Plausibility in Economics

According to the instrumentalism of Friedman (1970) and Machlup (1967) it is irrelevant whether the explanatory principles or “assumptions†of a theory satisfy any criterion of “plausibility,†“realism,†“credibility,†or “soundness.†In this view the main or only criterion for selecting theories is whether a theory yields empirically testable implications that turn out to be consistent with observations. All we should require or expect from a theory is that it is a useful instrument for the purpose of prediction. Considerations of the “efficiency†of a theory for the purpose of ordering our experiences are permitted (Friedman), but considerations of “plausibility†are not (Friedman and Machlup). “Explanatory assumptions†are not really explanatory in the sense that they claim to represent underlying causal processes in reality; they only serve to generate, by deduction, implications that are in accordance with as many observations as possible.