The econometric challenge to Keynes: arguments and contradictions in the early debates about a late issue*

Abstract

The paper investigates the discussions between Keynesians and ‘reconcilers’ about the interpretation of the ‘General Theory’, and the effect of the transformation of economics during the thirties as the outcome of that discussion. It highlights the contribution of some of the first econometriians, who argued for a new view of economics as an exact science based on mechanical models and mathematically defined theories, while supporting planning rather than the indirect steering devices suggested by Keynes. The inroduction of this type of mathematical models in the framework of Keynesian macro–policies is related to two major events: the Oxford meeting of the Econometric Society in which the IS-LM model emerged, and the Cambridge meeting dedicated to the discussion of Tinbergen's work on business cycles. The framework, antecedents and consequences of Keynes-Tinbergen debate on the role of econometrics is here assessed on the basis of unpublished documental evidence. Although most of the econometricians took sides with tinbergen against Keynes's scepticism on the use of formal models and simple representations in macroeconomics, several of them, including the more influential of the then young mathematically inclined economists, shared some of the basic elements of the critique. These discussions among Frisch, Tinbergen, Lange, Divisia, Roos, Marschak and others are reviewed in the paper and related to the evolution of the Cambridge group itself.