The hypothesis of rational expectations has rapidly gained attention because it is so natural and appealing. It must make its opponents furious, because, absurd as they think it is, to attack it is to appear to deny that behavior is rational, an uncomfortable position for an economist. Indeed, it is so appealing that one wonders why it took so long to develop. I must confess that I was no help. MIhen I was testing adaptive expectations in my study of hyperinflations almost thirty years ago, I rejected a contemporaneous effect of price changes on real money balances because it did not fit the data well, and I used adaptive expectations as a more attractive alternative. I had some qualms about my estimates which showed very slow adaptations under hyperinflation. Nevertheless, the alternative formulation of expectations without a lag seemed to go too far. At that time, who would believe that price changes not only resulted from changes in the money supply but did so without a lag? Of course, technical developments in statistical technique since then have brought several problems to light, and it is now not so clear that these episodes are inconsistent with rational expectations as now formulated. As a footnote to the historical discussion in Lucas's paper, I am impressed by the irony of the fact that thirty years ago very few economists thought that money had an important effect on aggregate demand. I remember the anonymous review in the London Economist that said of our Studies in the Quantity Theory of Money that, well perhaps money can explain prices during hyperinflation, but that surely is the only situation in which it plays an important role. Today, in contrast to that earlier view, not only does the profession assign money an important role in all situations, but in the models of rational expectations the public knows exactly how money affects aggregate demand and follows monetary policy expertly in forming expectations of those effects. Did the public always know this despite the earlier ignorance of economists? If the public is dependent on what economists know, it has made progress but its expectations still cannot be very good. Nevertheless, rational expectations are not only intellectually appealing but have received uncontested empirical support in their application to financial markets and