Discussion Paper

No. 2010-28 | November 17, 2010
Lucas on the Relationship between Theory and Ideology

Abstract

This paper concerns a neglected aspect of Lucas’s work: his methodological writings, published and unpublished. Particular attention is paid to his views on the relationship between theory and ideology. I start by setting out Lucas’s non-standard conception of theory: to him, a theory and a model are the same thing. I also explore the different facets and implications of this conception. In the next two sections, I debate whether Lucas adheres to two methodological principles that I dub the ‘non-interference’ precept (the proposition that ideological viewpoints should not influence theory), and the ‘non-exploitation’ precept (that the models’ conclusions should not be transposed into policy recommendations, in so far as these conclusions are built into the models’ premises). The last part of the paper contains my assessment of Lucas’s ideas. First, I bring out the extent to which Lucas departs from the view held by most specialized methodologists. Second, I wonder whether the new classical revolution resulted from a political agenda. Third and finally, I claim that the tensions characterizing Lucas’s conception of theory follow from his having one foot in the neo-Walrasian and the other in the Marshallian–Friedmanian universe.

JEL Classification

B22 B30 B31 B41

Cite As

Michel De Vroey (2010). Lucas on the Relationship between Theory and Ideology. Economics Discussion Papers, No 2010-28, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2010-28

Assessment



Comments and Questions


Patrick Minford - Referee Report 1
November 29, 2010 - 14:13

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Michel De Vroey - Reply to Referee Report 1
December 06, 2010 - 16:29

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Anonymous - Invited Reader Comment
January 05, 2011 - 08:27

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Michel De Vroey - Reply
February 04, 2011 - 10:16

Thank you very much for your positive appreciation of my paper.
1. The concepts of theory and ideology: the non-interference precept
– As to your point about the relation between a theory and a model, let me make the following remarks. First, I, for one, take no stance about ...[more]

... whether a theory is different from a model. I just take stock of Lucas’s viewpoint. Second, I would say that A-D-M literature stands on the side of Lucas. The propositions these economists make are not about the real world. Here Hildenbrand and Lucas are certainly not on the same wavelength.
– Your second remark is about the notions of ideology and vision. Although I am aware that I might be criticized on this, in the paper I take it that these notions are synonymous.
– You ask two interesting questions: (a) Are the new classical models à la Lucas ideological because they implicitly assume something that has not been (yet) demonstrated (an adjustment process for market prices towards their equilibrium values via the law of supply and demand)? (b) In other words, does Lucas's defense of the free-market stems either from positive or from normative viewpoints? As to (a) Your phrasing does not fully correspond to the point that I was trying to make. My point was that the policy conclusion of Lucas’s model of the business cycle supports the policy recommendation that no demand activation should be undertaken because it rests on the premise that nothing like can ever be needed. Thus, what is at stake here is not the ‘non-interference principle’ but the ‘non-exploitation principle. As to (b), I have no clue. How can we know? Possibly, the two aspects play a role.
2. Epistemology or methodology
The point you are making here is interesting, and I must say that I basically agree with you. I have (perhaps too hastily) taken the terms of methodology and epistemology as synonymous. The reason is that I hope that my paper will be read by macroeconomists (this is the reason why I submitted to a general journal rather than to a specialized one), and, rightly or wrongly, I have the impression that more macroeconomists would be deferred by the ‘epistemology’ than by the ‘methodological’ term!


Anonymous - Comment- Invited Reader
January 05, 2011 - 15:26

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Michel De Vroey - Reply
February 04, 2011 - 10:18

Thank you for your laudatory remarks. Be sure that I fully appreciate them. Actually, your comments illustrate the novelty of an open-access, open-discussion journal as Economics. On the one hand, in this new context, the referee is no longer an uncontestable authority as readers are able to question his remarks. ...[more]

... So, I ought to thank you for your enterprise of ‘refereeing the referee’. On the other hand, readers can expand on the points made in the article pointing out new directions. This is definitely the case for your comments (as well as those of referee N°3).


Anonymous - Invited Reader Comment 3
January 07, 2011 - 14:11

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Michel De Vroey - Reply
February 04, 2011 - 10:20

Thank you for your comments. It will be no surprise to you that I disagree with most of them.
1. It is of course true that authors such as Tobin, Solow and the others listed by you have written on the methodology of macroeconomics. But so what? Their conceptions ...[more]

