Disentangling the Philosophy of Economics [1 ed.] 9788361284635, 2018092111

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Monographs IBRKK-PIB

Disentangling Disentangling the philosophy of economy

the philosophy of economy

Mariusz Maziarz

ISBN 978-83-61284-63-5

Disentangling the philosophy of economy

Mariusz Maziarz

WARSAW 2018

Review: Tomasz Dołęgowski, Paweł Kawalec

Proofreading: Małgorzata Wieteska-Rostek Typesetting: Sławomir Jarząbek

© Copyright by Institute for Market, Consumption and Business Cycles Research – National Research Institute Warszawa 2018 Materials contained in the monograph shall be protected by the copy right. Text reprint may have occurred only with the publisher's consent. Institute for Market, Consumption and Business Cycles Research – National Research Institute 02-001 Warszawa, Al. Jerozolimskie 87 phone: (48) 22 628 55 85, 22 813-46-50 fax: (48) 22 628 24 79 e-mail: [email protected] http://www.ibrkk.pl

ISBN 978-83-61284-63-5

Table of Contents ACKNOWLEDGMENT ..................................................................................................7 PREFACE ..........................................................................................................................8 Economic methodology: a menu of approaches.............................................................9 The book layout ............................................................................................................10 INTRODuCTION: ThE ENTANGLEMENT OF ECONOMIC METhODOLOGy ........................................................................................................12 1. The six schools .........................................................................................................12 2. Why the two dimensions? ........................................................................................14 3. The disentanglement.................................................................................................16 1. LOGICAL POsITIvIsM ........................................................................................18 Various readings ...........................................................................................................18 Economists’ (mis-)understanding .................................................................................19 1.1. The neopositivist views on science .......................................................................20 Regularities, laws, and causality ..................................................................................20 The demarcation criterion ............................................................................................21 Verification and confirmation.......................................................................................22 Scientific explanation ...................................................................................................23 The theory-observation distinction...............................................................................25 1.2. Logical empiricism and economic methodology ..................................................26 The neopositivist philosophy of economics .................................................................26 Criticism of the mainstream economics .......................................................................27 Positive and normative economics ...............................................................................28 Economists’ interpretations ..........................................................................................29 Is economics a neopositivist science? ..........................................................................30 1.3. Neopositivist economics........................................................................................31 Scientific economics.....................................................................................................31 Explanation, causality, and laws...................................................................................33

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2. FALsIFICATION AND ThE METhODOLOGy OF ECONOMICs ............34 2.1. The fallibilist epistemology ...................................................................................35 The problem of demarcation ........................................................................................35 Dismissing induction from science ..............................................................................36 Theory-ladeness of observations ..................................................................................37 The fallibilist method ...................................................................................................38 Getting closer to the truth .............................................................................................39 Testing theories.............................................................................................................41 The (literal) falsity of social sciences ...........................................................................43 Popper’s followers ........................................................................................................45 2.2. The falsificationist methodology in the philosophy of economics........................48 Blaug’s version of the Popperian methodology ...........................................................49 The naïve and fully-fledged stances .............................................................................51 Boland’s reading ...........................................................................................................52 Caldwell’s falsificationism ...........................................................................................53 Hands’ disentanglement ...............................................................................................54 Research programs in economics .................................................................................55 2.3. The fallibilist methodology ...................................................................................56 Fallibilist science ..........................................................................................................56 Truth of economic theories...........................................................................................58 3. INsTRuMENTALIsM ............................................................................................61 3.1. The sources of the instrumentalist methodology ...................................................62 Pragmatism ...................................................................................................................63 The aims and methods of science .................................................................................64 3.2. Friedman’s essay and its (mis-)interpretations ......................................................65 Reading F53 .................................................................................................................65 Why so many interpretations? ......................................................................................69 Missed interpretations ..................................................................................................70 Various intstrumentalisms ............................................................................................72 Contradicting your own methodology..........................................................................75 3.3. The instrumentalist economics ..............................................................................75 Dismissing the unobservables debate ...........................................................................75 Causality .......................................................................................................................76 The purpose of models and theories .............................................................................77 Skepticism ....................................................................................................................78

5 4. sCIENTIFIC REALIsM .........................................................................................80 4.1. Development and main arguments ........................................................................81 The rejection of the received view ...............................................................................81 Why is science successful?...........................................................................................82 Counterarguments ........................................................................................................83 Refined positions ..........................................................................................................85 4.2. The scientific-realist philosophy of economics .....................................................86 Models and reality ........................................................................................................86 Unrealistic but true .......................................................................................................87 The evolution of Mäki’s stance ....................................................................................89 Econometric models .....................................................................................................90 The realism-antirealism debate ....................................................................................91 A skeptical turn? ...........................................................................................................92 4.3. Successful modeling ..............................................................................................93 Truth .............................................................................................................................93 The role of causal explanation......................................................................................94 Theory appraisal ...........................................................................................................95 Fallibilism.....................................................................................................................95 5. CRITICAL REALIsM .............................................................................................97 5.1. Roy Bhaskar’s philosophy of science ...................................................................97 Economics without constant regularities......................................................................98 Criticism .......................................................................................................................99 5.2. The Lawsonian critique of the mainstream economics .........................................99 Social and natural sciences .........................................................................................100 The openness of the social world ...............................................................................101 The Lawsonian criticism ............................................................................................102 5.3. The methodology of critical realism ...................................................................102 Examples of the critical-realist economics.................................................................103 Research guidance ......................................................................................................104 6. ThE CONsTRuCTIvIsT APPROACh ............................................................106 6.1. The constructivist philosophy of science ............................................................106 Scientific revolutions..................................................................................................107 Feyerabend’s anarchism .............................................................................................108 6.2. The rhetorical approach (and other constructivists in the methodology of economics) .....................................................................................................109

6 The rhetoric of economics ..........................................................................................109 Other constructivists ...................................................................................................111 6.3. Methodological anarchism ..................................................................................112 ‘Anything goes’ in economics ....................................................................................112 7. CONCLuDING REMARKs .................................................................................113 7.1. The normative approaches to ontology ...............................................................113 Logical positivism ......................................................................................................116 Critical realism ...........................................................................................................116 7.2. The normative approaches to epistemology ........................................................117 Logical positivism ......................................................................................................118 Instrumentalism ..........................................................................................................119 Falsificationism ..........................................................................................................120 Critical realism ...........................................................................................................121 Constructivism............................................................................................................122 7.3. The descriptive approaches to ontology ..............................................................123 Scientific realism ........................................................................................................123 Falsificationism ..........................................................................................................124 Instrumentalism ..........................................................................................................124 7.4. The descriptive approaches to epistemology.......................................................125 Scientific realism ........................................................................................................126 Constructivism............................................................................................................126 7.5. The unended inquiry ............................................................................................127 BIBLIOGRAPhy .........................................................................................................130

ACKNOWLEDGMENT

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ACKNOWLEDGMENT Economists face severe difficulties with measuring well-being. Similarly, „thankfulness‟ is also immeasurable. Nevertheless, I primarily need to voice my gratitude to those who commented on the earlier version of the book. The colleagues from the Faculty of Metaeconomics, Institute for Market, Consumption, and Business Cycle Research – Polish Research Institute, i.e., Tomasz Kwarciński, Robert Mróz, Krzysztof Nowak-Posadzy, and Agnieszka Wincewicz-Price (listed alphabetically) commented on the draft version of the book and helped in improving the manuscript. Also, the encouragement and comments voiced by the two reviewers helped in polishing my book project. My colleagues from the Polish Philosophy of Economics Network actively supported and encouraged my research. Most notably, I am grateful to Jarosław Boruszewski, Marcin Gorazda, Łukasz Hardt, and Mateusz Kucz (listed alphabetically) who commented on my PPEN-seminar presentations. The partial results were presented at several conferences1 whose participants indicated (hopefully fulfilled in the current version) gaps in my reasoning. I am especially indebted to Julian Reiss for his comments. Many thanks go to Gabriela Staroń, without whom this book would have been written much earlier. I am also grateful to my parents. For everything. Last but not least, I would like to thank my Ph.D. thesis advisors from the Wroclaw University of Economics: Stanisław Czaja and Bartosz Scheuer with whom I have spent long hours discussing economics and philosophy.

