Introduction

Articles and books about economics read more like computer manuals than literature. With a bit of wicked imagination one can blame Jan Tinbergen for this observation. After all, he and Norwegian economist Ragnar Frisch invented econometrics, ushering in the econometrics revolution. In 1969, Frisch and Tinbergen received the first Nobel Prize in Economics.[1] The lingua franca of econometrics is mathematics, and - it must be admitted – economists more and more writen in that language.

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Is this regrettable? Yes, it is. Young economists will probably not enjoy, like their elderly peers, the writings of dead economists such as John Maynard Keynes, Joseph Schumpeter, Friedrich Hayek, John Kenneth Galbraith and Tibor Scitovsky. They hardly used mathematics in their accessible, elegant and sometimes ironic texts.

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Now, what about the Tinbergen dilemma? Almost all important economists have one characteristic in common: they combine their research, based upon scientific principles, with their philosophical convictions. Pareto, Schumpeter, Keynes, Hayek, Samuelson, Friedman, Stiglitz, Krugman, Mazzucato, Piketty and Duflo, to name just  a few, analyse economic problems having their philosophical convictions in mind.

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Why is this? A Dutch economic methodologist once observed that without these convictions, any economic model would be devoid of a soul - devoid of life.[2] In the same vein, Schumpeter once said that all great economists had a particular vision which gave their academic work direction and colour. Many economists do not conceal the fact that they describe the world in economic terms but want to change it along the lines of their philosophy. Tinbergen was no exception; he applied mathematical models in his economic work in pursuit of stability, welfare, justice, and peace. Now, his dilemma was that mathematical models cannot fully capture the complexities of an economy.

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Economics cannot one-on-one be compared with the natural sciences. This is simply because economists study society, which is not dictated by the unchanging laws of nature. Instead, economic dynamics are brought about by unpredictable and ever-changing social, political, psychological and cultural forces. As john Hicks so eloquently observed: ‘The more characteristic economic problems are problems of change, or growth and retrogression, and of fluctuation. The extent to which these can be reduced into scientific terms is rather limited; for at every stage in an economic process new things are happening, things which have not happened before – at the most they are rather like what has happened before.’[3] Yet, Tinbergen devoted his scientific life to get a grip on the dynamics of the economy in pursuit of, indeed, stability, welfare, peace and justice.

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Part I Tinbergen’s life and work

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1. 1 From physicist to economist

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During the 1920s, Jan Tinbergen (1903-1994) studied physics at Leiden University. He belonged to a small group of brilliant students enjoying the inspirational lectures of professor Paul Ehrenfest (1880-1933), who in 1911 had come from Vienna to Leiden to succeed Hendrik Lorentz (1853-1928), Holland’s most famous physicist and Nobel laureate at the time. Ehrenfest stimulated young Tinbergen to apply mathematics to economic problems.[4] This was a defining inspiration for Tinbergen’s professional life.

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Another inspiration was Tinbergen’s upbringing in a politically progressive family. He was an idealist - a lifelong peace loving social-democrat, inspired by the upbringing of his parents, and his membership of the Arbeiders Jeugd Centrale (AJC) (Workers Youth Central), a club for youngsters in which the ideals of socialism were promoted. Tinbergen’s early association with the Remonstrant Brotherhood also contributed to his ethical formation.

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These vital inspirations, his upbringing, Ehrenfest, and his appreciation of the ethical dimension of socialism which in the course time would become more policy-oriented, prompted him to bid farewell to physics and to become an economist.

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    1.2 Ehrenfest and Tinbergen

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Paul Ehrenfest was neither a socialist nor an economist; he was a brilliant physicist. Albert Einstein (1879-1955) visited him regularly in Leiden to brainstorm. Ehrenfest had the gift to, in a Socratic manner, unearth the essence of a scientific problem. This helped Einstein in clarifying problems he was struggling with. Ehrenfest also received visits from other world famous physicists, such as Bohr, Becquerel, and Fermi. He turned Leiden into the place-to-be for physicists.

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Tinbergen admired Ehrenfest; he adored him like a father, according to Erwin Dekker, Tinbergen’s biographer.[5] During the second half of the 1920s, Tinbergen wrote his PhD thesis supervised by Ehrenfest. One chapter was about economics. Ehrenfest had suggested his young student to study economics on the side, as Ehrenfest took a lively interest in it. He had, for example, shared his mathematical analysis of oligopolistic competition with Tinbergen, and introduced him to the mathematical economics of Arthur Bowley, Knut Wicksell, Vilfredo Pareto, and Francis Edgeworth.

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This may sound remarkable to the contemporary reader; however, before the outbreak of the Great Depression in 1929, the economy, like physics, was believed to be a system driven by the forces of nature. It was believed that these forces were much more powerful than those of the state.[6]

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While working on his thesis, Tinbergen contributed articles to scientific journals about economic topics, such as measuring the business cycle. In doing so, he made a distinction between seasonal fluctuations, structural developments, and the movement of the business cycle as such. He wondered which explanation was consistent with the movement of the cycle. Tinbergen believed that, as in physics, cumulative variables played an important part in a business cycle’s movement. Take the movement of inventories: they will increase in a cycle’s downturn, and diminish once the upswing presents itself. Ehrenfest had enthusiastically read Tinbergen’s business cycle article and wrote him that he should pursue a career in economics. He predicted that much good would come out of it.

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Tinbergen followed Ehrenfest’s advice, not least because he firmly believed that he should apply his analytical and mathematical talents to contribute to a better society. He could then not have foreseen that he, together with Ragnar Frisch (1895-1973), would develop an entirely new dimension of the economic science: econometrics.

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Once he had become an economist, Tinbergen gave up the idea of analogies between physics and economics. He was preoccupied with the question how economic research could be made relevant for policy makers. His biographer  Dekker observes that, with the help of scientific tools, Tinbergen’s work was directed at achieving political and social aims, inspired by socialist ideals. In most of Tibvergen’s writings, the interaction between societal and economic problems shines through.

