Instrumentalism about Economics

In this paper I challenge the pernicious aspects of Milton Friedman's methodological outlook that continues to hold sway over mainstream neoclassical economists. I do this by showing how Friedman's own methodological dicta could have been used against him when he famously advanced the expectations critique of the Phillips curve at his presidential address to the American Economic Association. I use this case study to further suggest that psychological and neurophysiological data should not be deemed irrelevant to economic science.

In this paper, I shall defend two main claims. First, Friedman’s famous paper “On the methodology of positive economics” (“F53”) cannot be properly understood without taking into account the influence of three authors who are neither cited nor mentioned in the paper: Max Weber, Frank Knight, and Karl Popper. I shall trace both their substantive influence on F53 and the historical route by which this influence took place. Once one has understood these ingredients, especially Weber’s ideal types, many of F53’s (...) astonishing sentences like “the more significant the theory, the more unrealistic the assumptions”, make good sense. Second, I shall claim that the much-discussed question whether Friedman’s essay espouses an instrumentalist or a realist position, is the wrong question to be asked. I shall illustrate that by a comparison with examples from physics in which also unrealistic assumptions are made. Also there, the question whether these assumptions are indicators of instrumentalism or realism is not appropriate. Cleared from these misunderstandings, F53 presents itself as an interesting and reasonable but much less controversial contribution to the methodology of economics. (shrink)

Throughout the history of mankind, energy security has been always seen as a means of protection from disruptions of essential energy systems. The idea of protection from disorders emerged from the process of securing political and military control over energy resources to set up policies and measures on managing risks that affect all elements of energy systems. The various systems placed in a place to achieve energy security are the driving force towards the energy innovations or emerging trends in the (...) energy sector. Our paper discusses energy security status and innovations in the energy sector in European Union (EU). We analyze the recent up-to-date developments of the energy policy and exploitation of energy sources, as well as scrutinize the channels of energy streaming to the EU countries and the risks associated with this energy import. Moreover, we argue that the shift to the low-carbon production of energy and the massive deployment of renewable energy sources (RES) might become the key issue in ensuring the energy security and independency of the EU from its external energy supplies. Both RES, distributed energy resources (DER) and “green energy” that will be based on the energy efficiency and the shift to the alternative energy supply might change the energy security status quo for the EU. (shrink)

I distinguish several doctrines that economic methodologists have found attractive, all of which have a positivist flavour. One of these is the doctrine that preference assignments in economics are just shorthand descriptions of agents' choice behaviour. Although most of these doctrines are problematic, the latter doctrine about preference assignments is a respectable one, I argue. It doesn't entail any of the problematic doctrines, and indeed it is warranted independently of them.

In this paper I study how the theoretical categories of consumption theory were used by Milton Friedman in order to classify empirical data and obtain predictions. Friedman advocated a case by case definition of these categories that traded theoretical coherence for empirical content. I contend that this methodological strategy puts a clear incentive to contest any prediction contrary to our interest: it can always be argued that these predictions rest on a wrong classification of data. My conjecture is that this (...) methodological strategy can contribute to explain why Friedman’s predictions never generated the consensus he expected among his peers. (shrink)

The firm is a real entity and not an imaginary, fictitious or linguistic entity. This implies that the firm as a whole exhibits a sufficient degree of unity or cohesiveness and is durable and persistent through time. The firm is essentially composed of a particular combination of constituents that are bound together by something that acts as an ontological glue, and is therefore non-reducible to other more basic entities, i.e., to its parts or its members. From our perspective, the firm (...) is not simply an aggregate or a collection. It is a real integrated entity and a dynamic causal system. Institutional and organizational aspects enter the picture. These assertions stand in sharp contrast with mainstream theories of the firm whose proponents are more preoccupied with questions of contractual provisions, vertical integration or opportunism than the general and more fundamental questions related to what firms really are. (shrink)

In this paper I study Milton Friedman’s statistical education, paying special attention to the different methodological approaches (Fisher, Neyman and Savage) to which he was exposed. I contend that these statistical procedures involved different views as to the evaluation of statistical predictions. In this light, the thesis defended in Friedman’s 1953 methodological essay appears substantially ungrounded.

A review of A. Hisch and N. de Marchi's thorough historical study on Milton Friedman's life-long work as an economist (and more specifically as a monetary economist) and as an economic methodologist (in his famous essay "The Methodology of Positive Economics".