Lucas and Tobin: Debating the New Classical Challenge to Keynesian Economics

The future Nobel laureates Robert Lucas and James Tobin debated the New Classical challenge to the microeconomic foundations and empirical validity of Keynesian economics, with Lucas singling Tobin out as an interlocutor among Keynesian economists who took the New Classical challenge seriously. Their intellectual exchanges began with Tobin, ‘The Wage-Price Mechanism: Overview of the Conference’ (1972), and Lucas, ‘Econometric Testing of the Natural Rate Hypothesis’ (1972), both in Otto Eckstein, ed., The Econometrics of Price Determination Conference (1972). That conference was a milestone in confronting alternative macroeconomic methodologies with each other, but has received relatively little attention in the literature, most notably from Stanley Fischer (in JMCB Supplement, 2007), who characterized ‘that volume as representative of the best thinking of the time on the Phillips curve.’ This paper examines the debate between Lucas and Tobin that began with their contributions to that conference and that reached a climax with Tobin’s Yrjö Jahnsson Lectures (Asset Accumulation and Economic Activity, 1980) and Lucas’s Journal of Economic Literature review article on those lectures.