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Tinbergen also took an interest in statistics. In 1927 he joined, as a conscientious objector, the Netherlands’ Central Bureau of Statistics (CBS), where he continued analysing the business cycle. In an ironical sense, Tinbergen was lucky that only a few months after he had joined the CBS, the Great Depression broke out.

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    1.3 The Econometric Society

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Meanwhile, Frisch had established the Econometric Society. Econometrics, according to Frisch, consisted of a combination of economic theory, statistics, and mathematics. Its aim is to estimate economic relationships, to test theories and to evaluate policies. Econometrics transforms theoretical claims into testable empirical propositions that can be expressed in a precise mathematical form and statistically estimates their parameters.[7] In 1931, the first reunion took place in Lausanne, Switzerland. Tinbergen attended the meeting. Two years later, Tinbergen hosted the Econometric Society meeting in Leiden. Ehrenfest was to deliver a speech. This did not happen as he tragically committed suicide just before the event. In a farewell letter to his students he wrote that he had lost contact with physics and mathematics; it was the essence of his despair.

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    1.4 The business cycle

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In 1933, Tinbergen published a popular book entitled De Konjunktuur (The Business Cycle) in which he boldly proposed that government should play a prominent role in the economy, supported by more planning. He strongly felt that it was his duty to help bring mass unemployment down and to reform the capitalist system.[8] For Tinbergen science was no longer a weapon in the ideological battle. Science should be applied as a means to analyse a particular problem, identify its causes and, while addressing them, help overcome political differences. In other words, science could lead the way to solutions and political consensus.

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Tinbergen became convinced that science could serve as an instrument in achieving political aims - for him no science pour science. Indeed, in the course of his professional life he became more and more associated with politics. However, he was sceptical about the democratisation process taking place. Surely, as he admitted, education could be a great help in the emancipation of the masses, but miracles should not be expected. Societal progress was to be promoted by a relatively small well-educated section of society, of which he formed part.

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Tinbergen expressed concerns about the functioning of democracies. In 1964, for example, he argued that for the majority of developing countries parliamentary democracy would not work. In the few instances where it did, it was due to exceptional leadership or exceptional circumstances. He also repeated his conviction that development, whether it was economic or cultural, was brought about by elites.

Much to Tinbergen’s regret he observed that people in welfare states had become too materialistic, while he, again like Keynes, had hoped to see improvement in cultural, social, and moral values as well.

 

    1.5 The first macroeconomic model

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An impressive example of Tinbergen’s political engagement was his contribution to the Social Democratic Workers Party’s Labour Plan. It consisted of the construction of the first ever macroeconomic model of a national economy. Dekker argues that this was Tinbergen’s most important contribution to the economic science.[9] Tinbergen worked in an area where politics and economics straddle. He often would be more driven by ideological considerations rather than by scientific inspirations, concludes Dekker.[10] The biographer also observes that for Tinbergen ideals and science were important. However, both had to serve political progress.[11]

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In the early 1930s, Tinbergen argued that not one but various equilibria could exist in an economic system. He based this new insight on the proposals of Dutch economist Tjalling Koopmans (who was trained as a physicist, like Tinbergen). Keynes concluded likewise in The General Theory of Employment, Interest and Money, which came out in 1936.

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Keynes analysed the economy as a whole, thereby introducing a new way of looking at economics: macroeconomics was born, so to speak. No longer market dynamics and price movements called the shorts, other factors and actors also played a part, in particular government. A positive side-effect of macroeconomics was the need to collect macroeconomic data, such as measuring Gross Domestic Product (GDP), national saving and investment, etc..

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Keynes was criticised for presenting a static model. Roy Harrod (1900-1978) made Keynes’s theory dynamic, in which he introduced a moving equilibrium in a growing economy.[12] In 1935, Tinbergen also developed a dynamic theoretical model. A theory is dynamic if it contains variables, such as investments, from different time periods. This model was supposed to represent the economy in an attempt to find a balance between real economic life and the model’s simplicity. Not just one general model would suffice; no, depending on their purpose, various models could be developed.

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We perceive a model world as credible by being able to think of it as a world that could be real– not in the sense of assigning positive subjective probability to the event that it is real, but in the sense that it is compatible with what we know, or think we know, about the general laws governing events in the real world.[13]

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Surely, models represent a simplified version of the real world.[14] Tinbergen stressed that it was important to analyse which consequence adjustments of the model’s assumptions would have on the outcome over the long term.[15] Tinbergen‘s idea was that the outcome of a certain policy were to a large extent defined by the structure of an economy.

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Tinbergen and Frisch’s model was based upon the idea of a circular flow, translated into mathematical terms. [16] Frisch was the theoretical mathematician, while Tinbergen was focussed on the model’s policy relevance. Their first model consisted of 18 equations and 18 variables. However, it fell short of demonstrating how much each variable exerted its influence. A year later, in 1936, a fully completed model of the Dutch economy (this time consisting of 24 equations and 24 variables) saw the light, filled with statical data of the 1920s.

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This extended model was truly econometrics in action: the combination of mathematics, statistics and economic theory. However, traditionally trained economists had difficulties understanding the mathematics involved. Tinbergen proposed his employer to expand CBS’s department in charge of research of the business cycle so that more economists would become familiar with the model’s mathematics.

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Around the time of this model’s launch, Tinbergen had developed a clear vison about how econometrics had to be further developed. Its characteristics would have to be: (i) dynamic, (ii) a combination of theory and empirics, (iii) emphasizing institutional characteristics, and (iv) optimistic in its outlook. Tinbergen felt, as noted, that econometrics could also serve as a referee in political-economic debates.

