Lucas\u27 Contributions to the Economic Sciences from a Historical Perspective: How Lucas Revolutionized Economists\u27 Way of Thinking about Decision Making Modes of Intertemporally Motivated Rational Agents

Robert E. Lucas Jr. wrote two papers that changed the course of development of the economic sciences : "Expectations and the Neurality of Money" (1972) and "Econometric Policy Evaluation : A Critique" (1976). These papers were explicitly cited by the Royal Swedish Academy of Sciences when he received the Bank of Sweden Prize in Economic Sciences. This paper is an attempt to place these papers in a historical perspective, with economics viewed as a moral science, particularly with respect to how fundamentally Lucas changed economists\u27 way of understanding the decision making modes of intertemporally motivated agents and of modeling market equilibrium of a monetary economy of such agents. In the first paper, he modeled a monetary economy with intertemporally motivated agents under rational expectations, in which the decisions of such agents are guided by the market prices subjected to monetary and real disturbances. This paper, by demonstrating how agents\u27 decisions differ from one policy regime to another, foreshadowed his critique of econometric policy evaluation in the second paper, which stunned the profession and opened the door to the development of the view that the movement of an economy is a stochastic process rather than a structural system of the behavioral equations that are invariant to policy regimes. Lucas\u27 insight that the decision making modes of rational agents are intertwined intimately with the decision making environment has brought home the teleological nature of rational agents in economics as a moral science