Macroeconomic Instability and Coordination
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Macroeconomic Instability and Coordination

Selected Essays of Axel Leijonhufvud

Axel Leijonhufvud

Axel Leijonhufvud has made a unique contribution to the development of macroeconomic theory. This volume draws together his insightful essays dealing with the extremes of economic instability: great depressions, high inflation and the transition from socialism to a market economy. In several of the papers, Leijonhufvud brings a neo-institutionalist perspective to the problems of coordination in economic systems.
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Chapter 17: The nature of the depression in the former Soviet Union

Axel Leijonhufvud


* Several years ago, the Soviet economy reached a point where: (a) the command economy system had been fatally damaged, while (b) the minimal institutions required for a private-sector market economy to function had not been put in place, and where (c) the state had made almost no progress toward creating for itself the public finance system of a mixed economy. Many things have changed in the interim but these three broad statements remain basically descriptive of the state of affairs. From a macroeconomic standpoint, this had all the marks of an unsustainable situation – and, of course, it has not been sustained. Russian industrial production has declined by more than 30 per cent at the same time as the economy is now entering hyperinflation. To belabor the obvious: the depression in the former Soviet Union (FSU) fits neither Keynesian nor Monetarist theory and certainly not real business cycle theory. The ruble inflation also has features that make it sui generis. Western macroeconomics, whether traditional or modern, does not provide a ready-made guide to how the present FSU dilemmas should be dealt with. It appears that every economist and newspaper columnist around feels able to offer the Russians advice purported to be more valuable than the price charged for it. The truth is that we need to understand the situation better. I have had some first-hand exposure to the problems while a member of the Economic Expert Committee of the President of Kazakhstan,1 but my professional background is not...

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