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Should learning about economic phenomena process essentially inductively or deductively? This intriguing question is dealt with by Reiss. John Stuart Mill was an early proponent of the deductive approach, observes Reiss. This was so Mill thought that the economic world was too complex and could not be controlled experimentally. Mill’s ‘theory first’ view became the dominant opinion in economics. However, from time to time, inductivists offered alternatives, engaging theorists in methodological debates. Representatives of the German Historical School and Austrian School entered into a fierce debate. The Germans promoted an evidence-based, inductive model of economic study against the deductive approach of the Austrians. The Germans won, but not  forever. Tinbergen’s ally Tjalling Koopmans criticized inductivism. The situation now is that the so-called ‘Mostly Harmless Econometrics’ movement applies an inductive approach, but their critics, such as James Hackman and Angus Deaton apply a deductivist approach. In 2013,  Reiss predicted that the latter would once more win and that, consequently, a new school of inductivist econometrics would arise in about 50 years. [17] 

 

Regarding the institutional dimension, Tinbergen had institutions in mind which together formed the organisation of an economy, including markets (e.g., of monopolies, oligopolies, or markets of perfect competition). As he was aware of ongoing changes in a society’s economic structure, he was sceptical about econometric models’ predictive capacity. Nonetheless, instability should always be prevented as much as possible. The economy could, Tinbergen argued, be steered into a desired direction through the implementation of the right policies and with the help of appropriate institutions. He presented economic consequences of various policies with his characteristic aplomb. This was not always appreciated as others were not so sure about them. Tinbergen remained undeterred (some said he was stubborn); he had a unwavering trust in his abilities and approach.

1.6 Public interest

Yet, Tinbergen was neither blind nor deaf for the changing mood in society and in economics. Later in life, he broadened his objectives beyond socialist ideals to serve the public interest triggered by the ongoing emancipation of the working class. As a result, he did not any longer write for the labour movement; his aim became broader: to contribute to a better organisation of the economy, so as to better manage public finance and, above all, to ensure political stability.

Economics was becoming an integral subject of politics in the modernising world. This implied a much wider coverage of economics than what used to be the standard as, for example, reflected in Lionel Robbins’ celebrated Essay on The Nature and Significance of Economic Science. Therein, the economic science was portrayed as autonomous, free from any political and ethical notions. Robbins’ definition of economics, underscores this tellingly: ‘….the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.’[18]

Tinbergen had a clear idea of what economics was about: it constituted the process of the satisfaction of human needs. This process takes place within a context of natural, technical, and societal/ institutional circumstances, which are assumed as given.

 

Later in life, he would say that the central problem of economics was the comparison of different economic systems. The normative role of economics was to identify the most optimal order of an economy. During the 1950s, Tinbergen became convinced that the crucial question for the economist was: how and by whom are political and economic decisions made and what would be the best structure of the economic decision tree? He expected more of improvements in this structure than of Keynesian anti-cyclical approaches.

 

This change of the political mood had its impact on the composition of political parties. After the end of World War II (WWII), broadly composed people’s parties emerged which were to dominate the political arena, without giving up their original socio-democratic, liberal, conservative, or religious inspiration. But let us return to Tinbergen’s activities during the 1930s.

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    1.7 The business cycle revisited

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Towards the end of the 1930s, Tinbergen started to work for the League of Nations. For the League he produced a report on the business cycle, elaborating the model which he had designed earlier. This model was supposed to test the relevance of various business cycle theories at hand. The result was not welcomed by traditional political economists. Keynes, not at all warming to the application of more and more mathematics to economics, acidly observed that the statistics applied by Tinbergen had been grossly inadequate. He added that it had been a nightmare to have to read the report.[19] This is what Robert Skidelsky, Keynes’s biographer, observed: ‘There is no doubt that Keynes’s philosophic objection to induction gave a strong anti-empirical bias to his economics, despite his repeated calls for better data. While he aimed to choose models capable of explaining the ‘facts of experience’, his models are not derived from experience, but from introspection.’[20]

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Tjalling Koopmans urged Tinbergen to write a strongly worded reaction on Keynes’s criticism, which he had published in The Economic Journal, of which Keynes was the Editor, by the way. Keynes had invited Tinbergen to send a reaction. Tinbergen complied; but not as strongly worded as Koopmans had suggested. Keynes reacted as follows: ‘No one could be more frank, more painstaking, more free from subjective bias or parti pris than Professor Tinbergen. There is no one, therefore, so far as human qualities go, whom it would be safer to trust with black magic. That there is anyone I would trust with it at the present stage or that this brand of statistical alchemy is ripe to become a branch of science, I am not yet persuaded. But Newton, Boyle and Locke all played with alchemy. So let him continue.'[21]

 

Worse, Frisch, his scientific soulmate, observed that Tinbergen’s model could not work as a test instrument for business cycle theories, which, as noted, had been the original purpose. Obviously, Frisch’s conclusion pained Tinbergen, but they continued to cooperate. The relationship between Tinbergen and Keynes would remain a cool one, to put it mildly. Their personalities and their respective approach to the business cycle and the economy at large were simply too diverse.

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    1.8 New perspectives

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Tinbergen’s work at the League of Nations prepared him for the post-war period: assisting newly independent nations. During 1944, when WWII was in its end phase, he published International Economic Co-operation. In it, he presented conditions for the creation of a stable international economic order. His proposed international monetary system was to prevent devaluation and would manage an internationally coordinated business cycle policy. Tinbergen believed that the business cycle was an international phenomenon which should be controlled by international stability policies and the creation of new institutions. The system’s ultimate objective was to achieve high production figures and global stability. His proposals about the establishment of an international clearing fund and a bank for reconstruction and development were not very far from what Keynes had proposed and what was agreed during the 1944 Bretton Woods conference: the creation of The International Monetary Fund and the World Bank.

