THÈSE En Vue D’Obtenir Le Grade De Docteur En « Sciences Économiques » Présentée Par Erich Pinzón-Fuchs
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UNIVERSITÉ PARIS I PANTHÉON-SORBONNE THÈSE en vue d’obtenir le grade de Docteur en « Sciences Économiques » présentée par Erich Pinzón-Fuchs ECONOMICS AS A “TOOLED” DISCIPLINE: LAWRENCE R. KLEIN AND THE MAKING OF MACROECONOMETRIC MODELING, 1939-1959 Directeur de recherche : Annie L. Cot Thèse soutenue publiquement le 28 mars 2017 devant le jury composé de : Richard ARENA Université Nice Sophia-Antipolis (président) Michel ARMATTE Université Paris-Dauphine Marcel BOUMANS Utrecht University Annie L. COT Université Paris 1 Panthéon-Sorbonne Ariane DUPONT-KIEFFER Université Paris 1 Panthéon-Sorbonne Pedro GARCIA DUARTE University of São Paulo (rapporteur) Kevin D. HOOVER Duke University (rapporteur) L’UNIVERSITE PARIS 1 PANTHEON-SORBONNE n’entend donner aucune approbation, ni improbation aux opinions émises dans cette thèse ; elles doivent être considérées comme propres à leur auteur. Economics as a “tooled” discipline Lawrence R. Klein and the making of macroeconometric modeling, 1939-1959 Este es el hombre moderno. Conoce las fuerzas que gobiernan el mundo, las tiene a su servicio, es el dios de la tierra: es el diablo. Su lema es: todo puede hacerse. Sus armas son el oro y la inteligencia. Su procedimiento es el cálculo. Ernesto Sábato, 1951 Boileau said that Kings, Gods, and Heroes only were fit subjects for literature. The writer can only write about what he admires. Present day kings aren’t very inspiring, the gods are on vacation, and about the only heroes left are the scientists and the poor… And since our race admires gallantry, the writer will deal with it where he finds it. John Steinbeck, 1939 CONTENTS LIST OF FIGURES XIII PREFACE AND ACKNOWLEDGEMENTS XVII CHAPTER 1: INTRODUCTION: MOVING MACROECONOMETRIC MODELING TO THE CENTER OF THE HISTORY OF MACROECONOMICS 1 1.1. Building a democratic progressive order in the US: the postwar need for macroeconomic planning 1.2. Finding a reasoned and rigorous way to control the economy 1.3. The path-breaking economics of Lawrence R. Klein 1.4. Postwar macroeconomics: a combination of empirical models and expertise 1.5. Scientific tools, practices, and experts 1.6. Towards a history of macroeconometric modeling 1.7. Outline of the argument: economics as a “tooled” discipline PART I INTRODUCTION: KLEIN’S FORMATIVE YEARS 43 CHAPTER 2: FROM THE "DWELLERS-ON-THE-BLUFF" TO THE IVY LEAGUE: THE MAKING OF A MACROECONOMETRICIAN 49 2.1. Introduction 2.2. The Neyman-Kuznets-Evans connection at Berkeley: statistical testing, empirical work, and mathematical rigor, 1938-1942 2.3. Becoming technical at MIT: Samuelson, the Statistics Seminar, and Wilson, 1942-1944 2.4. Redoing Tinbergen’s macroeconometric model at the Cowles Commission, 1944-1947 2.5. Pursuing the large-scale macroeconometric program after Cowles, 1947- 1956 2.6. Joining the Ivy League: Pennsylvania University and the John Bates Clark Medal, 1958-1959 2.7. Concluding remarks CHAPTER 3: RECONCILING KEYNES AND TINBERGEN? 119 3.1. Introduction 3.2. Keynes on probability and on the impossibility of drawing inferences in economics 3.3. The Controversy between Keynes and Tinbergen 3.4. What about reconciliation? 3.5. Concluding remarks CHAPTER 4: MACROECONOMETRIC MODELING AS A PLURALISTIC SCIENTIFIC TOOL FOR ECONOMIC PLANNING 163 4.1. Introduction 4.2. Klein’s pluralism and the “Cowles Creed” 4.3. Klein and the building of macroeconometric models 4.4. Concluding remarks PART II INTRODUCTION: THE CONSOLIDATION OF MACROECONOMETRIC MODELING 195 CHAPTER 5: FRIEDMAN’S LONGSTANDING DEBATE WITH THE COWLES COMMISSION 203 5.1. Introduction 5.2. The relevance of empirical work for the development and testing of theories, and the inapplicability of highly formalized systems 5.3. The Cowles Commission and the construction of a tool for economic planning 5.4. The NBER Conference on Business Cycles and the conception of “naïve models” 5.5. Concluding remarks CHAPTER 6: TWO EMPIRICAL APPROACHES TO MACROECONOMICS: THE US WALRAS-MARSHALL DIVIDE 225 6.1. Introduction 6.2. Friedman’s unfortunate metaphor of the “photographic description of reality” 6.3. Engines versus cameras: Friedman’s view of the divide between Marshallian and Walrasian methodologies 6.4. The Cowles Commission and its particular interpretation of Walras’s work 6.5. Klein’s large-sclae macroeconometric model system 6.6. Friedman’s model system 6.7. Concluding remarks CHAPTER 7: FRIEDMAN AND KLEIN ON STATISTICAL ILLUSIONS 251 7.1. Introduction 7.2. The Controversy’s milieu: Marshallian and Walrasian approaches to macroeconomic modeling 7.3. Economics as an empirical and modeling science: a common background 7.4. The simple Keynesian model and the controversy on statistical illusions 7.5. Keynesian