Robert Lucas and the Pretense of Science

31 Pages Posted: 3 Jan 2023 Last revised: 5 Feb 2023

Date Written: January 25, 2023

Abstract

Hayek and Lucas were both known for their critiques of Keynesian theory on both theoretical and methodological grounds. Hayek (1934) criticized the idea that continuous monetary expansion could permanently increase total investment, foreshadowing Friedman’s (1968) argument that monetary expansion could permanently increase employment. Friedman’s analysis set the stage for Lucas’s (1976) critique of macroeconomic policy analysis, a critique that Hayek (1975) had also anticipated. Hayek’s (1942-43) advocacy of methodological individualism might also be considered an anticipation of Lucas’s methodological insistence on the necessity of rejecting Keynesian and other macroeconomic theories not based on explicit microeconomic foundations. This paper compares Hayek’s methodological individualism with Lucasian microfoundations. While Lucasian microfoundations requires all agents to make optimal choices, Hayek recognized that optimization by interdependent agents is a contingent, not a necessary, state of reconciliation and that the standard equilibrium theory on which Lucas relies does not prove that, or explain how, such a reconciliation is, or can be, achieved. The paper further argues that the Lucasian microfoundations is a form of what Popper called philosophical reductionism that is incompatible with Hayekian methodological individualism.

Keywords: Lucas, Hayek, Keynes, Popper, microfoundations, Lucas Critique, methodological individualism, reductionism, rational expectations, real business-cycle theory

JEL Classification: B22, B41, E10

Suggested Citation

Glasner, David, Robert Lucas and the Pretense of Science (January 25, 2023). Available at SSRN: https://ssrn.com/abstract=4260708 or http://dx.doi.org/10.2139/ssrn.4260708

David Glasner (Contact Author)

Federal government agency ( email )

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
222
Abstract Views
798
Rank
259,661
PlumX Metrics