Remarks on ‘The methodology of positive economics’

Abstract

Friedman's essay argued that the primary criterion of validity for economic models was not descriptive fidelity, but the accuracy and importance of the predictions generated by its implications. His argument was directed against a major current of mid‐twentieth‐century economics that sought to alter neoclassical theory by displacing the competitive firm as a centerpiece of price theory. The success of Friedman's counter argument was due not only to its cogency but also to major improvements in econometric techniques, data sources and computational capabilities during the last fifty years. As a result contemporary challenges to neoclassical facilities can proceed without resort to the methodological gambits against which Friedman inveighed fifty years ago. A striking example of such a contemporary challenge is the attack on the ‘Law of One Price’ in the field of Finance.