Jan Tinbergen and J. G. Koopmans on Multiple Equilibria and Coordination Failures

In a 1932 policy paper, the Dutch economist Jan Tinbergen suggested that there could be two stable equilibria in a model with two firms acting in two sectors, with one of the equilibria having more production and employment. Arguing on the basis of a diagram that firms could not get out of the "bad" equilibrium on their own, he suggested that this justified government interventions to increase employment. While he referred to the general equilibrium systems of Walras and Cassel, he did not present a fully worked out model but referred to the unpublished study of one J. G. Koopmans. The latter was spurred by Tinbergen's reference to publish his ideas on the problem of multiple equilibria. In his three-part paper, he underlined that a Walrasian system could not show Tinbergen's coordination problem, because there could be no unemployment at an equilibrium point in a Walrasian model. The examples he presented, with three equilibria, showed that they could not be ordered. After this exchange, Tinbergen moved away from Walrasian multiple equilibria, and abandoned the general equilibrium approach to economic modeling in favor of the macrodynamic approach that was developed at the same time by Ragnar Frisch and Michal Kalecki.