Youth of econometrics: Keynesians contra Keynes

Abstract

The history of economic thought knows a few of heated methodological controversies (Methodenstreit), the most famous of which was a “battle” at the end of the 19th century between Austrian and New historical schools on proper methods of social sciences. Later at the turn of the 1930—1940s a dispute arose between J. M. Keynes, on the one hand, and Keynesians (J. Tinbergen, O. Lange, J. Marshak, etc.), on the other hand, who radically diverged in assessing prospects of a new subdiscipline — econometrics. In the literature, this episode is known as the “Keynes—Tinbergen debate”, since the discussion was centered on the study by J. Tinbergen “Statistical testing of business cycle theories” (1939), where one of the first large econometric models was offered, the parameters of which were estimated using the method of multiple correlation. Keynes sharply criticized Tinbergen’s approach (and more broadly, the whole econometrics). For a long time, Keynesians unequivocally recognized Keynes as the losing party, whom they accused of technical incompetence. However, the subsequent development of econometrics turned out to be largely focused precisely on the problems raised by Keynes.