1 The International Network for Economic Method Biannual Conference (San Sebastian), The Nordic Network for Philosophy of Science 2017 Conference (Copenhagen), The Sixth Conference of the European Network for the Philosophy of Social Sciences (Kraków), and the Erasmus Institute for Philosophy and Economics 20th Anniversary Conference (Rotterdam).

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PREFACE The philosophy of economics is a branch of the philosophy of science that focuses on studying research practice of economists and the results of their work (the philosophy of science about economics). It is a subdiscipline of ‘metaeconomics’1 that covers (1) the study of economics as a science (philosophy of economics), (2) ethical considerations, and (3) sociology of knowledge. The book focuses on the former topic that is also synonymously labeled ‘methodology of economics’. Certainly, the metascientific investigation of economics cannot proceed without ethical and anthropological considerations. Considering that economics is ultimately the science that studies human behavior, the ethical and anthropological issues are at hand. The research conducted at the intersections of ethics and economics seems to be usually labeled ‘economics and philosophy’ (EAP, in short). Other topics usually included in the economic sciences are studies by psychologists and anthropologists. However, the scope of the book is limited to the philosophy of science about economics (aka philosophy/methodology of economics). The methodology of economics has been fiercely debated for the last decades (Mireles-Flores 2018) raising the interest of not only philosophers but also economists what boosts the demand for the systematization of the discipline. The purpose of the book is to enlighten the differences and similarities between the six schools of the philosophy of economics and analyze the connections between the approaches to the philosophy of science and the schools of economic methodology. This book is intended for economists (as a textbook introducing into the philosophy of economics and systematizing their familiarity with it) and the philosophers of economics as a reference book. Furthermore, it can serve as a handbook of economic methodology for graduate-level economics students. The book offers the introduction into six main philosophical schools within the methodology of economics and discusses their relation to the general philosophy of science. These schools often deliver differing views on particular topics. The entanglement or, to put it differently, mistaking various purposes for which philosophizing about economics is conducted produce a mistaken view that philosophers of economics contradict each other. The book develops the philosophy-of-economics discussion by putting forth the two-dimensional topology of the repertoire of views. The disentanglement between (1) the purpose of philosophizing (normative and descriptive approach) and (2) the scope (ontology and epistemology) proves useful in understanding the similarities and differences between the six schools and shows that some of the inconsistencies present in the literature re1

The term was coined by Karl Menger (1954 [1936].

PREFACE

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sulted from different goals and interests of philosophers. There are a few introductory textbooks into the philosophy of economics on the bookshelves (cf. Boumans and Davis 2015; Caldwell 1994; Hands 2001; Maas 2014), but Disentangling explicitly focuses on discussing and analyzing various schools of thought instead of employing the usual problem-related layout. Even though the philosophy of science sensu stricto is a young branch of philosophy that dates back to the beginnings of the twentieth century when the Vienna- and Berlin Circles started to meet regularly (Schnikus 2010; McGrew, Alspector-Kelly and Allhoff 2009), philosophical considerations over science are as old as science itself. The current debates can often be traced back to the ancient-Greek philosophy. For example, realism about abstract entities put forth by Plato is a protoplast of the current scientific-realist position (Hamilton et al. 1961). John Stewart Mill was probably the first economist and philosopher who practiced the philosophy of economics in the contemporary sense. Some ideas become forgotten and, reinvented, win new followers. Others are believed to be novel due to being employed in new fields. Contrary to the general field, philosophy of economics has not yet developed progressively over time. In the analytic tradition of the philosophy of economics, six schools coexist and support divergent and often inconsistent viewpoints what resembles the situation in economics that is a heterodox science. The following six main approaches in the methodology of economics are discussed in the following chapters: logical positivism, falsificationism, instrumentalism, scientific realism, critical realism, and constructivism. For the purpose of the analysis, these approaches to economic methodology are labeled ‘schools’ instead of paradigms with a view not to raise the problem of incommensurability. Economists (e.g., Gerrard 1996; Snowdon and Vane 2005) seem to prefer discussing schools instead of employing the Kuhnian perspective when discussing various approaches to economics.

Economic methodology: a menu of approaches In contrast to the natural sciences2, economics is divided regarding research methods and theories. There is a dominance of mainstream economics that characterizes the focus on theoretical modeling. Other, heterodox schools of economics reject certain premises on which the mainstream is based such as the assumption of equilibrium or nonexistent transaction costs or employ different research methods such as experiments, simulation, and various quantitative, empirical methods (Lo et al. 2017). Dani Rodrick (2015, p. 8) recently compared economics to a library of models: various models have different scope and the area of applicability. Various approaches to research are (rarely explicitly) grounded in different philosophy-of-science stances. For 2 However, even the natural sciences experience the presence of inconsistent theoretical approaches in certain areas such as string theory or cosmology.

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instance, the econometric methods were developed in the time when the philosophyof-science discussion was dominated by the positivists from the Vienna and Berlin Circles. Even today, econometric research seems to instantiate the neopositivist science (Maziarz 2017b). In contrary, the ‘soft’ methods of case study draw from the critical-realist stance. In other words, pluralism in science demands pluralism about science in the metascientific considerations. The philosophers of economics often support contradictory stances (Ross 2016, p. X). If their methodological considerations were treated as a metaanalysis of one discipline, then the community of philosophers would seem to accept3 contradictory stances. However, if it is assumed that the participants of the discussion belong to schools that focus on different approaches to economics and variously define the purpose of philosophizing about economics, then such inconsistencies are a natural phenomenon. To disentangle the philosophy of economics, two dimensions are put forth. The philosophy of economics can aim at being either descriptive (i.e., analyze the current research practice of economics) or normative (i.e., deliver advice on research methods). And, similarly to the philosophy of science, economic methodologists can focus their considerations on epistemology (i.e., addressing the questions how can we know something about economics or how economists justify their claims) or ontology (i.e., analyzing the relation between models and reality and answering what exists within (what is the nature of) economy). The result can help in explaining why economics is a methodologically-pluralist discipline.

