Lucas's "Keynesian Education" and the New Classical Aggregate Supply Curve

Abstract

This paper investigates how Robert E. Lucas came to adopt the market clearing aggregate supply framework that would be foundational for New Classical macroeconomics. Drawing on Lucas’s own recollections, the record of his mid-1960s research, and Lucas and Rapping (1969) in particular, we show that this shift emerged not from a rejection of his self-styled “Keynesian education” but from the way its IS–LM reasoning continued to interact with his econometric modelling of firms’ intertemporal choices during the 1960s. We also note, however, that Lucas and Rapping’s appeal to Patinkin’s authority when defending their clearing labor market assumption rested on a misinterpretation of Keynesian views that obscured the novelty of their own approach. But, overall, we demonstrate that the rational-expectations macro model of 1972 evolved naturally from what Lucas learned as a graduate student and from his mid-1960s modelling activities.