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    1.10 Changing perspectives

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During WWII, Tinbergen continued to work for CBS while also writing books and articles. One book stood out, published in 1944: De les van dertig jaar: economische mogelijkheden en ervaringen (Lesson learned from thirty years: economic possibilities and experiences). Tinbergen wrote in critical terms about Roosevelt’s New Deal, while Hitler’s approach to the Great Depression met with his appreciation: ‘For Germany the period 1933-1939 was one in which production and employment increased dramatically.’[22] Tinbergen observed that before Hitler assumed the position of Reichskanzler, the German bureaucracy had prepared plans for the implementation of large public works. Hitler implemented them, in line with what Keynes would propose three years later in The General Theory.

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During the 1930s, new policy instruments were developed to get a grip on the economy. This helped economists, not least Tinbergen, to come up with proposals to steer the economy into the desired direction. And that this steering was indeed possible, was proven by what Germany’s and Italy’s fascist regimes had demonstrated. Much earlier, the Soviet Union had started to apply central economic planning. In sum, the mood was that the economy could be designed in whatever political system, ranging from socialist to liberal, in which the government could (and should) intervene.  

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This was of course quite different from the traditional notions of the economy being a natural phenomenon, obeying the laws of nature. Tinbergen observed that economics had matured - it had become a true science! Therefore, economists would command more prestige and influence. Government was more and more perceived as manager of the economy. Mathematic expertise in economics was best suited to advise government of whichever colour or stripe. After WWII, some economists believed that they had a moral responsibility to use their knowledge for the betterment of society. Needless to say, Tinbergen was one of them.

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    1.11 Crossroads

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After WWII had ended, the question was whether Tinbergen would pursue an academic career, for example, in joining a prestigious American or British university, or would he opt for a position in which he could influence policy making? He chose the latter.[23]

In 1945, Tinbergen was appointed Director of the Netherlands’ Centraal Plan Bureau (CPB) (Netherlands Bureau for Economic Policy Analysis). He concentrated his work on the technology of economic planning, while not overlooking emancipatory social and cultural objectives.

As for the planning part, it took seven years before CPB began using an improved version of Tinbergen’s 1936 model. CPB still uses this model, by the way. Meanwhile Tinbergen had become an influential voice in government’s policy making; this was exactly what he wanted. He argued that economic policy should be designed by experts and not by unqualified and ideologically biased people. However, Tinbergen was above all a scientist; he lacked the necessary political intuition and cunning.

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Economic stability remained Tinbergen’s main objective. To achieve this, he argued that economic planning in broad terms was needed, while allowing sufficient manoeuvring space for the private sector. However, leaving the market to itself would result in a sub-optimal situation; it would not contribute to the economy’s stability. Institutional reforms were called for, including the correction of market failures. He identified three factors that, together, create order in the economy: (i) the market, (ii) expertise, and (iii) cooperation.

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    1.12 Decision models

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The models developed in the 1930s had been constructed from the vantage point of spectators, so to speak. During the 1950s, more sophisticated models were developed in which the policy maker played an active part. They became known as decision models, in which alternative decisions were explicitly built into the model as essential variables. These models gained not just international recognition but criticism as well. Robert Lucas, for example, argued that the model assumed that citizens would not adjust their attitude in case new policies would be introduced, while, as Lucas argued, they certainly would.[24]

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    1.13 The economist’s role

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Tinbergen’s thinking changed over time. In his early idealistic AJC days, he believed that changes would be brought about by society, while Tinbergen the economist argued that economic change would be promoted by policy makers at the macro level, advised by economic experts. These experts and policy makers participated in the decision making process. It was the role of the expert economist to take some distance from the model, to compare different institutional frameworks and different ‘rules of the game’, and - based upon them - propose the most optimal economic order. This was, argued Tinbergen, the challenge par excellence for the economic science.[25]

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During his CPB directorship Tinbergen was closely associated with policy makers. In 1954, Tinbergen bade farewell to the CPB and resumed his role as academic economist, casting his net wider.

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    1.14 Entering a cosmopolitan world

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In 1951, Tinbergen attended a conference in New Delhi, hosted by India’s International Statistical Institute. It was the first time Tinbergen visited a poor developing country. The poverty he saw in New Delhi’s slums shocked him. He decided then and there to help promote economic growth and development of poor countries and to develop proposals about an international economic order in which newly independent developing countries would get a voice. Tinbergen became more and more drawn to development economics. The bottleneck was, as he observed, the scarcity of capital, which was urgently needed to increase a developing country’s productivity in agriculture and, above all, in manufacturing. This was best achieved with the help of development planning.

 

In 1956, Tinbergen visited India for the second time to help design India’s Second Five Year Plan. In sum, he was now fully involved in development planning from a theoretical and practical point of view. A year later, Tinbergen was appointed professor of development planning at the Nederlandse Economische Hogeschool (Rotterdam School of Economics), the predecessor of Rotterdam’s Erasmus University.

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Tinbergen shared the optimistic spirit of the first generation of development economists: growth and development of poor countries could be brought about! Modernisation of the economies was possible through capital infusions and productivity boosts in resp. of the agricultural and emerging industrial sectors. The West should help poor countries in the process, not out of a sense of solidarity but inspired by self-interest. After all, should modernisation fail, conflicts and mass migration would ensue, concluded Tinbergen.

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Modernisation was ‘do-able’, provided the process was planned properly - a one-size-fits-all business-like planning approach was required. However, the first generation of development economists, including Tinbergen, overlooked the specific country context within which economic growth and development had to take place. This was not all. Also missing was the neglect of emancipatory movements in societies transiting from traditional to modern societies. This oversight is remarkable as Tinbergen’s inspiration was driven by idealistic and emancipatory convictions, while he offered only technical tools and solutions to achieve them.

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Planning should not be limited to national boundaries, planning on a global scale should be the aim! Tinbergen banked on the United Nations to help bring this about in pursuit of worldwide integration. He calculated that development aid of Western countries should amount to 1 percent of their Gross Domestic Product, the so-called Tinbergen norm.

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In 1961, Tinbergen welcomed the establishment of the group of non-aligned nations, hoping that the G-77, as they became known, would strongly represent their shared economic and political interests on the world stage.