The book layout This book is structured as follows. The first, introductory chapter discusses the menu of approaches to economics. It defines the two dimensions along which the six philosophical schools are reconstructed and sets the borders between the six approaches. The following six chapters are devoted to each school of the philosophy of economics (chapters 1-6). Each chapter can be studied separately as an introduction into a specific school of the philosophy of economics or as a reconstruction of the philosophy-of-science inspirations for the methodologists of economics. Each chapter consists of three parts. First, the general philosophy of science that inspired economic methodologists is discussed. Second, the views of philosophers representing each school are discussed. Third, the research guidance advised by methodologists belonging to those schools is summarized. 3 The philosophy of science is not a science, but a branch of philosophy and therefore it proceeds by the method of rational argumentation. Arguing about something implies that the participants of the discussion accept contradictory stances. However, the philosophy of economics seems to be divided differently: various schools accept contradictory stances but the discussion about the inconsistencies is limited.

PREFACE

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Chapter 1 focuses on logical positivism that is still debated in the philosophy of economics. First, several economic methodologists (e.g., McCloskey 1989; Boland 1991, Scheuer 2012; 2013; Maziarz 2017) state that the neopositivist philosophy, unlike the case of the philosophy of science, still shapes economic research4. Second, the whole twentieth-century philosophy of science developed in dialog with logical positivism or in reply to its criticism, so discussing this historically first philosophyof-science school might be beneficial for understanding how other approaches shape and constrain economic methodology. Chapter 2 aims at discussing falsificationism in the context of economic methodology and disentangling the misunderstandings of Popper’s thought present in the discussion. Chapter 3 reconstructs the stance presented by Friedman’s (1953) famous essay and reads it in line with the pragmatist philosophy. Chapter 4 discusses scientific realism. This school focuses on reconstructing the project of theoretical modeling, limits itself in delivering strict epistemic guidance. Today, scientific realism is the mainstream stance in the philosophy of economics. A different realist position is advocated by Tony Lawson (e.g., 1997), who employed Roy Bhaskar’s philosophy of science labeled ‘critical realism’ (chapter 5). Chapter 6 discusses a few uncommon ‘heterodox’ schools labeled under constructivism. In general, philosophers and economic methodologists included into this group limit their endeavor to epistemology. The concluding remarks (chapter 7) summarize the discussion and put forth the views on further development of the discipline.

4 Others disagree. For instance, Schinkus (2010, p. 3815) argued that [m]any economists today still believe that economics is a positivist discipline. The rejection of positivism within the philosophy of science at least suggests that such a belief may be misguided.

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INTRODuCTION: ThE ENTANGLEMENT OF ECONOMIC METhODOLOGy At first view, the philosophy of economics seems to be very inconsistent. The list of recently discussed contradictions present in the views of opposing philosophers of economics includes the normative-positive distinction (Reiss 2017; Hands 2012; Hands 2011b), causal and non-causal reading of economic models (Verreault-Julien 2017; Weintraub 1993, p. 129; Mäki and Caldwell 1992), interpreting preference assignments (Clarke 2015), whether economic models represent reality (Boldyrev and Ushakov 2016) and, finally, whether false economic models explain anyhow (Reiss 2012 and numerous responses to Reiss’ trilemma). Some of the differences of the philosophy of economics does not result from the method of philosophy which is naturally inconsistent and based on argumentation against opponents’ views but from the fact that the philosophers belong to different philosophy-of-science traditions. Similarly to the stances in the philosophy of science that relate to different (general) philosophies (Harré 1985), the philosophies of economics are related to historical stages of development and contemporary stances within the philosophy of science. The schools of the philosophy of economics are briefly sketched in the first part of the introduction. The second part focuses on introducing the two dimensions and justifying the choice. The third part of introduction summarizes the differences and similarities among the six schools employing the two-dimensional topology.

1. The six schools Classifications are always subjective and simplifying to some degree. It is always possible to draw distinctions in other ways. Delivering a description of a philosophical school always idealizes it. The choice to focus the analysis on logical positivism, instrumentalism, falsificationism, scientific realism, critical realism, and constructivism is also a decision that should weight simplicity and readability, and complexity and in-depth analysis. For instance, various schools labeled ‘constructivism’ could be further divided into the rhetoric of economics, the constructivist philosophy of science, and the economics of economics. In contrary, the two realist schools could possibly be merged. The distinctions between the schools are put forth to arrive at (to some degree) consistent reconstructions of the schools. There are other possible distinctions between the menu of approaches grounded in other criteria. For instance, Hausman (1994) distinguished between realism and instrumentalism considering

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the purported goal (truth vs. utility) of science (p. 5). Fritz Machlup, who devoted his philosophical considerations to the problem of theory appraisal, distinguished between ‘a priori’ and ‘ultra-empiricist’ approaches to economics (ibid., p. 158). According to the employed systematization, the following six schools are present in the philosophy of economics. First, logical positivism emerged from the works of the Vienna-Circle philosophers (Carnap 1959; Carnap 1950) focused on distinguishing science from non-science and attempted at constructing a logic of science that would help in the process of theory appraisal. The logical-positivist economic methodologists usually opposed formalization and axiomatization of their discipline (Hutchison 1938; 2000) and emphasize empirical research (Boland 1991). For instance, Hutchison (1938) advised grounding economic methodology in quantification, measurement, and empirical verification of hypotheses. Similarly to the below-discussed instrumentalist stance, the logical-positivist methodology emphasizes the positive-normative distinction and advises the former (Hill 1968). Second, critical realism promoted on the ground of the philosophy of science by Roy Bhaskar in his notable book A Realist Theory of Science (2008 [1975]) differs from scientific realism regarding the attitude towards economics. According to this stance, social-science research should start from ontological investigations and later proceed to epistemic guidance (Collier 1994; Lawson 1997, p. xii, p. 275). Critical realism accepts the ontological dimension of scientific realism: the order discovered in nature exists independently of men (Bhaskar 2008, p. 17) what places the constraint of extra-discursive reality upon what can legitimately be maintained (Lawson 1997, p. 261). However, critical realism rejects the epistemic dimension of scientific realism and criticizes the today-mainstream economic theories. Third, falsificationism, according to D. Wade Hands (1993, p. 189) remains one of the dominant approaches to economic methodology. Due to its popularity, the Popperian doctrine is variously interpreted by economic methodologists (Caldwell 1991; Mäki 2014, p. 89). On the one hand, naïve falsificationism (to use the Lakatosian (1976) terminology) puts emphasis on theory testing and automatic rejection of falsified propositions what results from acknowledging the theory-observation distinction (e.g., Blaug 1992; cf. Mäki 2014) and puts emphasis on falsifiability of statements instead of theories (cf. Hands 1992, p. 20). This reading seems to be grounded in the Lakatosian (1976) reconstruction of the Popperian thought (Boland 2016). On the other hand, the fallibilist interpretation highlights the role of the decision in the process of theory appraisal resulting from the fallibility of both protocol sentences and theories (Boland 2016; Thompton 2007; Boland 2003 [1982]; Caldwell 1991). Fourth, scientific realism (in philosophy of science), rejected the distinction between theoretical and observable entities and, accepting that the unobservables exist mind-independently (Psillos 1999; cf. Carnap 1950), takes scientific theories at ‘face

