From the beginnings of modern monetary theory, in David Hume's marvelous essays of 1752, 'Of Money and Of Interest,' conclusions about the effect of changes in money have seemed to depend critically on the way in which the change is effected.
Robert Lucas, Jr.
The central predictions of the quantity theory are that, in the long run, money growth should be neutral in its effects on the growth rate of production and should affect the inflation rate on a one-for-one basis.
I was born in 1937, in Yakima, Washington, the oldest child of Robert Emerson Lucas and Jane Templeton Lucas. My sister Jenepher was born in 1939 and my brother Peter in 1940. My parents had moved to Yakima from Seattle to open a small restaurant, The Lucas Ice Creamery.
The observation that money changes induce output changes in the same direction receives confirmation in some data sets but is hard to see in others. Large-scale reductions in money growth can be associated with large-scale depressions or, if carried out in the form of a credible reform, with no depression at all.
I was good at math and science, and it was expected that I would attend the University of Washington in Seattle and become an engineer. But by the time I was seventeen, I was ready to leave home, a decision my parents agreed to support if I could obtain a scholarship. MIT did not grant me one, but the University of Chicago did.
My parents were admirers of President Roosevelt and the New Deal. Their parents and most of our relatives and neighbors were Republicans, so they were self-conscious in their liberalism and took it as emblematic of their ability to think for themselves.
I obtained a Woodrow Wilson Doctoral Fellowship and entered the graduate program in History at the University of California. With no Greek or French and minimal Latin and German, I was in no position to pursue my classical interests, so I began work at Berkeley with little more than an open mind.
Monetary contractions are attractive as the key shocks in the 1929-1933 years, and in other severe depressions, because there do not seem to be any other candidates.