  

    1.15 Planning development

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Tinbergen’s international fame was rising to the extent that the United Nations (UN) adopted development planning as a principal tool for development. The UN requested Tinbergen to design a strategy for the decade 1970-1980 - better known as the Second Development Decade. His ideas (and ideals, I add) about international peace and justice went down well among international diplomats. He was less successful in converting politicians. As his pupil and former Netherlands’ Minister for Development Cooperation, Jan Pronk, commented: Tinbergen was more a diplomat than a politician. Nonetheless, Tinbergen had gathered great prestige as a development planner. He received numerous requests to study and write about development planning from various prestigious institutions, ranging from the Ford Foundation to the World Bank. Several manuals and books saw the light, some produced by a team of researchers under Tinbergen’s leadership. The Design of Development was such a manual, written for the World Bank in 1958. And in 1964, Central Planning came out, commissioned by the Ford Foundation.

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In 1967, Tinbergen himself published Development Planning. He described the various steps in the planning process, starting with the macro phase, followed by the regional phase and, subsequently, the micro- or project phase, in which specific investment projects were to be identified. During the plan’s second phase, input-output analyses were to be undertaken for the sectors involved. The planning exercise was an indicative one, Tinbergen stressed, as achieving the plan’s aims would require voluntary cooperation of entrepreneurs.

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Tinbergen did, as noted, not pay much attention to the specific historical, social, political, and economic context of the country in which the planning was to take place. In other words, Tinbergen was not much interested in taking stock of a country’s unique context. He applied his planning model, consisting of targets, instruments, plans, and results, in a uniform manner, irrespective the specific country situation. In addition, he had one explanation for economic stagnation: economic development was hindered by a combination of disinterest in material improvement, an aversion against complex techniques, short-sightedness, a dislike of insecurity, and a lack of initiative and individualism.[26] American economist Albert Hirschman observed that Tinbergen, and other early development economists for that matter, overlooked the likelihood of political and social turmoil during the development process.

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Dekker quotes the experience of one of Tinbergen’s collaborators in a field study involving many countries around the world. When the team returned from their long trip and delivered their findings to Tinbergen, this collaborator’s jaw dropped when Tinbergen showed him the report’s conclusions which he had already drafted without knowing the results of the field work. In the end, the team was given the task to fill in some sections of the report. Their field reports were included in appendices.

 

    1.16 Converging worlds

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During the early 1960s, when the Cold War between East and West was heating up, Tinbergen warned against the dangers of further polarisation. He proposed that a dialogue between the two blocs, which were politically and economically so different, would lower the tensions, so that peaceful co-existence could materialise. He also foresaw a converging trend between the two blocs. In 1961, he published  an article entitled: Do Communist and Free Economies Show a Converging Pattern? He observed that the Soviet Union had reintroduced the role of managers in state companies, salary scales were not any longer reflected in physical but in monetary terms, freedom of consumption had been introduced and, much to Tinbergen’s liking, the application of mathematical planning tools had been adopted.

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A converging process also took place in the West: the public sector had greatly gained in relevance, tax returns had increased, anti-cartel legislation had received more attention, different economic sectors had been nationalised, education was more and more being financed by the state, and economic planning had become an accepted phenomenon.  

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An optimal order would gradually emerge somewhere in the middle of a scale with at one extreme democracy and at the other dictatorship. This new order would also help overcome cultural, social and economic differences. Would these developments not bring the West and East closer together? And could, therefore, the threat of a nuclear war not be mitigated or, better even, ruled out? Funds spent on armaments could then be devoted to development assistance, argued Tinbergen. In addition, the G-77 could find inspiration from this converging trend in better shaping their institutional structures and economic development.

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He did not get much support for his proposals. Soviet ideologues argued that world peace was not undermined by communism but by capitalism and imperialism. Tinbergen’s critics in the Western world accused him of naiveté and being blind for the atrocities committed in the name of communism.

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Perhaps it was characteristic for Tinbergen to look at trends from an analytical, scientific perspective without properly taking into consideration the political realities at hand. Towards the end of the past century, the debate about converging systems was overtaken by unprecedented historical events. In 1989, the Berlin Wall fell. Two years later the Soviet Union imploded and a good many former East European satellite states of the USSR are now members of the European Union.

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Meanwhile, China started an impressive and fast growth trajectory fuelled by state capitalism, catapulting the country to the status of superpower Yet China’s Communist Party is fully in charge of political and economic developments. There is no more talk of convergence. On the contrary, a new Cold War may be looming.

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    1.17 Income distribution

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Economists are involved in fundamental debates. Reiss observes in this vein that economists contribute to normative discussions. For example, providing normative accounts of rationality, well-being, and justice must now be regarded as one of the aims of economics.[27] He concludes by noting that the reason to engage in the discussion of the aims of economics is that many of these discussions are meaningless unless conducted in a context of a relatively well-specified scientific purpose. Precisely the aims just mentioned can provide such a purpose.[28]

Analysing income distribution involves, besides economic considerations, aspects of justice and well-being. Social democrats, contrary to Marxists, attempted to gradually and peacefully reform capitalism from within. In the Netherlands, among other countries, the social-democratic approach was successful in that the emancipation of the working class contributed to the emergence of a more or less egalitarian society. Nonetheless, Tinbergen was concerned about the gap between top and bottom income earners. Income distribution (and the inequalities involved) prompts the philosophical question: what is a just, or unjust, distribution?

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In 1977, Tinbergen had published a book, together with co-author Jan Pen, about income distribution.[29] They approached the subject from an egalitarian vantage point. Their criteria for such a just income distribution are quite straightforward. Now, what would they be? First, income differences originating from privileged positions and tradition are unacceptable. Scarcity in the supply of professions result in temporary income increases. Once this scarcity is taken away (for example as more medical specialists have entered the labour market) this scarcity top-up should be taken away. Income differences are justified if and when people exert more effort. Income differences resulting from a monopolistic position are unjustified. University graduates, who typically earn high. salaries should pay higher taxes to partly compensate for the high costs involved in the provision of academic schooling. The incomes of managers of large companies are too high, explained by the fact that these salaries are established by their peers.