responses to Becker and Friedman 7.6. Brown’s anticipation of Friedman’s permanent income hypothesis 7.7. Differences in the concepts of prediction 7.8. Klein’s emphasis on extrapolation 7.9. Full model simulation as a Turing Test 7.10. Concluding remarks ANNEX TO CHAPTER 7 277 CHAPTER 8: CONCLUSION:ECONOMICS AS A “TOOLED” DISCIPLINE 283 BIBLIOGRAPHICAL REFERENCES 297 RÉSUMÉ DE THÈSE (FRANÇAIS) 327 ABSTRACT (ENGLISH AND FRENCH) 339 LIST OF FIGURES FIGURE 1: FORECASTS FOR 1954 95 FIGURE 2: BALLOT RESULTS, SPECIAL COMMITTEE ON THE CLARK MEDAL 112 FIGURE 3: TIME PATHS (WITHOUT SHOCKS) 238 FIGURE 4: FRISCH’S FIVE TYPES OF MENTAL ACTIVITIES 240 FIGURE 5: COWLES COMMISSION’S SEMINAR AROUND 1946 241 FIGURE 6: COWLES COMMISSION’S COMPUTATIONAL LABORATORY IN CHICAGO 242 FIGURE 7: MONEY STOCK, INCOME, PRICES, AND VELOCITY, IN REFERENCE CYCLE EXPANSIONS AND CONTRACTIONS, 1914-1933 245 FIGURE 8: ERRORS IN PREDICTION OF CONSUMPTION AND INCOME FROM DIFFERENT CONSUMPTION FUNCTIONS 261 FIGURE 9: TIME PATHS CONSUMPTION EQUATION 271 FIGURE 10: TIME PATHS (WITHOUT SHOCKS) 273 FIGURE 11: SELECTED TIME PATHS UNDER TYPE II IMPULSES 274 FIGURE 12: FAMILY TREE OF MACROECONOMETRIC MODELS 287 Economics as a “tooled” discipline Preface and Acknowledgements Large-scale macroeconometric models have played a paramount role in the transformation of US-American macroeconomics in the political, academic, and intellectual spheres since the 1940s. On the one hand, in an era of progressive liberalism that pursued economic stability through the advocacy of government intervention, macroeconometric models provided powerful tools for economic planning and forecasting.1 On the other hand, macroeconometric models also changed the way macroeconomic knowledge was produced, emphasizing empirical orientation and technical sophistication in the context of a growing computerization and fundamental transformation of scientific practices, which were increasingly relying on teamwork effort and on a new kind of expertise. The models by themselves, however, did not change the way macroeconomic knowledge was produced; instead, parallel to the models, a new scientific practice was also created that framed the way in which these models were built, maintained, understood, and used. This new scientific practice was macroeconometric modeling. In this dissertation, I place macroeconometric modeling at the center of the history of twentieth century macroeconomics, i.e. as a history of macroeconometrics, and argue that the 1 David Plotke (1996) refers to the political order of the 1930s and 1960s as “progressive liberalism,” first because this term “emphasizes the basic liberal commitments of Democratic discourses. Second, [because] ‘progressive’ suggests the combination of modernizing and democratic themes that distinguished the Democratic reworking of American liberalism. It points to the Progressive movement two decades earlier, with its rationalizing drive, and to the subsequent use of that term to indicate a concern for democratic reform. Third, ‘progressive liberalism’ is not a familiar term, though its two words are – linking these words is meant to suggest the active process through which diverse thematic elements were integrated in building the Democratic order. Fourth, both parts of this term are mainly political in their referents, and direct attention to the crucially political character of Democratic efforts.” (163). Note that the notion “political order” can be related to the notion of régime developed by Alain Desrosières (2003). Preface and Acknowledgements work of Lawrence R. Klein was pioneering and decisive in the construction and consolidation of this new practice. The decades between 1939 and 1959 represent both the formative years of Klein, and those of a whole institutional design and configuration, which led to the establishment of macroeconometric modeling as the dominant practice in macroeconomics during a large part of the second half of the twentieth century. The advent of this new scientific practice raises at least two central questions: (1) What exactly were the forces and the objectives behind the development of this new practice of macroeconometric modeling, and what kind of tools and institutions did macroeconomists build to observe, understand, and control the postwar economy? (2) What were the effects that the construction and use of these tools had on the production of macroeconomic knowledge? Answering these two central questions is my main motivation in this dissertation, which proposes a history of early macroeconomics that puts macroeconometric modeling at its center. The kind of history I propose here can be read partially in three different ways. First, as a history of a discipline that responded to a political necessity to manage the economy in the specific historical context of the US-American postwar