The Road Not Taken
Lars Syll
Had the whole discipline catastrophically misunderstood Keynes’ deeply revolutionary ideas?
We heterodox economists, who have chosen the road less travelled, are acutely aware of its costs: fewer opportunities for ample research funding or positions at prestigious institutions. Yet, I suspect few of us truly regret our choice. One does not bargain with one’s conscience. No amount of money or prestige can replace the profound satisfaction of looking in the mirror and liking the person you see. My friend, the late Axel Leijonhufvud (1933-2022), was precisely this kind of academic — an economist who dared to take that less-travelled road.
“The orthodox Keynesianism of the time did have a theoretical explanation for recessions and depressions. Proponents saw the economy as a self-regulating machine in which individual decisions typically lead to a situation of full employment and healthy growth. The primary reason for periods of recession and depression was because wages did not fall quickly enough. If wages could fall rapidly and extensively enough, then the economy would absorb the unemployed. Orthodox Keynesians also took Keynes’ approach to monetary economics to be similar to the classical economists.
“Leijonhufvud’s “Keynesian Economics and the Economics of Keynes” exploded onto the academic stage the following year; no mean feat for an economics book that did not contain a single equation. The book took no prisoners and aimed squarely at the prevailing metaphor about the self-regulating economy and the economics of the orthodoxy. He forcefully argued that the free movement of wages and prices can sometimes be destabilizing and could move the economy away from full employment.
“Leijonhufvud got something entirely different from reading Keynes’ General Theory. The more he looked at his footnotes, originally written in puzzlement at the disparity between what he took to be the Keynesian message and the orthodox Keynesianism of his time, the more confident he felt. The implications were amazing. Had the whole discipline catastrophically misunderstood Keynes’ deeply revolutionary ideas? Was the dominant economics paradigm deeply flawed and a fatally wrong turn in macroeconomic thinking? And if this happened to be the case, what was Keynes actually proposing?” — Arjun Jayadev_[1]
This work is essential reading, not least for the interview videos in which Leijonhufvud critiques the prevailing dogmas of modern macroeconomics.
The fundamental issue with contemporary macroeconomic models — whether New Classical or so-called ‘New Keynesian’ — is their reliance on a common set of empirically untenable microfoundations: representative actors, rational expectations, and instantaneous market clearing. If the core assumptions of a model fundamentally misrepresent the behaviour of real people and the functioning of real markets, then any claims about causal mechanisms or economic regularities derived from it are logically untenable. Constructing models that are flagrantly at odds with reality is a futile exercise in justification, not explanation.
Consequently, the prevailing methodology of modern macroeconomics is deeply flawed. Fortunately, for those seeking an alternative to ‘New Keynesian’ apologetics, the work of real Keynesian economists like Axel Leij-onhufvud remains a vital resource.
Source: Real World Econ Rev blogs, 4 Sep 2025 https://rwer.wordpress.com/2025/09/04/the-road-not-taken-2/
1. Reference to the article by Arjun Jayadev “The road not taken” (19 Apr 2016): https://www.ineteconomics.org/perspectives/blog/the-road-not-taken
