Axel Leijonhufvud

Quotes From

Information and Coordination (1981)

• General equilibrium theorists have at their command an impressive array of proven techniques for modelling systems that “always work well”. Keynesian economists have experience with modelling systems that “never work”. But, as yet, no one has the recipe for modelling systems that function pretty well most of the time but sometimes work very badly to coordinate economic activities.#Quoted in Ronald Heiner, “The Origin of Predictable Behavior” (1983)

“Rational Expectations and Monetary Institutions” (1983)

• When theorists are not sure they understand, or cannot agree, it is doubtful that they are entitled to the assumption that private sector agents understand and agree.#Quoted in Gerald O'Driscoll & Mario Rizzo, The Economics of Time and Ignorance (1985)

“The Wicksell Connection: Variations on a Theme” (1981)

• If saving and investment are always equal, they cannot govern the rate of interest, nor can the interest rate possibly serve to coordinate saving and investment decisions. Hence the [liquidity preference] theory: money demand and money supply govern the interest rate.#Quoted in Steven Horwitz, Microfoundations and Macroeconomics (2000)

“Costs and Consequences of Inflation” (1975)

• If our political institutions allow unemployment to grow, the feedback will be in unmistakable clear text: You’d better do something about unemployment or else…! If they err on the side of inflation, there will be widespread and general complaining about rising prices to be sure, but that diffuse message is quite drowned in the rising babble of specific demands and concrete proposals from identifiable interest groups – to compensate me, to regulate him, to control X’s prices, and to tax Y’s “excess profits,” etc., etc. The political demands triggered by unemployment are to reduce unemployment; those triggered by inflation are for the most part not obviously identifiable as “instructions” to stop inflating. There is an informational bias to the process.#
• The Samuelsonian “necessity” of imagining a social welfare function follows only from prior acceptance of the “necessity” of conceptualizing any problem of policy in choice-theoretical terms.#
• One lesson of the last several years is that human capital is virtually the only reasonably reliable store of value in periods like the present. Is it just coincidence that active academics (not the emeriti), media commentators and “intellectuals” in general think the rest of society makes too much fuss over inflation as a social problem?#
• Finding what variables will give a good proxy for the excess supply of labor and thus provide an equation predicting wage-inflation is one research task. Finding a stable reduced form relating inflation and unemployment is a completely different one.#
• To assume that agents generally possess the independent information required to filter the significant messages from the noise would, I think, amount to assuming knowledge so comprehensive that reliance on market-prices for information should have been unnecessary in the first place.#
• My own “hunch” with regard to present day conditions would be that the price distortions [from inflation] are apt to be less systematic than in the Austrian view but nonetheless serious.#
• The Law seeks to provide a stable framework of social interaction within which people can form expectations about the outcomes of their actions sufficiently firm, if not precise, to allow them to plan their conduct accordingly.#
• There can be no epistemological guarantee that interactions between the “economic”, the “political”, and the “social” spheres of the system we study will be negligible. . . . It may be the case that in the world we inhabit, before the “near-neutral” adjustments can all be smoothly achieved, “society unlearns to use money confidently” and reacts by restrictions on “the circles people shall serve, the prices they shall charge, and the goods they can buy.” If such reactions are in fact endogenous to the social system, we misidentify the consequences of inflation to the extent that we regard them as fortuitous “political” events exogenously impinging on “the economy.”#
• In largely non-monetary economies, important economic rights and obligations will be inseparable from particularized relationships of social status and political allegiance and will be in the same measure permanent, inalienable, and irrevocable.#
• Monetary exchange systems have not evolved out of non-monetary exchange (“barter”) systems but out of non-exchange systems. . . . “Custom and Command”, in the terms of Classical Economics, or “Reciprocity and Redistribution”, in those of Anthropology, – not barter exchange – are the alternatives to monetary exchange.#

“Whatever Happened to Keynesian Economics?” (1986)

• Under quantity control, the monetary authorities fix the quantity of money and allow the markets to determine the corresponding equilibrium level of nominal prices. Under convertibility, the government fixes the nominal price of gold (for example) and leaves it to the banks and their customers to determine the corresponding equilibrium stocks of money and other liquid assets. From the standpoint of the government, the first is a “quantity-fixing, price-taking” and the second a “price-fixing, quantity-taking” strategy.#
• Precision of utterance is of little help if we cannot keep track of what we are talking about.#

“Capitalism and the Factory System” (1986)

• As one subdivides the process of production vertically into a greater and greater number of simpler tasks, some of these tasks become so simple that a machine could do them. … [We are led to] the discovery of … opportunities for mechanization.#Quoted in Peter Lewin, Capital in Disequilibrium (1999)
• [Adam] Smith’s division of labor—the core of his theory of production—slips through modern production theory as a ghostly technological-change coefficient or as an equally ill-understood economies-of-scale property of the function.#Quoted in Peter Lewin, Capital in Disequilibrium (1999)