Friedrich Lutz (economist) facts for kids

Friedrich August Lutz (born December 29, 1901, in Sarrebourg; died October 4, 1975, in Zürich) was an important German economist. He is best known for developing the expectations hypothesis, which is a theory about how people's beliefs about the future affect interest rates.

A Young Economist's Journey

Friedrich Lutz finished high school in Stuttgart in 1920. He then went on to study economics at Heidelberg University and Humboldt University of Berlin. While in Berlin, he met another famous economist named Walter Eucken. Lutz completed his university studies in 1925 at the University of Tübingen.

His first job was in Berlin, working for a group that represented German engineering companies. In 1929, he became an assistant to Walter Eucken at Albert Ludwig University in Freiburg.

Challenges and New Beginnings

From 1934 to 1935, Lutz received a special scholarship called a Rockefeller Foundation fellowship. This allowed him to study in England. After this, he returned to Germany to work with Eucken again. However, it became difficult for Lutz to continue his academic work. His ideas about freedom and economics were very different from the ideas of the Nazi government at the time.

In March 1937, he married Vera Smith, who was also an economist. They traveled to the United States together on another Rockefeller Foundation fellowship from 1937 to 1938. After their scholarship ended, they decided to stay in the U.S. In the fall of 1938, Lutz began teaching at Princeton University.

Life in America and Return to Europe

During World War II, Lutz continued to work at Princeton and became a full professor. His wife, Vera, also worked as an economist at Princeton. It was during his time at Princeton that he published his important paper about the expectations hypothesis.

In 1951–1952, Lutz was a guest professor back in Freiburg, Germany. After that, he left Princeton and became a professor at the University of Zurich in 1953. He visited Yale University as a professor in 1962–1963, but he returned to Zürich. He taught there until he retired in 1972. Friedrich Lutz passed away in Zurich three years later.

Lutz and his wife were also long-time members of the Mont Pelerin Society, a group of economists who believe in free markets. Lutz was even the president of this society from 1964 to 1967.

Lutz's Economic Ideas

Working with Walter Eucken, Friedrich Lutz was part of a special group of economists called the Freiburg School. This group, including Eucken, Hans Großmann-Doerth, and Franz Böhm, wanted to understand what makes an economy competitive and how markets should work. They moved away from older ways of studying economics in Germany. Lutz continued to explore these ideas when he moved to Princeton.

The Expectations Hypothesis

Building on the work of another economist named Irving Fisher, Lutz published a very important paper in 1940. It was called "The structure of interest rates." In this paper, he explained his idea of the expectations hypothesis. He further explained this concept in another paper three years later. This theory helps us understand how people's expectations about the future affect interest rates today.

International Money Matters

Even before moving to the University of Zürich, Lutz became interested in how different countries handle their money. This interest grew through his wife, Vera. In 1950, they worked together on a book about money and foreign exchange in Italy.

In the 1960s, he wrote more books about international money problems. He argued that the best way for countries to exchange currencies was to have "fully flexible exchange rates." This means that the value of one currency compared to another would change freely based on the market.

He knew that banks might not like this idea. So, he also suggested a "second best" solution: a "multiple-currency standard." This would involve using a mix of different currencies. He also warned about including gold in this mix, saying it must be handled carefully to ensure there's enough gold available.

Friedrich and Vera Lutz also wrote another book together called The Theory of Investment of the Firm in 1951.

Who Lutz Influenced

Friedrich Lutz's ideas had an impact on many economists. One famous person he influenced was Paul A. Volcker. Volcker later became the head of the United States Federal Reserve, which is like the central bank of the U.S.