farmer, Axel Leijonhufvud, Ken Sokoloff, John Riley and Mike Intriligator.

In the late 1960s and early 1970s, Axel’s star shone brightly. But it was eclipsed by the publication in 1972 of Robert Lucas’s work on rational expectations. Almost overnight, the economic paradigm shifted, and the idea of disequilibrium macroeconomics and “involuntary unemployment” was banished from the lexicon of respectable discussion. Lucas argued that markets, including the labour market, are always in equilibrium and an entire decade of work was consigned to the dustbin of history (Farmer 2010).

The magnitude of this intellectual volte face is difficult to convey to anyone who did not live through it. It did not just include Axel’s work, but an entire nascent agenda on disequilibrium economics by such luminaries as Jean-Pascal Benassy (Benassy 1975), Edmund Malinvaud (Malinvaud 1977) and Robert Barro and Herschel Grossman (Barro and Grossman 1971). Barro went on to renounce his earlier work and to become one of the leading proponents of the rational expectations revolution; but the continental European school, centred on Benassy and Malinvaud in France and Jacques Drèze in Belgium, continued to publish works on non-market clearing.

Axel’s view of the rational expectations revolution was one of amused bemusement. I recall a conversation with him in which, to paraphrase, he said: “My view of modern macroeconomics is much like my view of modern Hollywood movies. The pyrotechnics are spectacular, but the plots are sadly lacking.”

In subsequent decades, Axel published fewer articles in mainstream journals and concentrated on books and policy pieces. His book on High Inflation, joint with Daniel Heymann (Heymann and Leijonhufvud 1995), focuses on inflation in high inflation countries, a topic on which Axel was equally disdainful of mainstream approaches. He focused on the idea that as inflation increases, the main impact is on the disappearance of futures markets and the increase in fundamental planning uncertainty. He relayed to me an anecdote from a visit to Argentina during a high inflation episode in which a local grocery store was closed in the middle of the day. On the door there appeared the notice “Closed for Want of Prices”.

Early in his career (Leijonhufvud 1973a) Axel coined the idea of the “corridor”, by which he meant that when shocks are small, an economy functions relatively smoothly “within a corridor”, but large shocks can generate instability and change the dynamics completely. He saw the emerging literature on agent-based models (Leijonhufvud 2006) as a way of capturing corridor effects with non-linear dynamical models. At UCLA, he could be found discussing these ideas with John McCall, an early contributor to the literature on search theory (McCall 1970), and Vela Velupillai, an adjunct professor at UCLA from 1991 to 1993, who was an early proponent of “computable economics”.

In retrospect, Axel’s enthusiasm for agent-based modelling was ahead of its time and his failure to generate much support from the macro group at UCLA was a contributing factor to his retirement from the university in 1995 and his decision to accept a position at the University of Trento in Italy, where he found support and funding for his ideas and where he continued to organise a regular summer institute until his death in 2022.

The mainstream was not ready for agent-based models and corridor effects, perhaps because the mathematics to describe these ideas was not yet developed. When the Great Recession hit, in 2008, it came as a shock to mainstream macroeconomists who had declared the problem of stabilising business cycles to have effectively been solved. Here is a quote from the conclusion of Robert Lucas’s 2003 presidential address to the American Economic Association:

“I think the stability of monetary aggregates and nominal spending in the postwar United States is a major reason for the stability of aggregate production and consumption during these years, relative to the experience of the interwar period and the contemporary experience of other economies. If so, this stability must be seen in part as an achievement of the economists, Keynesian and monetarist, who guided economic policy over these years.” (Lucas 2003)

This hubristic statement appears, in the light of the 2008 recession, to have been somewhat premature. In response to the 2008 recession, Axel wrote a series of policy insights (Leijonhufvud 2007b, 2008, 2009a, 2009c, 2009e, 2011b) and columns for VoxEU (Leijonhufvud 2007a, 2007c, 2009b, 2009d, 2009f, 2010, 2011a).

