The Regrettable Loss of Mathematical Molding in Econometrics - Mechanism and Causality in Biology and Economics - page 63

explained separately. However, Albert Aftalion's ( 1927 ) “Theory of Economic
Cycles Based on the Capitalistic Technique of Production” was an exception, on
which Tinbergen commented:
An economic dynamics could be constructed based on the [lag] relation between economic
quantities, which results in the derivation of perfect cyclic oscillations of an economic
system. This is the mathematical interpretation of Aftalion's crisis theory. I mention this
theory in particular because it explains most clearly how the relations considered here can
happen, in that every cycle already contains the seed for the next cycle and thus real
periodicity occurs. (Tinbergen 1927 , p. 715 3 )
Aftalion's thesis was “that the chief responsibility for cyclical fluctuations should
be assigned to one of the characteristics of modern industrial technique, namely, the
long period required for the production of fixed capital” (Aftalion 1927 ,p.165).For
producers, the value of a product depends on the price it is expected to fetch; that is to
say, their value depends on the forecast of future prices. Aftalion assumed that the
expectations of these future prices are, alternately, either too optimistic or too pessi-
mistic: “the rhythm is a consequence of the long delay which often separates the
moment when the production of goods is decided upon and a forecast is made from the
moment when the manufacture is terminated, and the forecast is replaced by reality”
(p. 165). Producers forecast future prices on the basis of present prices and the present
state of demand. “That is the source of their errors. In modern capitalistic technique the
actual state of demand and prices is a bad index of future demand and prices, because of
the long interval which separates the moment when new constructions are undertaken
from that when they satisfy the demand” (p. 166).
In a paper, “Opmerkingen over Ruilteorie” (Observations on Exchange Theory)
published in 1928, Tinbergen constructed a numerical example demonstrating how
a delayed adjustment of supply to price would generate fluctuations about equilib-
rium over time. Shortly after this, he stumbled across an empirical example of this
numerical construction in a pork-market study by Arthur Hanau ( 1928 ) (Tinbergen
1928 , p. 548n; see also Magnus and Morgan 1987 , p. 120). According to Tinbergen,
this scheme of delayed supply adjustment to price could be extended by taking into
account expectations based on observed past fluctuations or by attributing a delay to
demand. “All these assumptions lead to the same kind of results, of which the
essence consists in the explanation of cyclic motion by the economic mecha-

nism itself” (Tinbergen 1928 , p. 546 3 ).
At the first European meeting of the Econometric Society in 1931, Tinbergen
( 1933a ) had a number of mathematical formalizations of an endogenous business-
cycle mechanism to offer for consideration. Hanau's ( 1928 ) research into the pork-
market, “le cas le plus simple,” served as point of departure:

...

Scheme I Supply: A 0 +A 1 p ( t θ )

B 1 p ( t )
where A 0 , A 1 , B 0 , and B 1 are positive constants and p ( t ) the deviation from the
equilibrium price P at time t .

Demand: B 0

θ was the time needed to produce the relevant

3 Translated by the author.