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value’, i.e. as systems which depict the nature of things, not logical algorithms for the organisation and prediction of data (Aronson 1984, p. 6; Quine 1951; Boyd 1983). Scientific realism accepts the dualistic ontology and the correspondence definition of truth: models are made true or false by states of the world (Mäki 2008; Mäki 2009). The project of the scientific-realist philosophy of economics focuses mostly on theoretical modeling and analyzes how such models explain. However, there are advocates of this stance who are interested in the quantitative methods employed by econometricians. Fifth, instrumentalism was advised by Milton Friedman (20081) in his famous essay. The essay was aimed at defending the neoclassical school against accusations of unrealisticness formulated by institutional economists (Meyer 1993; Wible 1984). Hence its philosophical interpretations are an exaggeration. Nevertheless, Friedman’s viewpoint (F53) is highly consistent with the pragmatist approach to science (Boland 1979; Mariyani-Squire 2017; Reiss 2012). Contrary to the pragmatist tradition in philosophy of science aiming at delivering an adequate reconstruction of science (e.g., Dewey 1910; cf. Brown 2012), the Friedmanian position is normative and delivers comparatively strict epistemic guidance. Interestingly, Friedman did not obey the instrumentalist rules put forth by himself (Batemarco 1985, p. 32-33) and argued in favor of his monetary theory in the realist manner (Friedman 1969). Sixth, constructivism denies that the phenomena studied by scientists exist and have the properties they do independently of our adoption of theories (Boyd 1992, p. 131) and (hence) focuses exclusively on epistemology. Constructivists, with the exception of radical constructivism which is not considered on the ground of the philosophy of economics, do not refuse to acknowledge the existence of reality (Fleck 1978; Mäki 1995), but they reject the viewpoint according to which any meaningful conclusions about its nature can be arrived at by other means than studying models. In other words, they accept Kuhn’s (2012) incommensurability thesis. Roughly speaking, Kuhn’s view states that reality changes together with a theory change. The results of distinguishing between the six schools are described in section three.

2. Why the two dimensions? As I mentioned previously, the entanglement of the schools of the philosophy of economics is clarified using employing a two-dimensional topology. Why distinguishing between the ontology-epistemology and normative-descriptive analyses is helpful? Similarly to the discipline it studies, the philosophy of economics is inconsistent and often contradictory. However, some of these inconsistencies can be disentangled when the purpose and scope of various methodological stances are 1

F53 henceforth.

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considered. Similarly to the philosophy of science, the metascientific considerations about economics can either limit its scope to delivering a description of economists’ research practice and reconstructing their philosophical presuppositions or, in contrary, be normative, i.e., deliver advice and appraise research methods and economic theories. There is nothing wrong if the descriptive and normative accounts are inconsistent: a methodologist can reconstruct one picture of the research practice and, on some ground, argue that it is inadequate and advice employing another one. Hitherto, little attention was put on analyzing the purpose of philosophy-of-economics investigations. Contrary to the dispute (e.g., Friedman 1953 [2009]; Drakopoulos 1997; Hands 2012; Reiss 2017) whether economics should focus on the normative or positive analyses, the aim of philosophizing about economics is not explicitly considered. Philosophy of science noted the descriptive turn identified with the notable works of Thomas Kuhn (1977; 1981; 2012) and Paul Feyerabend (1993) and moved from the normative approach to analyzing the research practice of scientists. The normative and descriptive approaches to economic methodology seem today to be entangled: the purpose of philosophizing about economics is rarely voiced explicitly. A detailed analysis can help in showing that some of the perceived inconsistencies result from different purposes. One of the grounds on which scientific realism and critical realism differ is ontology. The former reconstructs metaphysics2 implicitly implied by economists while the latter starts from its ontological investigations (is normative). Moreover, the philosophy of science is usually divided into the following three branches: semantics, epistemology, and ontology. Semantics is a field of research that studies meaning (Chierchia and McConnel-Ginet 2000, p. ix). Semantic analyses are of limited interest among economic methodologist, and this branch is excluded from further considerations3. The philosophy of economics focuses on epistemology and ontology. The former field is focused on addressing the questions how can we know something about economics, and how can we appraise our knowledge. Dan Hausman (1989) highlighted that the problem of theory choice is a notable issue in every approach to the philosophy of economics. The latter denotes the field of philosophy that strives for uncovering the nature of reality and studies the relations between models and reality. Ontological considerations are important for various realisms present in the philosophy of economics. Hence, the second dimension of the philosophy-of-economics topology is the epistemology-ontology distinction. Although the methodological schools are usually concerned about both epistemology and ontology, they usually emphasize one of the two. The purpose of employing the topology distinguishing between the purpose (descriptive-normative) and scope (ontology-epistemology) is twofold. First, it proves useful for disentangling the divergent aims and scopes of 2

The term was coined by Aristotle with the aim to denote the study of the nature of reality (Aristotle 1999). The semantic approach to theories read them as sets of models (Suppe 1989). Cook (2005) and Davis (2005) attempted at employing the semantic approach to the philosophy of econometrics. Recently, Reiss (2012), Claveau and Mireles-Flores (2017) employed the inferentialist semantics to the analysis of causal generalizations. 3

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the six methodological schools what helps to identify the (in)consistencies between them. For instance, the classification shows that constructivism and scientific realism deliver divergent pictures of the mainstream economics what indicates the necessity of further research. Second, such an analysis may be useful for disentangling the philosophies of economics for economists what may improve the influence of methodologists on economics. Third, it helps in understanding how different methodological schools relate to the philosophy of science. Fourth, the disentanglement may shed light on the areas on which the philosophy of economics should focus.

3. The disentanglement Coining the two-dimensional topology (normative-descriptive; ontology-epistemology) of variations in viewpoints between the six schools allows for building a simplifying table (Table 1). The six schools are categorized into four groups. First, logical positivism (advising getting rid of the ontological considerations), and critical realism (emphasizing the social ontology) are located normative regarding ontology. The neopositivist methodology of economics, in line with its philosophy-of-science counterpart, accepts the verification (confirmation) criterion of meaning and therefore

Table 1 The topology of the philosophy-of-economics schools

Source: own preparation.



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rejects metaphysical considerations as fruitless and unscientific. In contrary, critical realism starts the methodological research from aprioristic ‘social ontology’ stance and forces obtained results onto economics. Virtually all schools of the philosophy of economics (excluding scientific realism) strive for delivering research guidance. (1) Logical positivism, (2) Friedman’s instrumentalism, (3) falsificationism, (4) critical realism, (5) and constructivism formulate different advice on how economists should conduct their research and appraise the results of own work. They seem to inspire different schools of economics. As the number of schools suggests, the methodological schools mostly differ regarding the epistemic advice, but such differentiation of views is not an obstacle considering that economics is a pluralist science. For instance, the Cowles-Commission econometrics is grounded in the logical-positivist methodology. Various schools of economics are likely grounded in diverging approaches to the philosophy of economics. The main school that strives to be descriptive and limits itself in delivering explicit research advice is scientific realism. The methodologists identified with this approach strive for reconstructing the research practice of economists (descriptive epistemology) by studying most successful examples of economic modeling. The heterodox approach labeled ‘constructivism’ extends the scope and strives for delivering an adequate picture by studying also the less successful pieces of economic research. The concern about what ontological commitments are present in economics (descriptive ontology) can be found explicitly in the scientific-realist school that strives for reconstructing the ontological commitments present in economic models and analyzing the relation between models and reality. Falsificationism and instrumentalism are not explicit in their ontological stances, but their research guidance implicitly presuppose certain aspects of economic reality. Furthermore, the analysis shows that the six methodological schools differ mostly regarding the epistemic guidance.