... are quite different from those of Lucas.
2. Laidler (2009) is a fine paper but it pursues a purpose different from mine.
3. I disagree with your statement that I underestimate the principle of verification in Lucas’s methodology.
4. I do not think that Lucas 2000 paper, which comprises a model economy without microfoundations, should be interpreted as meaning that he has recanted on the view that sound economic theory needs to be microfounded.
5. In the penultimate paragraph of the comment, you ask how I understand the term ‘ideology’. The answer is in the paper: a vision about the working of the market system. I am interested in two such visions, the laissez faire and the Keynesian vision. Contrary, to what you think, I do not compel the reader to accept the view that Lucas is not an ideologist. Instead I show that Lucas has not qualm about expressing his adhesion to the laissez faire ideology.
6. Your point concerning the Walras-Marshall divide. To me, this divide is important but in this paper I take its existence as given because delving into it would be too long a detour.
7. I do not understand the point you make about Hayek. As well known, at one time in his career, Hayek adhered to the Walrasian program but, later, he distanced himself from it. The passage quoted by Lucas in his “Understanding Business Cycle Theory” article belongs to the ‘young’ Hayek, and it is clear that Lucas prefers the ‘young Hayek’ to the ‘mature Hayek’.
8. I disagree with your claim that the short-/long-period divide is a crucial element of Lucas’s methodology. This distinction is associated with the neoclassical synthesis which Lucas rejected.


Anonymous - Invited Reader Comment 4
January 10, 2011 - 09:06

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Michel De Vroey - Reply
February 04, 2011 - 10:22

Thank you for your comments. My reactions are as follows.
1. My below general remark is particularly valid for you.
2. You find my argumentation convoluted. Admittedly, the point I want to make is subtle. Could it be dealt with in a less convoluted way? I tend to answer ‘No’. ...[more]

... Your presentation neglects the fact that the paper comprises four separate sections dealing with (a) the relation between theory and ideology according to Lucas, (b) the non-interference principle, (c) the non-exploitation principle and (d) an assessment. This makes for a logical thread.
3. I disagree with your judgment that the ‘non-inference’ and non-exploitation’ principle should receive less weight. They are central to my argumentation.
4. Entering into the issue of the differences between Lucas and other methodologists would be a time- and space-taking discussion. By entering into it, I would expose myself to the criticism that I depart from the main thread of the paper.
5. Your evocation of Sraffian economics is interesting since this theory, though mathematical, would probably be rejected by Lucas as ill-based. This indicates that to Lucas the use of the mathematical language is a necessary but not a sufficient condition for sound theory. It should be crossed with the need for microfoundations.
6. You state that the issue of the tension between Chicago and Lausanne could also be addressed from the viewpoint of equilibrium. I agree with you on this point. However, as I discussed it in other papers, I have preferred to leave it aside in this paper. In the same line, you state that practicing macroeconomists often implicitly assume that reality is in equilibrium. I concur with you on this diagnosis but I would add that Lucas has clearly rejected such an attitude. Let me just remind you Lucas’s remark pointed out by invited reader N° 2, that equilibrium should be viewed as a property of how economists look at reality rather than a property of reality.


Anonymous - Invited Reader Comment 5
January 13, 2011 - 15:51

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Michel De Vroey - Reply
February 04, 2011 - 10:24

Thank you for your comments, which I found most interesting. You make two main points. First, you raise the question of whether the ideological vision adopted by an author may result from his having become acquainted with economic theory. The general problem here is that we have few clues about ...[more]

... assessing such a matter — how can we know what happens in a person’s mind? Notwithstanding this difficulty, I agree with you that this is surely an important aspect of the formation of people’s vision. I also guess that it must have been played a role in the specific case of Lucas. In several writings, he hinted at his new deal family ideology, on the one hand, and on the influence Friedman exerted on him as a teacher, on the other hand. It can be presumed that Friedman’s influence amounted to teaching his students both to become neoclassical economists and defenders of laissez faire. The upshot would have been Lucas abandoning his new deal vision.
Your second point is that a distinction should be drawn between two levels of ideology, ideology as belonging to political philosophy and ideology as an opinion. At this juncture, I do not know whether I agree with you on this distinction as I should reflect more about it.


Anonymous - Referee Report 2
January 17, 2011 - 17:05

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Michel De Vroey - Reply to Referee Report 2
February 04, 2011 - 10:32

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Anonymous - Referee Report 3
January 17, 2011 - 17:06

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Michel De Vroey - Reply to Referee Report 3
February 04, 2011 - 10:34

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Michel De Vroey - General Remarks
February 04, 2011 - 10:38

Dear anonymous commentators:

I appreciate very much your have devoted some of your time to comment my paper. I enjoyed reading them and found them stimulating.
Before coming to particular comments, let me make a general remark about the specific contribution of my paper. I want to underline ...[more]

... that it pursues a modest aim, i.e. exposing Lucas’s views on methodology in a systematic way by drawing from his archives at Duke. This is a task that Lucas himself did not endeavor to undertake. Nobody else did it. Of course, if Lucas’s views turned out to be trivial, it would hardly be worthwhile to engage in this task, but this is not the case. Thanks to my paper, Lucas scholars will have a richer material on which to base their work. In its last section, the paper makes an assessment of Lucas’s view. This part of the paper is also important to me but I am fully aware of its tentative character. I am glad to see that some of the comments have started to go further in this direction than I did myself.