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Friedman and Machlup on the Significance of Testing Economic Assumptions

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  • Melitz, Jacques

Abstract

This article questions Milton Friedman’s methodological position in a famous essay dating to 1948 where he questions the validity of tests of the assumptions of economic theory. Valid tests, he maintains, by and large, concern the empirical implications of hypotheses derived from the theory. The truth or falsehood of assumptions is “largely irrelevant.” In response, this article argues that Friedman’s position is questionable but for different reasons depending on the nature of the assumptions. “Auxiliary assumptions” concern the environment in which the test is supposed to take place. “Generative assumptions” concern the postulates or theorems from which the hypothesis is derived. If auxiliary assumptions are false, all test results bear less weight, whether are confirmatory or disconfirmatory. If generative assumptions are false, positive results confer less confirmation on the hypothesis. The article further questions Friedman’s famous proposal to treat the assumptions of economic theory as “as if” statements, which are not really supposed true but simply taken for granted. The article goes on to question a related one by Fritz Machlup agreeing with Friedman about the irrelevance of tests of “generative assumptions.” Unlike Friedman, however, Machlup stands on the authority of philosophers of science, who, he claims, maintain that theoretical postulates in science should be regarded as “rules” that must be followed.

Suggested Citation

  • Melitz, Jacques, 1965. "Friedman and Machlup on the Significance of Testing Economic Assumptions," MPRA Paper 84889, University Library of Munich, Germany, revised 1965.
  • Handle: RePEc:pra:mprapa:84889
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    File URL: https://mpra.ub.uni-muenchen.de/84889/1/MPRA_paper_84889.pdf
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    References listed on IDEAS

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    1. Eugene Rotwein, 1959. "On "The Methodology of Positive Economics"," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 73(4), pages 554-575.
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    Cited by:

    1. Eric W. K. Tsang, 2009. "—Assumptions, Explanation, and Prediction in Marketing Science: “It's the Findings, Stupid, Not the Assumptions”," Marketing Science, INFORMS, vol. 28(5), pages 986-990, 09-10.
    2. Jeffrey B. Nugent, 1967. "Methodology in Economics: Some Implications of Pessimism and Some Suggested Alternatives," The American Economist, Sage Publications, vol. 11(2), pages 49-55, October.
    3. Paul Pfleiderer, 2014. "Camaleones: el mal uso de modelos teóricos en finanzas y economía," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 16(31), pages 23-30, July-Dece.
    4. Hoenack, Stephen A., 1997. "An application of a structural model of school demand and supply to evaluate alternative designs of voucher education systems," Economics of Education Review, Elsevier, vol. 16(1), pages 1-14, February.
    5. Eduardo Pol & Steve Cook, 2015. "A theorem on the methodology of positive economics," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1054142-105, December.
    6. Timothy Roth, 2001. "How science proceeds: the role of assumptions in the explanation of phenomena," Journal of Economic Methodology, Taylor & Francis Journals, vol. 8(3), pages 420-422.
    7. Paqué, Karl-Heinz, 1984. "How far is Vienna from Chicago? An essay on the methodology of two schools of dogmatic liberalism," Kiel Working Papers 209, Kiel Institute for the World Economy (IfW Kiel).
    8. Leonardo Ivarola & Gustavo Marqués, 2012. "Behavioural Procedural Models – a multipurpose mechanistic account," The Journal of Philosophical Economics, Bucharest Academy of Economic Studies, The Journal of Philosophical Economics, vol. 5(2), pages 84-108, May.

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    More about this item

    Keywords

    Methodology; History of thought;

    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • B0 - Schools of Economic Thought and Methodology - - General

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