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1. LOGICAL POsITIvIsM The philosophy of logical positivism was developed in the beginnings of the twentieth century as an outcome of meetings attended by philosophically interested scientists, and philosophers focused on logic and science. Two most notable groups are the Vienna Circle (represented, among others, by Gustav Bergman, Rudolf Carnap, Herbert Feigl, Philip Frank, Kurt Gödel, Hans Hahn, Victor Craft, Karl Menger, Marcel Natkin, Otto Neurath, Olga Hahn-Neurath, Theodor Radakovic, Moritz Schlick, Friedrich Waismann, and Edgar Zilsel) and Berlin Circle (to whom belonged Walter Dubislav, Kurt Grelling, Carl Hempel, David Hilbert and, last but not least, Hans Reichenbach) (McGrew, Alspector-Kelly and Allhoff 2009, p. 307-308). However, there were similar groups in many countries. Blaug (1992) listed additionally Lwow-Warsaw group in Poland (Alfred Tarski was the most influential participant, his exchanges with Gödel and Carnap led to his formulation of the semantic conception of truth, the Munster group in Germany, and the Uppsala School in Sweden (p. 17). Even though the rise of this philosophical movement is sometimes compared to the Copernican revolution in physics, in contrast to the change in cosmological viewpoint, most of the received view1 ideas faced severe criticism in the second half of the twentieth century.

various readings Logical positivists, also called logical empiricists (to cut off the connotations with Auguste Comte’s positivism) or, just, neopositivists have never created one, unified philosophical theory2. Nevertheless, their philosophical views are, to some degree, convergent: as recent historical investigation is making increasingly clear, the Circle (and in general, those philosophers subsequently identified as positivists) was not a homogenous group in complete theoretical accord as it has often been represented (McGrew, Alspector-Kelly and Allhoff 2009, p. 307). An additional difficulty in the attempt at reconstructing the neopositivist thought is the progress of their ideas along the first half of the twentieth century and the misunderstandings committed by their philosophical opponents who often disagree with a simplified version of the views of 1 The name ‘received view’ for the philosophical ideas of the neopositivist movement can, according to Suppe (1977, p. 230-232), be traced back to Hilary Putnam, one of the philosophers who established scientific realism, the intellectual successor of logical empiricism, who coined the name in his article (Putnam 1966) on the philosophy of mathematics. 2 The labels ‚logical positivism’ and ‚logical empiricism’ name the early and late stage of the development of the doctrine (cf. Kawalec 2003).

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their intellectual opponents. As a revisionist reading of logical positivism suggests, the first modern school of philosophy of science was more advanced and more subtle than previously supposed (cf. Friedman 1999, Richardson 1988). In detail, logical empiricism, as, for instance, Izrik and Grünberg (1995) argued, (1) can be compatible with Thomas Kuhn’s views on science and incommensurability of alternative theoretical frameworks and (2) implies the viewpoint that was later known as the Duhem-Quine thesis, according to which each observation confirms or falsifies the whole project of science instead of a single theory. Additionally, Reichenbach’s views on The Philosophy of Space and Time (2012) that are in line with Henri Poincaré’s conventionalism (according to which there are many geometric theories that can equally well describe observable phenomena) seem to foresee the views later voiced by Thomas Kuhn. As the analysis of the letter exchange between Kuhn and Carnap suggests (Reisch 1991), the logical positivist movement was aware of the difficulties connected to emphasizing theory/observation distinction, belief in theory-independent language aimed at reporting observations and ‘objective’ (i.e., paradigm-independent) criteria of theory appraisal. In choices between radically different theories, different conceptual frameworks, or (in his preferred philosophical idiom) different ‘languages,’ he [Carnap] offers an account that is in fact distinctly analogous to that of Kuhn (Reisch 1991, p. 267). In cases of extreme divergence between two theories, Carnap is believed to consider theories as different languages, hence the preference for one of competing, incommensurable paradigms is similar to choosing between two various conceptual frameworks and should be grounded in utilitarian considerations.

Economists’ (mis-)understanding However, below, the usual interpretation of the neopositivist movement is employed for two reasons. First, acknowledging that the revisionist interpretation is widely accepted among philosophers of science is an exaggeration in itself. For instance, Oliviera (2007) opposed Reisch (1991) and argued that publishing Kuhn’s Structure of Scientific Revolutions in the International Encyclopedia of Unified Science edited by Rudolf Carnap is weak evidence for reinterpreting the neopositivist movement. Second, methodologists and philosophers of economics read logical positivism in a traditional way (cf. Boumans and Davis 2016, p. 13-14; McCloskey 1998, p. 139-155; Hutchison 1938, p. 3-17) and arguing with this approach extends the scope of the discussion. The chapter focusing on logical positivism consists of two parts. First, the problems considered by logical positivists are reconstructed with an aim at delivering practical guideline of how economic research should be conducted in line with the received view. Second, the contemporary applications of the neopositivist views to

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economic methodology are discussed, and the epistemic guidance promoted by this school is delivered.

1.1. The neopositivist views on science The textbook view on logical positivism lists following commitments held by the philosophers belonging to this movement: (1) Science is the only intellectually respectable form of inquiry. (2) all truths are either (a) analytic, ‘a priori’ and necessary, in other words, tautological, or (b) synthetic, ‘a posteriori’ and contingent. (3) So far as knowledge goes, it is either purely formal and analytic, such as mathematics and logic, or a kind of empirical science. (4) The purpose of philosophy is to explicate the structure or logic of science. Philosophy is the epistemology of science and analyzing concepts. (5) Logic is to be used to express precisely the relationships between concepts. (6) The acceptance of the ‘verifiability criterion of meaning’: a statement is meaningful if and only if it is either analytic or empirically verifiable. (7) The Verification Principle: the meaning of a non-tautological statement is its method of verification; that is, the way in which it can be shown to be true by experience (Ladyman 2002, p. 151). For the purpose of this book, I focus on the neopositivist views on (1) causation, (2) limiting knowledge to analytic and synthetic reasoning, (3) definition of truth, (4) difference between science and non-science, (5) verification, confirmation and their historical development, (6) scientific laws, (7) explanation and (8) theoryobservation distinction. With the exception of (4) the criterion of meaning that supports getting rid of metaphysics from science, logical positivism focuses on epistemology.

Regularities, laws, and causality The ideas of logical positivism can be traced back to the tradition of British empiricism and views on science held by widely-recognized physicists (in fact, several Vienna-Circle members were committed to physics, chemistry or mathematics. For instance, the neopositivist movement accepted David Hume’s views on causality. As Julian Reiss (2013) put it, scientific law involved in the D-N model of scientific explanations (further discussed below) is a regularity or universal generalization of the form ‘All Cs are Es or, whenever C, then E (p. 21)3. Such approach to scientific laws resulted from accepting Hume’s (1963) reductionist view on causality. The Scottish philosopher and economist believed that human mind is not equipped with the abil3 However, the neopositivist movement did not work out a coherent approach in this case. In contrary to the viewpoint of Hempel (1965), Carnap (1966) suggested causal interpretation of scientific laws developed later by Cartwright (1989). Employing Carnap’s view, the law of demand, for instance, can be interpreted causally in the following way: a growth in p (the price of a good) causes a decline in q (the quantity sold), cf. (Maziarz in press).

