Milton Friedman: Economics in Theory and Practice |  | Authors: Abraham Hirsch, Neil De Marchi
Publisher: University of Michigan Press
Category: Book
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Sales Rank: 2612050
Media: Paperback
Number Of Items: 1
Pages: 336
Shipping Weight (lbs): 1.2
Dimensions (in): 9.1 x 5.8 x 0.9
ISBN: 0472081675
Dewey Decimal Number: 339
EAN: 9780472081677
ASIN: 0472081675
Publication Date: February 1, 1992
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Product Description
Contrasts Friedman's statements on methodology with his practice as an economist.
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Friedman's methodology is based on the fallacy of conditional apriorism December 23, 2005
2 out of 2 found this review helpful
Hirsch and de Marchi present an interesting,but badly flawed, case study about the differences between what economists say they do(theory) and what economists actually end up doing in practice(application).The economist they chose to study was Milton Friedman.The heart of Friedman's major methodological conclusion is the emphasis on the importance and primacy of successful and accurate predictions and forecasts as opposed to any other methodological goal(for example,scientific explanation).Friedman argues that the measure of any theory is the ability of that theory to predict accurately.Friedman fails his own criteria ,as Hirsch and de Marchi point out,because Friedman has a horrible prediction and forecasting record.This conclusion is softened by the author's claim that the necessary auxilary conditions needed for successful prediction in the social sciences(in economics,particularly) generally are not met.However,this then leads to the assessment that Friedman should simply admit that he should not be making any predictions at all.The book has two major flaws.The first flaw ,which is completely ignored by Hirsch and de Marchi ,is the complete and total reliance of Friedman ,in every single piece of empirical work that he has done in his lifetime, on assuming that all economic data can be represented by a normal probability distribution's mean and standard deviation.Nowhere in any of Friedman's published work can one find any type of goodness of fit test(for example, a chi square test) for normality.This flaw is ubiquitous to economists.For instance,neither Muth nor Lucas,the founders of the rational expectations school of economics,have ever presented any type of test for goodness of fit in any book or paper published in their lifetimes.One can compare this major omission with the empirical work of Benoit Mandelbrot.Mandelbrot's approach is to explicitly check for normality.What Mandelbrot has discovered in his examination of data reflecting changes in prices over time ,for practically all financial markets,is non normality.All of Mandelbrot's work has been duplicated and replicated by many different researchers in many different countries.The reason for Friedman's horrible forecast record is now obvious.Mandelbrot has demonstated that the particular distribution that approximates the data most accurately is the Cauchy Distribution,not the normal distribution.Friedman has been using the wrong probability distribution for 70 years!! No wonder his predictions are wrong!The second major flaw in this book is the failure of Hirsch and de Marchi to recognize that the theoretical heart of Friedman's methodology rests on the inductive fallacy of conditional apriorism(long runism).J M Keynes's point ,that "...in the long run we are all dead...",is specifically aimed at an economics profession that all too often bases arguments on appeals to the fallacy of long runism.Friedman's basic macroscopic conclusion is that money is neutral in the long run because all false trading at distorted,disequilibrium prices ,for all prices in all markets, cancels out in the long run.However,policy makers will never be able to identify(Friedman's natural rate) when this will have occurred.The following quotation ,taken directly from Friedman's 1968 American Economics Association Presidential Address ,is one of the best examples of this fallacy:"What if the monetary authority chose the"natural rate"...as its target?One problem is that it cannot know what the natural rate is.(Friedman puts this entire sentence in italics for emphasis)....the basic problem is that even if the monetary authority knew the "natural rate"...it would not be led to a determinate policy".Hirsch and de Marchi have failed to point out the egregious errors in Friedman's methodological position.Nevertheless,a specialist in economic methodology may find value in some of the less important chapters in this book.
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