https://orcid.org/0000-0003-0997-6061
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ABSTRACT
The article deals with the misperceptions research program that Lucas enunciated in his article ‘Expectations and the Neutrality of Money’ in 1972. It addresses two main questions about Lucas’s research agenda in the early 1970s from both historical and theoretical perspectives: first, Lucas’s claim to root his research program in neo-Walrasian general equilibrium foundations; second, the way in which Lucas avoids dealing with the difficult issue of money in general equilibrium models. The article discusses the consistency of Lucas’s claims of building macroeconomic theory on general equilibrium foundations in the light of open problems in neo-Walrasian general equilibrium theory and the ‘Hahn question’. In the conclusion, the article proposes a reflection on the importance of conceptual screening in the evaluation of research programs in macroeconomics.
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Acknowledgements
I would like to thank the reviewers for their helpful suggestions.
Disclosure Statement
No potential conflict of interest was reported by the author.
Notes
1 Lucas’s research program in the 1970s has been debated in extensive literature that we cannot review here. For critical overviews and assessment, see Hoover (Citation1988) and De Vroey (Citation2016), among others. Laidler (Citation2015) explores the passage from Friedman’s version of the quantity theory to the Rational Expectation–New Classical Revolution in view of the question of how revolutions happen in economics.
2 The extent to which Lucas pursues realism in his modeling strategy remains controversial. Boianovsky (Citation2022) notes his attention to descriptive realism. The overall coherence of Lucas’s epistemological views with his research agenda remains to be assessed.
3 Laidler briefly overviews ‘the empirical and policy failure of Lucas’s macroeconomic revolution’, a failure that he presents as having already been established since the early 1980s (Laidler Citation2021, p. 11).
4 The nexus is controversial. The evolution of dynamic stochastic general equilibrium (DSGE) models has taken place along a path with its own history and intellectual roots (Ingrao and Sardoni Citation2019, p. 204; Young Citation2014).
5 Laidler comments that ‘macroeconomics by and large ignored’ the problems emerging from the Sonnenschein–Mantel–Debreu theorem (Citation2015, p. 11).
6 Bridel confirms this judgment (Citation2021, p. 24).
7 Rubin (Citation2002) and Boianovsky (Citation2006) examined Patinkin’s interpretation of Keynesian theory as a dynamic disequilibrium phenomenon, his reference to Walrasian equilibrium, and the tensions arising from their coexistence in his thoughts.
8 Bridel effectively underlines this point (Citation2021, p. 25).
9 The development of disequilibrium analysis in post-war macroeconomics is questioned closely in Backhouse and Boianovsky (Citation2013). Disequilibrium is peripheral in our argument since Lucas was committed to equilibrium analysis.
10 On the theoretical relevance of path dependency and sequential change, David (Citation1994) remains a fundamental contribution.
11 In macroeconomic controversies the ignored subjects had been of primary relevance in the loanable funds versus the liquidity preference controversy, as in the later Monetarists versus Keynesians debates.
12 On this problem, see Laidler (Citation2021, pp. 8–9).
13 In this regard, Lucas’s position looks similar to Samuelson’s claim about the Walrasian model as the peak of neoclassical economics.
14 To discuss money in overlapping generations models would require a further paper. For a general discussion of money functions and the debates on how taking them properly into account see Ingrao, Ruggeri and Sardoni (Citation2022).
15 Hicks had dealt with the controversial coexistence of money and equilibrium since 1932 (Citation1977 [2000], p. 137 ff.).
16 The differences between Monetarism Mark I and Monetarism Mark II, or Monetarism and New Classical Economics, according to the terminology adopted, are discussed in ample literature as the differences between various microfoundation programs (Duarte and Lima Citation2012). Laidler (Citation2015) offers a convincing analysis of the evolution from Monetarism to New Classical Economics.
17 Laidler notes that the Rational Expectations–New Classical (RE–NC) revolution in its early models ‘squeezed questions about the transmission mechanism out of macroeconomic discourse’ (Citation2015, p. 14).
18 On the debates on their interpretation of the Great Depression, see Laidler (Citation2013).
19 For the coexistence of two lines of explanations, see also Lucas (Citation2004, p. 23).