During the lifetimes of most Harvard undergraduates, Richard A. Musgrave—a founder of modern public sector economics—was in retirement.

Musgrave, who died Monday at age 96, also came from an era preceding current economics faculty. But his ideas about the state’s role in the economy left a lasting impact felt by Harvard faculty and alums today.

Having taught public finance at Harvard for about two decades, Musgrave had been an emeritus professor since 1981.

“The training I received well after he had retired was different because he was around,” said Dean for the Social Sciences David M. Cutler ’87.

Concerned with the government’s equitable and efficient distribution and redistribution of resources through taxation and spending, “he transformed the whole way people thought about public economics,” said one of Musgrave’s former students, James M. Poterba ’80, who now chairs the economics department at MIT.

Born in 1910 in Germany, Musgrave, who received a Ph.D in political economy from Harvard, taught here from 1937 until 1941, when he left for a post at the Federal Reserve.

After various teaching stints, including at Princeton, Musgrave returned to Harvard in 1965 with tenured appointments in the Faculty of Arts and Sciences and at Harvard Law School.

He also took prominent economic advising roles in Washington, as well as with foreign governments, from Colombia to South Korea.

Musgrave died in Santa Cruz, Calif., where he and his wife had moved to teach at the University of California, Santa Cruz.

‘THE MUSGRAVE TRICHOTOMY’

In his senior year of college—and the last year Musgrave taught at Harvard—Poterba audited Musgrave’s graduate course, co-taught with Baker Professor of Economics Martin S. Feldstein ’61.

“He didn’t just study the tax system or government policies in an abstract classroom, or in a theoretical way. He studied these questions because he believed they were incredibly important in making the lives of individual citizens better,” Poterba said.

The ground-breaking “Musgrave trichotomy” identified three separate roles of government—redistributing income, allocating resources, and stabilizing the macroeconomy, Cutler and Poterba said.

“Everything that’s taught in public economics now is completely different than what was taught from before,” said Cutler, who co-teaches Economics 1410, “Public Sector Economics.” “You look at textbooks before him and you wouldn’t even recognize them.”

Cutler said that when he teaches his students to think about questions of efficiency and redistribution in public sector economics separately, “all of that comes from Musgrave.”

“Generations of students who used his textbook [The Theory of Public Finance] think about the world very differently,” Cutler said.

Musgrave strove for much of his life to find ways for the state to play a positive role in the economy, which entailed understanding the trade-offs between allowing the government to provide some goods versus allowing the private sector to provide them.

As a student who came to Harvard in the mid-1930s during the Great Depression, when Keynesian views about the benefits of government intervention in the economy were starting to enter economic discourse, “Musgrave was always very deeply of the view that the government could make things better,” Poterba said.

ECONOMIC OUTLIER

Musgrave’s economic principles, particularly with their focus on social equity, did not always square perfectly with mainstream thinking in his field.

“He was probably a little bit frustrated that the profession has moved as far as it has toward the efficiency direction,” said Cutler. “Although I think it would’ve moved even farther had he not been around.”

An emphasis on equity may have eroded in conventional economics discourse, partially because “it’s really hard to say how equitable should things be,” Cutler said. “You’re saying, ‘gee, what’s the right distribution of income.’”

Contrary to trends in his field, Musgrave “probably moved a bit in the direction of thinking there was an activist role of government,” Poterba said.

The German school of thought— “thinking about the whole community almost as though it was one actor”—was another influence that Musgrave brought to bear on U.S. economic thinking, Poterba said.

“That was a perspective that was somewhat different from what most U.S. economists were using,” Poterba said.

Concerned with questions of how to set up an equitable tax system, Musgrave was a vocal critic of President Reagan’s conservative economic program.

In 1982, Musgrave, with 33 other economists, sent a letter to the White House criticizing Reagan’s economic policy as “extremely regressive in its impact on our society, redistributing wealth and power from the middle-class and poor to the rich,” The Crimson reported.

“One never knows if this will have any effect on the President, but we felt it was important to speak out,” Musgrave told The Crimson at the time.

‘DEEPLY COMMITTED’

Cutler said he first met Musgrave in the early 1990s when Musgrave was on the East Coast and had contacted him, saying he had heard Cutler had joined the Harvard faculty and wanted to meet him.

They met about every other year through much of the 1990s to chat about economics research and the goings-on of the department, according to Cutler, who joined the Harvard economics faculty in 1991.

“Every time after meeting him, I would think, ‘I hope I’m in as good a shape at 40 as he is at 80,’ ” Cutler said.

“Even though Musgrave was in his 80s and 90s at the time, he kept very well up-to-date...not very many people will do that,” he said.

He was still “very interested in the world of economics and how it could be used in policy areas,” he said.

Poterba has fond memories of Musgrave’s energy as well.

In Musgrave’s class, “even at that stage, one of his last years at Harvard, he was incredibly energetic and enthusiastic about the whole study of government and taxation, deeply committed to training students, and maintained long connections and ties to students,” Poterba said.

A stone in Mt. Auburn Cemetery in Cambridge will bear Musgrave’s name, his wife, Peggy Brewer Musgrave, told The Boston Globe.

—Staff writer Tina Wang can be reached at tinawang@fas.harvard.edu.