2007-9-17

Mathematics can be applied in Economy,which can make economics more persuasive. No matter how old an economist is,he or she should learn mathematics

        ----Lucas

Lucas was born in Yachima,Washington in 1937. He and his family moved to Seattle in World War and graduated from Roosevelt High School in 1955.

The academic career on economics of Lucas was full of legendary. At beginning, he dreamed to be an engineer,which required him to learn mathematics well at first,yet he got tired of mathematics course, instead,he was very interested in historical course. When he was a graduate student of history major in University of California-Berkeley,he knew something about economic history In order to master economic development history;he read through the economics magnum opus Foundations of Economic Analysis written bySamuelson. In the meantime, besides his major courses,he additionally learned several economics courses, and he was used to attend the lecture of economics professor as a non-major student. The vivid courses of professors interested Lucas and he was infatuated with economics, finally, he abandoned major history and turned to research on economics.

Lucas was awarded with PhD degree by Chicago University in 1964,subsequently;he obtained an assistant professor post in Carnegie Mellon University. Carnegie Mellon University is reputed as cradle of American economics, where he finished one of his essays, Expectation and Neutrality of Monetary, which won countless honors for him.

Chicago University invited Lucas for assuming professor of economics department at high price in 1975,at that time, he just finished writing his another essay and made an appearance,that is The Evolution Of Economic Metrology Policy:A Kind Of Criticism. These two essays constructed the perform of theoretic frame of Lucas,which developed into basis supporting his winning Nobel Prize later.

Prior to 1960s,the economics model is described with a kind of formalistic mode in all textbooks. Major contents of them are some static equations,with some other parameters placing on two sides of the equations, one parameter represents for consumption,one parameter represents for investment and another parameter represents for production etc. The economists only research economic requirements under static conditions; the variations only exist in those different parameters, and change of parameter results in change of result. Yet, the actual economic life is not so simple and the several simple parameters can not fully outline development changes of economic status. What the economists face with shall be continuous economic life with concept of time. One economic status will influence the other,for example, the total capital is solid, if more money is spent today, then little will be spend tomorrow, no one stipulates that only a definite amount of money shall be spent each day. Such goes with the investment, it is not required that capital shall be invested averagely in each month, probably,the more capital is invested for this month, then less capital shall be invested for next month, more investment,more rewards, yet also more risk. What we confront with are some changing economic status, hence,it is necessary for us to introduce dynamic planning and optimum control method in economic analysis. Lucas ever collaborated with Nancy L.Stokey for writing a book Recursive Methods In Economic Dynamics,analyzing the rule of economics dynamic and which has become a classic works in economics textbooks.

Analysis of dynamic economics can not be counted as his most outstanding achievement. That is merely one of his many famous works. The most influential accomplishment of Lucas is the Rational Expectation Hypothesis he advanced, which is a theory that will leave a good name forever. The school he belongs to is called Rational Expectation School, which developed quickly in later 1980s and now has developed into a big school with great influence.

So called"Rational Expectation" ,just as its name implies, means that a company shall at first gather large amount of information,make an expectation for the result on basis of mastered various information and then carry out comprehensive analysis on basis of expected result prior for making final decision prior to economic decision making. This kind of expectation on result prior to decision making strongly influences the behavior of all participants involved the economic activities, and thereby may finally completely change the result of economic activities.

After advancing this theory, Lucas deepened its content without a stop. He analyzed the hot issue of nationally intervening economy at that time. In his opinion, as government begins to intervene economy, individual and enterprise shall make rational expectation upon government'intervene,in order to make corresponding change. The government' intervene on economy is ineffective under this circumstance. At that time, U.S.A government was entirely adopting advice of Keynes on national macro regulation for carrying out macro regulation of national economy. Lucas's viewpoint was full of novelty, which inflicted a heavy strike on Keynesianism. This famous criticism is called "Lucas Criticism",also called rational expectation revolution.

After Rational Expectation Hypothesis was put forward, people began to rethink the macro economics theory of Keynes under leadership of Lucas. By taking advantage of rational analysis, the effective instrument,Lucas re-modified macro economy in a comprehensive way and made redefinition of many key concepts,many economic concepts,such as social total demands,social total supply,monetary, currency inflation and economic cycle etc, were all endowed with completely new interpretation and meanings.

Lucas is the founder of rational expectation school. His economic theory preconditions that people can make rational and right expectation. However,interestingly,the rational expectation master can not always make right expectation in actual life;on the contrary,he is surpassed by his former wife on expectation of something.

It turned out that Lucas's marriage life was not happy. The affection between him and his former wife Rita.Kohn was not harmonious and they decided to divorce. Kohn is a very bright woman,at the same time,she is very conscious of Lucas's standing and great achievements in Economics area. When they handled formal divorce procedures in 1989, Kohn brought forward a meaningful condition about divorce, i.e. if Lucas wins Nobel Economics Prize prior to October 31, 1995, she will get half of the premium; if Lucas wins Prize after October 31,1995,and she will get nothing. (Robert. Lucas in Wuhan University)

Lucas made a comprehensive analysis on the probability of his winning Nobel Prize. He was clearly aware of his achievements, yet there were many fellow traders who had made same achievements, in addition,Nobel Committee would prefer to award the older one who has made same achievement. Hence,after comprehensive analysis,he agreed with his wife's demands and smoothly signed divorce agreements. They lived in peace with each other for five years,"misfortune" visited him on October 21,1995,and i.e. Lucas won Nobel Economics Prize,which was just 10 days away from the time limit stipulated in divorce agreement. Lucas had to share half of $ 1 million premium with his former wife. Hence, Lucas regretted to a great extent, he thinks that his former wife is the master of rational expectation. He admitted that she prevailed over him on expectation of something.

The rational expectation master made an irrational expectation. People can not but help laughing. It is noted that the rational expectation theory shall not be denied on basis of this episode,which just added a piece of interest to his legendary economics career. Lucas was awarded with Nobel Economics Prize without controversy in 1995,in order to commend his outstanding achievements on rational expectation theory and the pilot contribution he has made to the development of this school. Hence,rational expectation theory is also called rational expectation revolutionary following Keynes Revolutionary and Monetarism Revolutionary.

Lucas ever came to China twice respectively in 1986 and 2004, and visited several cities such as Beijing,Shanghai,Xi'an and Guilin etc. In 2004 speech at Wuhan University,when reporter asked about his impression on change of China, he described change of change by repeating the word "Extraodinary"for many times. No doubt,rapid economic growth of China deeply moved this academic master who is good at dynamic analysis of the macro economy.