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After his retirement from Academe, Tinbergen returned to his old interest: income distribution. Was it fair and just that there were large differences between income earners? Could the term ‘just’ be objectively established? No, it couldn’t, according to most economists. Yet Tinbergen took up the challenge and tried to find an answer. However, he was not successful in establishing an objective standard for a fair and just income distribution.

 

In looking for solutions to bridge the gap, he proposed a tax on talent: those who were endowed with scarce talents should pay more taxes than less talented persons. John Rawls’ 1971 classic A Theory of Justice dealt with the issues which Tinbergen had been trying to resolve. Rawls argued that for moderately well-off societies, rational choosers would first wish to safeguard their basic political and personal liberties, after which they would judge basic social and economic institutions according to their tendency to promote the interests of the least well-off group in society. As a result, no one would find their basic liberties threatened. In line with the social contract framework, economic and social institutions would be designed, in the utilitarian spirit, to advance the interests of the worst-off group: Inequality was only justified if this would improve the position of the least well-off group.[30] There are methodological issues which economists would find hard to deal with. For example, terms used by Rawls such as ‘priority of liberty’ and ‘fairness’ are rather vague and cannot easily be incorporated into economic models. In addition, Rawls does not define what a worst-off group would be. Tinbergen rejected Rawls theory as he felt it was insufficiently quantifiable. It is not surprising that Tinbergen had methodological difficulties with Rawls’s theory, since, as one critical observer noted that these principles would not be convincing to those who come from radically different starting points.[31]

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    1.18 Attempting to create a world economy

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Can a rational and well-ordered global society be brought about with the help of scientific and technological progress? After the end of WWII, there was a spirit of getting things done supported by progress made in technology, industrial development and the sciences. Tinbergen also believed it could be done. In 1961 he published Shaping the World Economy, in which this belief was radiated throughout the book.

However, this optimism was gradually lost during the 1970s, when it dawned that there might come an end to economic growth. Moreover, the OPEC-inspired oil crisis, stagflation, and a less prominent role of government in the economy, all put spikes in the wheel of the spirit of boundless global progress.

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Undeterred, Tinbergen kept on devoting his work to global issues, ranging from world peace to environmental concerns. When chaos or dangerous instability was imminent, Tinbergen proposed that planning would help in solving the problems at hand. He blamed politicians to be short-sighted, not having the long-term in mind when taking decisions. Therefore, an old Tinbergen advice: technical experts had to propose solutions. This does not just sounds naïve, Tinbergen’s consistent attitude to de-politicise problems was not always very effective, as he later admitted.

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People’s natural self-interest could be complemented by moral convictions. However, this difficult process was best led by Tinbergen’s ‘small elite’, who understood the relevance of these convictions. The result would bring about three central objectives: stability, harmony, and peace. Indeed, they would not evolve spontaneously, like Adam Smith’s invisible hand; they had to be promoted by this small elite.

 

Part II Tinbergen’s philosophical inspirations

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Tinbergen did not like much to talk about philosophical subjects. When challenged, he asked: how can philosophical issues be scientifically analysed and measured? Moreover, philosophy was not a very practical science. What he, in the end, was after was to limit the subjective component in normative concepts as much as possible. Critics argued that Tinbergen tried to integrate normative and ethical notions into science. At first sight these notions should not be mixed, but this is not the case. Daniel Hausman and Michael McPherson, for example, argue that ‘progress on both normative and positive issues would be more sustained if economists recognized and scrutinized the normative dimensions of their work.’[32] The authors add that economists are not value-free social engineers. In deciding what to study and in thinking about how to apply economics to practical problems, economists must think about ethical matters.[33] They cannot avoid ethics altogether. After all, one needs to understand the moral commitments of human beings, for they may be of great economic importance. Dekker observes that for Tinbergen this was precisely the way to include his socialist notions into his scientific work; it was scientific socialism.[34]. 

 

Tinbergen was invited by Michael Szenberg to share his life’s philosophy. He accepted the invitation. His contribution is entitled Solving the Most Urgent Problems First, which appeared in Eminent Economists.[35] This is what Tinbergen wrote under the subheading: My value system.

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‘In retrospect, adding much from later experience and the course of world politics, I am inclined to regard sympathy for the suffering of the underdog and tolerance as the basic elements of my ethical creed. I am a member of the Remonstrant Protestant Church, which has always laid strong emphasis on tolerance and humaneness. I would not call myself religious, but I am a product of Christianity interpreted in my own way. My choice of democratic socialism, my ideal of European federalism, and my priorities for the Third World all have that source of inspiration. Two of the biggest evils in this world seem to me to be excessive and egotistic nationalism and war. Warfare was probably necessary and even helpful in times gone by. It is now completely dehumanized by technical and organizational developments that have vastly multiplied the number of innocent victims. Nuclear weapons, as the last step, have maximized the absurd nature of wars, while mental slowness carries the danger that often the military establishment tends to fight the ‘previous war’ with the new weaponry. If this were to happen now, it would put an end to our history.’[36]

 

Tinbergen’s philosophy, or his value system (refer above box), was partly based on democratic socialism. Where does this term come from? We have to return to the 1930’s when Tinbergen contributed to the formulation of the Labour Plan, a joint publication of the Association of Socialist Labour Unions and the Social Democratic Workers Party of the Netherlands. This plan’s objectives were not just to solve unemployment but also to provide a hopeful socio-democratic alternative to rapidly advancing fascism at the time. The Labour Plan was inspired by its Belgian counterpart, which was written by Hendrik de Man, a prominent Belgian socialist philosopher and professor at the University of Frankfurt. De Man was critical of Karl Marx’s Verelendungs theory. Capitalism did not result in ever more poverty of the working classes. On the contrary, a larger and better-off middle class had emerged. De Man observed that the proletariat’s material well-being had improved, but culturally it had deteriorated. A revolution could not possibly be brought about by a section of society which was only interested in its material wellbeing, concluded de Man. Political parties with a socialist inspiration should broaden their philosophy by emphasizing cultural and ethical values, such as liberty, equality, fraternity and justice, which would be attractive not just for workers but for everybody. De Man argued that socialism was in fact a broad societal movement not by the workers but for the workers. His critics observed that de Man’s cultural socialism was an elitist interpretation of socialism.

