Lucas, Keynes, Animal Spirits, Co-ordination and the Recent Crisis David Laidler Abstract This paper begins by examining Robert E. Lucas’s views on the relation- ship of macro-economics to real world economic phenomena, and on Keynes’s place in its history, suggesting that these stem from a particular and debatable understanding of how the sub-discipline has evolved. It then considers some impli- cations for today’s awkward economic facts of aspects of Keynes’ General Theory, its speculations about the role of psychology and social conventions in the economic decisions of individual agents recently highlighted by Akerlof and Shiller (Animal Spirits. Princeton, N.J.: Princeton University Press, 2009) under the label “animal spirits”, as well as its insights into the influence of the monetary system on the coordination of these decisions, along lines later extended by Clower (The Keynesian counter-revolution – A theoretical appraisal. In F. H. Hahn, F. R. P Brechling (Eds.), The Theory of Interest Rates. London: Macmillan, 1965) and Leijonhufvud (On Keynesian economics and the economics of Keynes, Oxford: Oxford University Press, 1968). It concludes that the questions about co-ordination that Keynes addressed, not to mention some of his answers, are well worth revisiting. JEL Classifications, B22, B31, E12, E13, E32 Keywords Crisis Á Co-ordination Á Clearing Markets Á Auctioneer Á Money Á Financial Markets Á Animal Spirits Á Psychology Á Keynes Á Lucas Fellow in Residence, C.D. Howe Institute, Toronto, Canada, and Professor Emeritus, University of Western Ontario (laidler@uwo.ca) This is a revised version of a paper originally presented to the History of Economics Society in Denver Colorado on June 28th, 2009, and published in the March 2010 issue of the Journal of the History of Economic Thought under the title “Lucas, Keynes and the Crisis”. I am grateful for comments to Roger Backhouse, Bradley Bateman, David Colander, Michel De Vroey, Robert Dimand, Harald Hagemann, Susan Howson, Peter Howitt , Ephraim Kleiman, Perry Mehrling, Donald Moggridge, Michael Parkin, Greg Ransom and Sandra Peart on various earlier drafts. Of course I alone remain responsible for the current version. D. Laidler The University of Western Ontario, London, ON, Canada N6A SC2 A. Arnon et al. (eds.), Perspectives on Keynesian Economics, DOI 10.1007/978-3-642-14409-7_13, # Springer-Verlag Berlin Heidelberg 2011 275