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ity to observe causal relations. What can be seen is one event following another. The reductionist approach to causation can be exemplified with the case of two billiard balls: one ball is moving, hits another one and stops, and the second ball is moving. What an observer sees are two events (cf. Maziarz 2015a for a detailed discussion). Therefore, Hume reduced causation to constant conjunction: I have found that such an object has always been attended with such an effect, and I foresee, that other objects, which are, in appearance similar, will be attended with similar effects (Hume 1963, p. 34-35). Hume listed three requirements for calling a relation causal: (1) universal association between X and Y, (2) time precedence of Y by X and (3) spatiotemporal connection between X and Y (Hume 1963). Also, Ernst Mach’s philosophical views had a strong impact on logical positivism. The neopositivist views on science as a system for the economic ordering of ordinary experiences instead of a description of reality underlying the observable phenomena were rooted in the physicist’s philosophical viewpoint (Smith 1989). However, the early point of view evolved and elaborated deductive-nomological account of scientific explanation and put emphasis on explanation instead.

The demarcation criterion4 Despite these developments, logical positivists stayed loyal to the empiricist tradition in the rejection of metaphysics. Since, as empiricists believed, knowledge was only justified by experience or logical, tautological reformulations, the neopositivist movement rejected the synthetic a priori statements supported by (most notably) Immanuel Kant and other rationalists (Rene Descartes, Gottfried Leibniz, and Baruch Spinoza) (Parrini 1995, p. XIX). The synthetic a priori knowledge was rejected due to the point of view that such theories (the Euclidean geometry of space employed to the Newtonian physics, for instance) were disconfirmed by the development of physics, i.e., Albert Einstein’s general theory of relativity in this case (Parrini 1995, p. 47). Logical positivists also rejected metaphysics on the ground that it is not only false but also meaningless. It is impossible to decide whether an ontological commitment is true or false. Logical positivism emphasizes empiricism, logic, formal semantics and the correspondence definition of truth. As Alfred Tarski (1944) put it in 1936 when he reformulated Aristotle’s words from Metaphysics into the modern-logic terminology and subsequently formalized the concept: “To say of what is that it is not, or of what is not that it is, is false, while to say of what is that it is, or of what is not that is not, is true.” If we wished to adapt ourselves to modern philosophical terminology, we could perhaps express this conception by means of the familiar formula: The truth of a sentence consists in its agreement with (or correspondence to) reality (p. 342-343). 4

The term was put forth by Karl Popper.

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Since metaphysical commitments (i.e., statements impossible to verify and latterly confirm) lack cognitive content, i.e. are neither true nor false, they are believed to be meaningless. As Rudolf Carnap (1959) put it, [i]n the domain of metaphysics, including all philosophy of value and normative theory, logical analysis yields the negative result that the alleged statements in this domain are entirely meaningless (p. 60-61). On this ground, logical positivism advices (is normative in) rejecting such considerations from the domains of science. This way of reasoning can be exemplified with the discussion of the problem of existence of theoretical entities, the central tenet of scientific realism. Carnap (1950) dealt with this issue with the help of logical, semantic reasoning (what, as logical positivists believed, is the aim of philosophy). First, the German philosopher introduced the following distinction between ‘internal’ and ‘external’ sense of existence. The former one means to be real in the scientific sense, (…) to be an element of the system (Carnap 1950, p. 21). In contrary, the latter definition of existence, according to Carnap, is usually considered when people (and, especially, philosophers) ask, for instance, the question ‘do atoms exist’? Carnap (1950), in line with other logical positivists (cf. Schlick 1959), argued that only the former, internal existence is an important question and should be analyzed regarding the utility of different frameworks. Carnap exemplified his viewpoint with the case of restricting coordinates to rational numbers only. The question of external existence inquired by philosophers should be rejected as meaningless: [i]nfluenced by ideas of Ludwig Wittgenstein, the Circle rejected both the thesis of the reality of the external world and the thesis of its irreality as pseudo-statements; the same was the case for both the thesis of the reality of universals (abstract entities, in our present terminology) and the nominalistic thesis that they are not real and that their alleged names are not names of anything but merely ‘flatus vocis’ (Carnap 1950, p. 34).

Veriication and conirmation In contrast to the problem of realism, meaningful for logical positivists were statements that could be verified or (after 1936) confirmed. Previously, the meaningful-meaningless distinction was grounded in Moritz Schlick’s viewpoint (1959; 1936) who defined meaningful statements as the ones for whom it is possible to construct a procedure of verification. However, since most of the scientific laws are unverifiable,5 Carnap (1936) advised replacing the criterion of verification with the criterion of confirmation. Verification, according to Carnap (1936, p. 420) means a definitive and final establishment of truth, then no (synthetic) sentence is ever veri5 A philosophy-class example is the law “All swans are white” or, in the language of formal logic, “(x) (Px ⊃ Qx)”, what cannot be verified since conclusive verification would entail enumerative checking all instances. On the contrary, watching a given number of white swans confirms such law to some degree. Logical positivists developed analytical tools aimed at measuring degree of confirmation (Blanshard 2014, p. 228).

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fiable, as we shall see. We can only confirm a sentence more and more. (…) [w]e call [a sentence or theory] (…) confirmable if we know under what conditions the sentence would be confirmed. Carnap (1966, p. 20) also elaborated on a practical account of confirmation: [h]ow do we find confirmation of a law? If we have observed a great many positive instances and no negative instance, we say that the confirmation is strong. How strong it is and whether the strength can be expressed numerically is still a controversial question in the philosophy of science. Carnap (1966, p. 19) later further liberalized his viewpoint and made the concept of confirmation similar to the Popperian fallibilism: [i]f we think about it, however, we see that even the best-founded laws of physics must rest on only a finite number of observations. It is always possible that tomorrow a counterinstance may be found. At no time is it possible to arrive at complete verification of a law. The revisionist interpretation of logical positivism (e.g., Friedman 1999) can be supported with the methodological advice given by Carnap (1966, p. 21), who, in line with Popper’s (2005, p. 8) The Logic of Scientific Discovery formulated methodological rules for efficient testing, e.g., choosing diversified examples. The logical-positivist views on verifiability were inspired by Mach’s (1893, p. 490) motto: [w]here neither confirmation nor refutation is possible, science is not concerned.6

Scientiic explanation However, the neopositivist movement not only added tools of logical analysis to preexisting empiricist ideas but also developed most widely accepted accounts of scientific explanation. For understanding the deductive-nomological and inductivestatistical models of explanations, scientific laws are fundamental concepts. Carnap, in his acclaimed textbook on philosophy of science (1966, p. 3), defined universal law as a (…) regularity (…) observed at all times and all places, without exception. However, logical positivists believed that not all laws of science are universal. Instead of asserting that a regularity occurs in all cases, some laws assert that it occurs in only a certain percentage of cases. If the percentage is specified (…) then the statement is called a “statistical law” (Carnap 1966, p. 3-4). Carnap (1966, p. 5) also distinguished empirical and theoretical laws. The former laws are empirical generalizations of a high degree of simplicity. He exemplified this kind of laws with the law of thermal expansion which is based on many direct observations of bodies that expand when heated. On the contrary, the former ones are aimed at describing theoretical, nonobservable concepts, such as elementary particles and electromagnetic fields7. 6 Nevertheless, this viewpoint seems to be disconfirmed (using the neopositivist terminology) by the recent developments in current physics, M-theory especially (cf. for instance Camilleri and Ritson’s (2015) article for non-empirical assessments of contrary theories due to the lack of currently or in the conceivable future testable empirical differences). 7 However, for such laws to be meaningful, they must be operationalized by specifying correspondence rules.

