Axel was a Professor at our University for about 20 years.

His contribution took a plurality of directions:

• teaching and research: Axel’s door was always open for students and colleagues eager for his opinion and advice.

• seminars and conferences: well-known Italian and foreign speakers (including Nobel Laureates) gladly came here to discuss with him; he even brought here the Annual Meeting of the American Economic Association.

• istitutional activity: he contributed to the foundation of our Cognitive and Experimental Lab, supported the creation of our PhD Programe and of our School of International Studies, organized the annual Summer Schools….

For many of us, Axel was a great friend as well as a great colleague.

He was a brilliant, friendly and witty person.

As an example of his humor, there are 2 funny episodes he told me about.

In a conference, he introduced Milton Friedman as "the greatest economist of the century". This aroused general hilarity: Axel was 50 cm taller than Friedman.

He also told me about a Giacometti exhibition in which his mother said: I don’t like this man, Giacometti, he is making fun of our family!

Last but obviously not least, Axel was a well-known economist all over the world. Before talking about his scientific activity, I would like to quote a revealing episode in Axel’s biography. 

After obtaining his Swedish Bachelor degree, he decided to go to sea in order to explore the world. The scion of one of the most emblazoned Swedish families became a stoker in a banana cargo boat. 

This episode reveals some crucial aspects of Axel’s personality, aspects that we also find in his scientific production: his open mindedness, his curiosity, his nonconformity.

This explains how he placed an unexplored theme at the center of his analysis: coordination of economic activity. 

In this regard, his Auctioneer Metaphor made a true legend of him.

According to the dominant theory, what could not be formalized had to be ignored.

According to Axel, by contrast, it was precisely there that one had to investigate in order to understand the world.

From a methodological point of view, Axel often preferred metaphors over mathematical formalization.

Another funny episode: during a hospital stay, he told me ironically that calculus had always been a problem for him. He suffered from kidney stones, which in Italian are “calcoli renali”.

Given his fundamental interest in coordination, Axel analysed the main pathologies of our times:

I. Persistent depressions,

II High inflations,

III Transition problems of centralized economies

IV Financial instability.

Let us briefly summarize his contribution on these 4 issues.

I. Persistent depression

In Axel’s view, the aforementioned Auctioneer was

• the root of the dissent between Neoclassics and Keynes,
• the essence of the Keynesian revolution.

Neoclassical theory

implicitly presupposes that an inexistent Auctioneer informs agents about equilibrium prices and subsequently opens exchanges. Put otherwise, GET presupposes

• perfect price flexibility
• only equilibrium exchanges.

Keynes’s General Theory

In removing the Neoclassical Auctioneer, Keynes did not introduce price rigidities, he just rejected perfect price flexibility.

As known, a wrong price in any market can generate disequilibrium in the labour market.

In Axel’s view, the most plausible maladjustment concerns the interest rate (an inter-temporal price which reflects our ignorance about the future).

Ignoring the fall in the marginal efficiency of capital, speculators prevent the fall of the market rate to its new natural level.

This maladjustment of the price mechanism leaves space to quantity adjustments which in turn lead to an amplified fall in income and employment.

Thus, contrary to the dominant opinion, unemployment is due to an excessive interest rate and not to an excessive money wage.

II Inflation

Axel and Heymann deeply analyzed the concrete experience of Argentine inflation. They found that this experience does not confirm the standard model of fully anticipated inflation.

In an inflationary context, prices do not keep a uniform, stable, predictable growth rate.

Insofar agents look more and more ahead into the future, they increasingly lose the ability to predict the price behaviour.

As a reaction, they shorten the time horizon of their choices.

A short sighted adaptive behaviour replaces the standard intertemporal optimizing behaviour.

The result is a progressive drying up of medium and long term financial markets and of investment.

All of this has recessionary effects on activity levels and growth.

The conclusion is that the real costs of inflation are very heavy; they go far beyond the inflation tax envisaged by traditional theory!

III Transition economies

The Soviet Union left a manufacturing system characterized by large plants and by a high vertical integration.

Many great plants generally depended

• on a dominant supplier of raw materials and of intermediate products;
• on a dominant buyer of their output.

In such a context, traditional strategies could lead to a disaster.

The closure of state-owned enterprises at a loss might have triggered a cascade of failures ragging with it even healthy firms.

Problems were accentuated by the inadequacy of the financial and fiscal system.

Axel’s suggestion was to proceed with extreme caution and circumspection taking care to implement the appropriate institutional and regulatory presuppositions.

IV Financial instability

Axel was one of the few economists who predicted the financial crisis.

In his re-reading:

• upstream of the sub-prime crisis,

there was an inflation targeting monetary strategy that stubbornly contained interest rates despite

- the increasing asset price inflation,

- the increasing indebtedness,

- the increasing riskiness of the new financial instruments

• downstream of the subprime crisis there was a generalized de-leveraging process.

In order to reduce indebtedness and to avoid insolvency,

- financial institutions cut credit,

- firms cut activity levels,

- households cut consumption.

The consequent world recession had not be tackled with traditional expansionary measures.

Before it was necessary to repair the balance sheets, starting for instance with the cleaning of bad loans.

Conclusion

As we can see, all the topics that Axel dealt with keep being extremely relevant even today:

• coordination is far from being granted

(it presupposes a peace that is too not granted)

• pathologies (recession, inflation) are always around the corner

By dedicating a classroom to Axel, we will contribute to keep his memory and his important scientific message alive.