Professor Lucas, the fifth University of Chicago economics professor to win the prize in six years, transformed macro-economic analysis. In the course of a few years, from 1976 to 1982, he set in train one of the rare revolutions in economic thought. His hypothesis of "rational expectations" provided the theoretical underpinning for the resurgence of free market economics.
The theory boils down to the beautifully simple idea that economic agents - whether individuals negotiating wages, investors buying bonds or companies making investment plans - do not systematically get their forecasts wrong. On average, people will get their predictions of inflation, in particular, about right. And they definitely will not be wrong more often than governments.
Professor Lucas's insight swept the profession like wildfire. It meant, for instance, that economists could no longer defend the idea that by inflating the economy a government could permanently reduce unemployment. With rational expectations, workers will swiftly adjust wage claims to compensate, returning unemployment to its original level.
Economists who did not apply rational expectations in their own work had to start out by rebutting it - for example, by suggesting wage contracts prevented the rapid adjustment of wages to inflation expectations.
As well as an elegant theory, Professor Lucas, born in 1937, has a charisma rare in professional economists. His provoking lectures at Chicago and elsewhere in the US caught the imagination of a generation of graduate students at the turn of the last decade.
They swiftly went on to spread the rational expectations revolution, which had the side-effect of making the subject more mathematical.This occurred even though empirical evidence refuting the theory swiftly began to accumulate. Economists are reluctant to let the evidence stand in the way of a powerful theory.
Even the fiercest critics of the revolution and its powerful free-market consequences accept that Professor Lucas breathed new life into macroeconomic theory. But the cost of his revolution could in the end prove to be the fatal detatchment of economic theory from real life.