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His upbringing, membership of AJC, and de Man’s cultural socialism had given Tinbergen a deep respect for culture, personal ethics and a sober life style. Now and again he reminded his fellow social-democrats that socialism was not just about material wellbeing; they should not forget to also promote these immaterial values. During WWII, Tinbergen became involved in a movement that wanted to break down traditional political dividing lines so as to create a broad-based political movement. Their philosophy was one of democratic socialism aimed at personal growth (along the lines of Christian traditions and modern humanism) as well as the emancipation of lower classes of society. So from his AJC years onwards Tinbergen was strongly inspired by notions about liberty, equality, justice, peace, and stability. It proved to be difficult for him to capture them in scientific terms. Yet, Tinbergen certainly was inspired by these ‘imponderabilia’, as he called them.

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In an uncertain economic environment, in which nobody can predict what the future will look like, Tinbergen felt that one had to prepare as best as possible for the future with the help of planning to prevent conflicts, instability, and war. This was the economist’s responsibility, argued Tinbergen. Dekker observes that Tinbergen never walked away from this responsibility, but at the same time doubted whether he had done enough. Perhaps this also explains why Tinbergen kept working to the last days of his life. This is a tragic end of a life so uncompromisingly devoted to the betterment of the world. But, in this sense, each life is tragic for the simple reason that it ends.

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Conclusion

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Tinbergen was arguably one of the most telling examples of an influential economist who consistently combined science and moral convictions. He fitted perfectly the image Schumpeter had sketched in Science and Ideology: all great economists had a particular vision which gave their academic work direction and colour.[37] Tinbergen attempted to reach a synthesis between science and his value system.

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In his private life he was austere: he did not drink alcohol or smoke, nor did he possess a car. Some of Tinbergen’s collaborators felt tense in his presence, as they felt not being able to live up to Tinbergen’s spartan standards. Paul Samuelson characterised him as a humanistic saint.

Dekker concludes that Tinbergen’s value system shaped his scientific work, but - adds Dekker – it was also the other way around, in that his research also shaped his vison on life and the world.[38] But was this indeed the case? I would argue that Tinbergen’s philosophical convictions had been firmly moulded in his youth by his parents, his membership of the AJC, and his association with the Remonstrant Brotherhood. These influences, I believe, provided the moral ground, as a solid philosophical basis for his work as an economist, whether it concerned the inclusion of social and cultural aspects in his econometric models, creating harmonious political relations, countering world poverty, or criticizing unequal income distribution.

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Tinbergen was not a positivist; he did not limit himself to empirics. He strongly felt that science should contribute to the achievement of ideals, the good life (as Keynes also felt) and, typical for Tinbergen, an optimal societal order. Some economists observed that Tinbergen would also have been a good candidate for the Nobel Prize for Peace.

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Keynes argued that economics is indeed a moral science. Despite their differences, Keynes would gladly have admitted that Tinbergen greatly contributed to the moral dimension of economics.

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Tinbergen never gave up his optimism about what could be achieved, despite sometimes harsh criticism from fellow economists such as Frisch and Keynes. He shied away from polemics. He evaded conflicts and banked upon the good intentions of his adversaries. I am afraid that this was an unrealistic attitude; people can be vindictive in all walks of life, also in the sciences. 

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What was his lasting contribution? Dekker concludes that it is the wide acceptance of the fact that economic policy is the expert’s domain, who indicates how various policy instruments can be applied to achieve economic and social objectives.

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The promise that economics could serve society in the direction Tinbergen wanted, attracted him to the economic science, and to play the role of expert. In the end economics is a means to achieve the goals of economic growth and broad social welfare. This is what it was all about for the great economist Jan Tinbergen.

 

[1] Tinbergen’s brother Niko was awarded the Nobel Prize for Biology in 1973.

[2] Klant, J.J. (1975) Wat is Economie? Leiden: H.E. Stenfert Kroese, 14.

[3] Hicks, J. (1979) Causality in Economics. Oxford: Blackwell, xi.

[4] His mathematical proficiency must have been his mother’s influence; she was a mathematics teacher.

[5] Dekker, E. (2021) Jan Tinbergen; een Econoom op Zoek naar Vrede. Amsterdam: Boom, 71.

[6] More can be said about the relationship between economics and physics. The quantitative tools developed in 1900 by Louis Bachelier to study the French stock market were taken up by Albert Einstein to prove the existence of atoms. And Norbert Wiener formalised them into a mathematical framework that remains at the heart of today’s financial models.

[7] Reiss, J. (2013) Philosophy of Economics; A Contemporary Introduction. New York: Routledge, 162.

[8] He shared this conviction with Keynes whose major preoccupation was unemployment, along with the attempt, in his own words ‘to save capitalism from its demise’.

[9] Jan Tinbergen, 102. Philosopher Julian Reiss observes that economics is heavily model-based (more specifically, that economic explanations are often based on models), and that all models are false in a variety of ways. Models always give simplified and often idealized accounts of the phenomena they are models of. Source: Philosophy of Economics, 119. No model explains everything. However, on page 120, Reiss admits that: ‘Not always, to be sure, but often enough economic models succeed in explaining.’ And on page 128, Reiss refers to Nancy Cartwright’s view of models being true ‘in the abstract’; they represent not what is true but rather what would be true in the absence of interferences.

