John Muth - Legacy

Legacy

It has hard to point to one substantial area of economic research into dynamic problems which has not changed as a result of the publication of Muth's works at GSIA. Almost paradoxically, the only viable alternative to Muth's hypothesis is the research agenda put forward by Herb Simon and his concept of "bounded rationality".

Of course we knew about . Muth was a colleague of ours . We just didn't think it was important. The hypothesis was more or less buried during the '60s. Arrow used it in his paper on learning-by-doing in the '60s. Prescott and I used it in that paper of ours on investment. People were aware of it, but I didn't understand then how fundamental a difference it made econometrically. I didn't realize that if you took it seriously you had to rethink the whole question of testing and estimation. I guess no one else did either, except for Muth. —From the interview with Robert E. Lucas by Arjo Klamer, published in Conversations with economists, 1983, ISBN 0-86598-146-9. It must be quite an experience to write papers that radical and have people just pat you on the head and say 'That's interesting,' and nothing happens. —From the interview with Robert E. Lucas by Arjo Klamer, published in Conversations with economists, 1983, ISBN 0-86598-146-9. Muth's role in the history of economics is unusual. Like Hermann Heinrich Gossen, he became famous for one idea, he provided the analytical key to developments that, in the jargon of scientific journalism, were described as revolutionary, and he was virtually ignored by his immediate contemporaries. However, whereas Gossen had no influence on those developments, his key results being independently rediscovered by Jevons and Walras, the rational expectations economics of the 1970s and 1980s was a direct outgrowth of Muth's seminal idea. In fact, Muth's contribution is one of the relatively few instances in which there is no indication that the history of economics would have taken about the same course in its absence. It was a novel and ingenious idea, it was not "in the air," and no multiple discovery has yet come to light. — Niehans, Jürg (1990). A History of Economic Theory. The Johns Hopkins University Press. ISBN 0-8018-3834-7. Page 509.