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The members of the Vienna Circle, or – widely – the neopositivist movement, stated that explaining and predicting are similar, symmetrical activities. The difference is the knowledge (or its lack) of a person who applies laws: scientific laws are used to explain facts already known, and they are used to predict facts not yet known. According to Carnap (1966, p. 8), the process of explanation can be symbolically expressed as follows: (1) ( x) (Px ⊃ Qx) (2) Pa (3) Qa For instance, if the law under consideration (1) is ‘all swans are white’ and (2) object a is a swan, then (3) object a has the property of being white. Similarly, the same account can be employed to explaining why a is white (i.e. (3) a is white because it is a swan (2) and the law (1) “(x) (Px ⊃ Qx)” holds). Usually, events one experiences or attempts to predict are caused by many factors. Therefore, explaining an event entails more than one law, as Carnap (1966) simplified. Carl Hempel (1965) coined the deductive-nomological model of scientific explanation, according to which explanans S (i.e., what explains) contains k sentences C describing the involved facts and r general laws L allowing deducing explanandum E (i.e., what is explained). The symbolic inscription of the D-N model of explanation is as follows:

‫ܥ‬ଵ ǡ ‫ܥ‬ଶ ǡ ǥ ǡ ‫ܥ‬௞ ‫ܮ‬ଵ ǡ ‫ܮ‬ଶ ǡ ǥ ǡ ‫ܮ‬௥  ‫ܧ‬ Hempel (1965, p. 335-338) was aware of some of the difficulties raised by such an unconstrained model of explanation. For instance, logically valid explanations are possible to be coined which, in common sense experience, will not explain8. Therefore, the German philosopher who lectured at Princeton University demanded that laws are required for the deduction for an explanation to be valid. In detail, the four conditions for explanans to be valid states that (1) it must be a logical consequence of S, (2) it must contain general laws, (3) it must be maximally specific, and (4) the sentences employed must be true. Hempel believed that explanations can be confirmed to different degrees. Their degrees of confirmation depends on the trustworthiness of the 8 For example, since the D-N model of explanation is subject to logic, then any tautology including explanandum E explains it.

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particular laws included in the explanans S. Hempel (1965, p. 380-384) and other logical positivists believed that also statistical laws explain. In this case, the symbolic inscription of the inductive-statistical model of explanation follows as:

‫݌‬ሺܹǡ ܰሻ ൌ ‫݌‬ଵ ܰ݊ ሾ‫݌‬ଵ ሿ ܹ݊ The account of statistical explanation raises more issues and criticism. Hempel (1965, p. 380-384) attempted at defending his model of explanation by introducing further criteria of appropriate explanans S. For instance; the logical positivists believed that explanandum E should be very likely (or, at least, >0.5) for the explanation to be valid. Additionally, the German philosopher demanded that the class of events employed to estimate should be of maximal specificity (the requirement of strict maximal specificity). For instance, if the I-S model of explanation is employed to predicting the likelihood of insolvency of company C, then not the empirical law covering all companies should be considered, but the one that covers a set (class) of companies most resembling C. It should be noted that both accounts of scientific explanation coined by Hempel are no longer supported by the philosophers of science due to severe criticism (McCain 2016, p. 139). For instance, Sylvian Bromberger (1966) formulated the so-called flagpole counterexample9. According to his line of reasoning, a length of a tower’s shade can be explained by its height and the laws of Euclidean geometry, but also height of a tower can be explained by length of its shade what, as Bromberger (1966) argued, is not believed to explain. The criticism raised defensive voices. For instance, Salmon (1989, p. 172) insisted on explanations to be causally relevant (the so-called causal theory of explanation). However, considering the usual interpretation of the viewpoint of logical positivists on scientific laws as correlational or functional dependence, such position, if formulated earlier, would probably be rejected by the neopositivists.

The theory-observation distinction Additional important viewpoint constituting the received view is distinguishing between theory and observation. Logical positivists (according to the usual interpretation) believed that observations (even though they are liable to error) are of greater certitude than laws and independent from theories10. For instance, Carnap (1966, p. 16) believed 9

The actual argument involved a tower and its shadow instead of a flagpole. Here, the divergence between observation and theory underlined by neopositivists is clearly visible since Hempel (1965) did not doubt (4) whether the employed sentences C1, C2, …, Ck are true.

10

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that [w]e know that singular statements of fact, obtained by observation, are never absolutely certain because we may make errors in our observations; but, in respect to laws, there is still greater uncertainty. [because] A law about the world states that, in any particular case, at any place and any time, if one thing is true, another thing is true. Clearly, this speaks about an infinity of possible instances. This differentiation is also (similarly to the views on the nature of causation) grounded in the Humean doctrine, i.e., his insistence on a sharp distinction between empirical ‘matters of fact’ and logical, synthetic truth of reason (Norris 2006).

1.2. Logical empiricism and economic methodology Similarly to the oversimplified reconstructions delivered by the philosophical opponents of logical positivism (Friedman 1999), economic methodologists also seem to criticize the neopositivist ideas that are either oversimplified or were supported at the early stages of the Vienna-Circle development. For instance, McCloskey (1998, p. 226) identified research conducted according to the neopositivist methodology with verifiability [and not confirmability], observable implications, meaningful statements, science vs. pseudoscience, the love of physics, the unity of sciences, the factvalue split, prediction and control, hypothetico-deductive systems, and the formalization of languages (McCloskey 1998, p. 228).

The neopositivist philosophy of economics The chronologically first attempt at constructing economic methodology in line with the neopositivist ideas was Terence Hutchison’s (1938) book. However, the neopositivist methodology was employed by economists earlier. For instance, Gartley (1935, p. 184) considered the rule of confirmation in the context of stock-market trading. He advised grounding investment decisions in confirmed signs of a trend: [i]n this cases the rule of confirmation would have saved the trader from making short commitments at the bottom of these bear markets. As Hammond (1991) put it, Significance and Basic Postulates of Economic Theory is the book that formally introduced positivism to economic methodology. Hutchison (1938) identified the neopositivist methodology with quantification and measurement, empirical verification of hypotheses and making economy free from normative values and metaphysics. In addition to observing empirical generalizations, he also advised economists to employ the hypothetical method. Hutchison (1938) defined the hypothetical method as “thought experiments” or investigating theoretical models with mathematics: [t]o a far greater extent than any other science, except perhaps Geometry, Economics makes use of what has been called the “hypothetical” or “isolating” method. That is, (…) investigating not directly the problems of the world as it is, bus simplified cases

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and examples [such as] (…) the behaviour of Robinson Crusoe and other “conjectural history” (p. 36-37). However, even though the thought experiments are said to be a substitute of laboratory experiments, Hutchison [1938] was fully aware of the shortcomings of this way of reasoning and argued that theoretical investigations cannot be anything more than a preliminary thought-clearing exercise (p. 38). He advised economists to construct hypotheses that are confirmable: if a ceteris paribus law is an empirical generalisation, so it can only have a clear scientific meaning if it is indicated under what conditions it would be true, or under what false (Hutchinson 1938, p. 41). The British methodologist indicated that economic laws of his time are usually vaguely and unclearly formulated what makes their confirmation difficult or impossible since to indicate under what conditions they are true and under what false, and the meaning of the vital qualification “ceteris paribus” is left hopelessly imprecise (p. 41) and supposed that economists construct their hypothesis with the aim of making them unfalsifiable in order to defend their theories.

