Keynes’s critique of econometrics was surprisingly good…

Karl-Friedrich Israel has a nice piece on the topic. I mean it is something if Keynes gets some praises from scholars/followers of Austrian School:

While classical and Austrian economists would agree that an economic theory cannot be proven correct empirically, they would not as easily let the statistician off the hook. Indeed, the econometrician and statistician have some responsibility for the economic theories that come to be accepted, especially if one holds, as Tinbergen does, that those theories can be proven “incorrect, or at least incomplete, by showing that it does not cover a particular set of facts.”

This is an odd claim, since practically any theory is incomplete, but this does not mean that it is incorrect. Obviously there remains a twofold danger: A wrong theory might not be proven wrong, although it could be done in principle, and a true theory might be “proven wrong” mistakenly, because it is incomplete as it does not account for some particular set of facts. The econometrician would of course be responsible for these errors.

In fact, the application of statistical methods for the falsification of economic theories is not unconditionally justified. Depending on the kind of theory, there are a number of necessary conditions, which are usually not sufficiently recognized, or even deliberately ignored by modern econometricians.   

Interestingly, in a review published in The Economic Journal in 1939, “The Master” himself, Lord Keynes, gave a comprehensive critique of Tinbergen’s work and provided a list of some of these conditions. Any honest economist must confess that they are not satisfied with the overwhelming majority of economic problems, particularly those that are as complex as the business cycle.


Murray Rothbard once wrote: “There is one good thing about Marx: he was not a Keynesian.” There also seems to be one good thing about Keynes: he was not an econometrician in the modern sense.

High time we move beyond Keynes thinking on just fiscal/monetary policy. What were his views on other economic matters/topics?


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