His support of the history of thought was deemed anachronistic by many of his contemporaries who viewed economics through the lens of a linear progression of knowledge. In contrast, Axel viewed science – and particularly economics as a non-experimental science – as a tree in which herd behaviour led often to persistent treks down roads to nowhere. Here is another excerpt from his interview with Brian Snowdon:

“… the history of economics [is like] a decision tree. … That's exactly why those who are working at the frontier of the subject should know some history of economic thought. This is a different reason than just wanting to know the history of the subject for antiquarian interest. This view also suggests that economics itself exhibits very strong path dependence. So, if you take the wrong path, the errors can be with you for a long time.” (Snowdon 2004)

Axel was a follower of Imre Lakatos (Lakatos and Musgrave 1970) and his view of the progression of economics, documented in Information and Coordination (Leijonhufvud 1981) was heavily influenced by Lakatos’ methodology and the concept of progressive and degenerative scientific research programmes. In Axel’s view, modern macroeconomics is a degenerative research programme that took a wrong turn in the 1950s. In my opinion, Axel was right about this. Time will tell if the profession will eventually agree.


Barro, R and H Grossman (1971), “A General Disequilibrium Model of Income and Employment”, American Economic Review 61(1): 82-93.

Benassy, J-P (1975), “Neo-Keynesian Disequilibrium Theory in a Monetary Economy”, Review of Economic Studies 42(4): 503-23.

Farmer, R E A (2009), (ed) Macroeconomics in the Small and the Large, Edward Elgar.

Farmer, R E A (2010), How the Economy Works, Oxford University Press.

Heymann, D, and A Leijonhufvud (1995), High Inflation: The Ayn Rand Memorial Lectures, Oxford University Press.

Keynes, J M (1936), The General Theory of Employment Interest and Money, Palgrave Macmillan.

Lakatos, I and A Musgrave (eds) (1970), Criticism and the Growth of Knowledge, Cambridge University Press.

Leijonhufvud, A (1967), “Keynes and the Keynesians: A Suggested Interpretation”, American Economic Review 57: 401-10.

Leijonhufvud, A (1968), On Keynesian Economics and the Economics of Keynes: A study in monetary theory, Oxford University Press.

Leijonhufvud, A (1973a), “Effective Demand Failures”, Swedish Economic Journal 75(1): 27-48.

Leijonhufvud, A (1973b), “Life Among the Econ”, Economic Inquiry 11(3): 327-37.

Leijonhufvud, A (1981), Information and Coordination: Essays in Macroeconomic Theory, Oxford University Press.

Leijonhufvud, A (2006), “Agent Based Macro”, in L Tesfatsion and K L Judd (eds), Handbook of Computational Economics, Volume 2, Elsevier: 1625-37.

Leijonhufvud, A (2007a), “The perils of inflation targeting”,, 25 June.

Leijonhufvud, A (2007b), “Monetary and Financial Stability”, CEPR Policy Insight No. 14.

Leijonhufvud, A (2007c), “Bubble, bubble, toil and trouble”,, 26 October.

Leijonhufvud, A (2008), “Keynes and the Crisis”, CEPR Policy Insight No. 23.

Leijonhufvud, Axel (2009a), “Two Systematic Problems”, CERP Policy Insight No. 29.

Leijonhufvud, A (2009b), “No Ordinary Recession”,, 13 February

Leijonhufvud, Axel (2009c), “Curbing instability: policy and regulation”, CEPR Policy Insight No. 36.

Leijonhufvud, A (2009d), “Curbing instability: Policy and regulation”,, 11 June

Leijonhufvud, A (2009e), “Macroeconomics and the Crisis: A Personal Appraisal”, CEPR Policy Insight No. 41.

Leijonhufvud, A (2009f), “Stabilities and instabilities in the macroeconomy”,, 29 November.

Leijonhufvud, A (2009g), “Out of the Corridor: Keynes and the Crisis”, Cambridge Journal of Economics 33(4): 741-57.

Leijonhufvud, A (2010), “A modest proposal”,, 23 January.

Leijonhufvud, A (2011a), “Shell game: Zero-interest policies as hidden subsidies to bank”,, 25 January.

Leijonhufvud, A (2011b), “Nature of an economy”, CEPR Policy Insight No. 53.

Lucas, RobeRrt E Jr (1972), “Expectations and the Neutrality of Money”, Journal of Economic Theory 4: 103-24.

Lucas, R E Jr (2003). “Macroeconomic Priorities”, American Economic Review 93(1): 1-14.

Malinvaud, E (1977), The Theory of Unemployment Reconsidered, Wiley Blackwell.

McCall, J (1970), “Economics of Information and Job Search”, Quarterly Journal of Economics 84(1): 113-26.

Snowden, B (2004), “Outside the Mainstream: An Interview with Axel Leijonhufvud”, Macroeconomic Dynamics 8: 117-45.