[10] Ibid., 102.

[11] Ibid., 128.

[12] Thirlwall, A.P, Pacheco-Lopez, P. (2017) The Economics of Development. Tenth Edition. London: Palgrave Macmillan, 103.

[13] Sugden, R. (2009) Credible Worlds, Capacities and Mechanisms. In: Erkentnis, 18.

[14] Hayek disagreed: ‘The chief insight gained by modern economists is that the market is essentially an ordering mechanism, growing up without anybody wholly understanding it, that enables us to utilize widely dispersed information about the significance of circumstances of which we are mostly ignorant. However, the various planners…. and dirigistes have still not yet grasped this.’ Source: Hayek, F.A. Coping With Ignorance. In: Imprimis July 1978, Volume 7, Issue 7.

[15] In the early 1930s, a Commission had been established In Sweden to make proposals, with a long-term perspective in mind, to fight unemployment. Tinbergen liked the commission’s proposals, which included a permanent new role for the government  in the economy.

[16] Their model reminds me of Bill Phillips’ MONIAC (Monetary National Income Analogue Computer), a mechanic model of the United Kingdom’s economy. It consists of a system of water tanks and tubes connecting all important aspects of an economy, ranging from national income, taxes, import, export, savings and investment. By manipulating the pegs, the circulating flow of water through the tubes could be increased or decreased. The MONIAC was used as a teaching aid at the London School of Economics(LSE) until 1992. The LSE donated this remarkable machine to London’s Science Museum, where it is on display, as I witnessed myself.

[17] Philosophy of Economics, 172.

[18] Robbins, L. An Essay on the Nature and Significance of Economic Science. London, 1932, 16. Robbins’ definition is not too far from Alfred Marshall’s: ‘Political economy or economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of well-being.’ Source: Marshall, A. (1977) The Principles of Economics. (Eighth edition) London: The English Language Book Society and Macmillan, 1.

[19] Dekker describes a memorable encounter between Tinbergen and Keynes at the time. Tinbergen proudly told Keynes that his model precisely calculated a particular elasticity of minus 2, as Keynes had predicted. Keynes was not impressed, yet congratulated Tinbergen with the fact that the latter finally had established the correct elasticity. Tinbergen later wrote that Keynes had found his own intuition more reliable than Tinbergen’s econometric estimation. Tinbergen added: perhaps justified. Source: Jan Tinbergen, 167.

[20] Skidelsky, R. (2010) Keynes; A Very Short Introduction. Oxford: Oxford University Press, 43 -44.

[21] Keynes, J.M. On a Method of Statistical Business-Cycle Research. A Comment. The Economic Journal, Vol. 50, no. 197 (March, 1940).

[22] Ibid., 203. I translated the Dutch text.

[23] In 1956, Tinbergen, as a Fulbright scholar, was invited to visit Harvard where he lectured on problems about domestic stability and growth. He also conducted a seminar about development planning at a Quakers-inspired college which impressed him more than Harvard. At the end of his stay he argued that world poverty could be eradicated through a combination of technical abilities of the Western world, Quaker-like humility, and the patience of the Orient. An unusual combination, I’d say.

[24] ‘Given that the structure of an econometric model consists of optimal decision rules of economic agents, and that optimal decision rules vary systematically with changes in the structure…relevant to the decision maker, it follows that any change in policy will systematically alter the structure of econometric models.’ Lucas added: ‘Policy makers, if they wish to forecast the response of citizens, must take the latter into their confidence.’ Source: Bowles, S. (2016) The Moral The Economy; Why Good Incentives are no Substitute for Good Citizens. New Haven: Yale University Press, 154.

[25] Jan Tinbergen, 244.

[26] Ibid., 273.

[27] Philosophy of Economics, 9.

[28] Ibid., 9.

[29] Pen, J., Tinbergen, J. (1977) Naar een Rechtvaardiger Inkomensverdeling. (Towards a More Just Income Distribution). Amsterdam: Elsevier

[30] ‘Rawls’s ideal society would, however, rely only minimally on redistributive taxes and transfers as an equalizing measure. On grounds of efficiency, liberty, and opportunity, Rawls emphasized efforts to equalize the starting points of members of successive generations in preference to redistributing unequal outcomes.’ Source: Hausman, D. and McPherson, M. (1996), Economic Analysis and Moral Philosophy. Cambridge: Cambridge University Press, 157.

[31] Nonetheless, Amartya Sen defends Rawls: ‘Rawls provided a significant enrichment of the literature of inequality in the social sciences, which has often tended to concentrate too exclusively on disparities in social status or economic outcomes, while ignoring disparities in the process of operation, for  example, those associated with excluding people from offices on grounds of their race or colour or gender.’ Source: Sen, A. (2009) The Idea of Justice. London: Allen Lane, 64.

[32] Ibid., 207. On the next page, Hausman and McPherson ask: ‘Should one rest content with evaluating policies solely according to their consequences for satisfying people’s preferences … or should one strive to include in one’s evaluation the consequences for freedom, equality, justice and indicators of quality of life that go beyond preference satisfaction? Although the former path may keep economics nearer and perhaps in appearance more ‘scientific’, the latter will, we contend, make it more useful and sensible.’ Regarding the distinction between positive science and normative science, the authors argue that ‘Normative science consists of inquiries into matters of policy or values. Normative economics consists of the application of positive economics to explore questions that are of immediate evaluative relevance.’, Ibid., 213.

[33] Ibid., 211.

[34] Jan Tinbergen, 347.

[35] Szenberg, M. (1992) Eminent Economists; Their Life Philosophies. Cambridge: Cambridge University Press.

[36] Ibid., 277.

[37] Schumpeter, A. (1949) Science and Ideology,  American Economic Review, Vol.39, 345-359.

[38] Jan Tinbergen, 367.