Criticism of the mainstream economics The then-current state of economics (pure theory in Hutchison’s terminology) made Hutchison (1938, p. 54) accuse economists of creating theories that are not themselves “scientific” since they cannot conceivably ever be brought to any kind of empirical test. Hutchison devoted part of his book (p. 51-58) to analysis focused on methods employed by economists to defend their theoretical propositions from being disconfirmed or, in other words, on ways how economists make their theories data-proof. Such an accusation is directly grounded in the neopositivist viewpoint according to which metaphysics should be excluded from science. Hutchison (1938, p. 58) cited Joseph Schumpeter’s opinion which indicated that this drawback of economics is grounded in the rationalist11 presuppositions held by economists during the first decades of the twentieth century. The line of Hutchison’s (1938, p. 60-62) argument against the ceteris paribus laws in economics is as follows. First, the British philosopher of economics quotes Ernst Mach’s viewpoint on the laws of physics, according to which law L limit a universe of possible events E so that if some excluded state of affairs E1 happens to be observed, then L is falsified/disconfirmed. Second, he argued that [e]conomic laws of the orthodox type set no such limitation. They exclude or forbid no conceivable type of occurrence, being true, as their propounders insist, whatever happens or whatever might conceivably happen (p. 61). It should be noted here that a similar accusation was formulated by Daniel Hausman (1989) half a century later. The contemporary methodologist argued that the ceteris paribus laws in economics are untestable because the clause is usually left without specifying. 11

Here, Hutchison referred to a priori rationalist doctrines of the French and German philosophers of the eighteenth century (p. 58).

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Therefore, such laws are characterized by empirical emptiness and they, according to the neopositivist division on meaningful and meaningless statements, should be included in the latter group. Additionally, Hutchison (1938, p. 61) accused economists and the methodologists of economics of not distinguishing between deductive and inductive inferences among economic laws. Nonetheless, in the second part of his book, Hutchison (1938, p. 67) argued that the accurately formulated ceteris paribus laws are falsifiable if the clause is either explicitly specified or tacitly understood. He instantiated his viewpoint with the case of earthquake disturbing an experiment aimed at confirming the laws of mechanics which hold unless such rare events happen. In other words, the ceteris paribus clause of the laws of mechanics entails earthquakes. Hence, his argumentation should not be read as an attempt at getting rid of the ceteris paribus clause from economic laws, but either implicit or explicit specifying when a particular economic law hold and predicting phenomena to confirm or disconfirm economic theories12. Hutchison (1938, p. 129-155) also strongly opposed doing economics in ways that ignore empirical data. He believed that the “psychological method” is not scientific. The “psychological method” is identified with assuming profit-maximizing behavior or customer rationality without attempting at confirming one’s opinions. His views in this aspect are in line with the neopositivist movement, whose members rejected the concept of synthetic a priori sentences as disconfirmed by the development of science. Also, he is one of those philosophers of economics who highlighted the distinction between normative and positive science and argued similarly to the Vienna-Circle members that scientists should focus on the latter. Hutchison (2000) repeated his earlier neopositivist approach to economic methodology in his last book aimed at criticizing the formalist revolution which, in his opinion, switched economists’ interest from empirical data to formal techniques of modeling.

Positive and normative economics According to Lewis Hill (1968), there are two aspects of the positive methodology crucial for doing economics. First, as the neopositivists mentioned above and Milton Friedman (1953) argued, economists should deny any normative values. Similarly to metaphysics, they also are not verifiable or confirmable. Such advices are clearly normative in nature. This epistemic advice is explained by Hill (1968) as understanding the difference between means and ends of technical analysis. In other words, economists should focus on finding cost-effective solutions instead of engaging in moral 12

Here, Hutchison disagreed with the then-popular opinion that economics, because of its deductive method, is equipped better than other social sciences. In contrary, the British philosopher of economics thought that other social sciences can formulate confirmable and, to some degree, right predictions.

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judgments. However, synthetic a priori statements such as axioms can be provisionally accepted only if predictions of constructed theories and models are compared to the observable phenomena. Considering Hill’s (1968) viewpoint: The positive methodology can be accepted as valid, subject to two qualifications: the conclusions to be verified must be related to observable concrete phenomena; and the theories cannot be taken as basic explanations of causal relationships, but only as predictions (p. 263), his reconstruction of the positivist methodology mistakes Friedman’s (1953) instrumentalism for the positivist philosophy of science.

Economists’ interpretations Lawrence Boland (1991) acknowledged that currently economists never explicitly admit employing the logical-positivist methodology and indicate as a cause the negative opinion held by economists about neopositivist ideas: we have only a negative understanding of economic positivism (p. 89). On the contrary, Boland highlighted that the positivist, empiricist methodology was synonymic to science that opposed building philosophical systems grounded in the rationalist tradition. What is especially important in Boland’s (1991) considerations for this book, is his review of various interpretations of logical positivism popular among economic methodologists. Boland (1991, p. 90) pointed out four various readings differ in emphasis put on empiricism. The Harvard interpretation underlies the new field of experimental economics. LSE positivism refers to the viewpoint that the neopositivist demand of confirmationism is also fulfilled by the project of econometrics, i.e., gathering statistical data without experimental control. Most liberal empiricism is, according to Boland (p. 93), voiced by LSE methodologists, who believe that theories should only be potentially refutable13. Since Boland (1991) supported McCloskey’s (1998; 1989) viewpoint that economists may advertise their results as an outcome of the neopositivist methodology but, in practice, do something else, studying the research practice and reconstructing economic methodology on this ground may be more fruitful. David Serrano (2006) studied early demand theory (the works of Vilfredo Pareto, Henry Moore, and Henry Schultz). The Spanish economic methodologist believed that their research methodology is in line with logical positivism since the demand theorists advised testing hypotheses drawn from the theory on aggregate data with statistical means. The three economists studied by Sarrano (2006) are, in his opinion, right examples supporting the thesis that economic methodology was, at least in the early twentieth century, neopositivist. First, attempts at empirical confirmations of the demand theory show economists’ attachment to empiricism and the meaningless/ 13

Boland (1991, p. 92-93) also listed Friedman’s viewpoint as one of the four interpretations of logical positivism. However, it is arguable that Friedman’s (1953) famous essay was inspired by Dewey’s instrumentalism instead, cf. Section 1.6. below.

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meaningful distinction. Second, Pareto’s (1981, p. 41) opinion: nothing is gained when the function (…) is called utility function on suspending the judgment whether utility functions exist indicates that his advice is to focus on finding observable behavior routines exemplifies the neopositivist approach to realism/antirealism debate and understanding laws as empirical regularities. Third, Pareto, Moore, and Shultz also shared the logical-positivist viewpoint on causation as constant conjunction without ontological, mechanistic claims. On the contrary, Sarrano (2006) indicated that the studied economists had no consistent views on how empirical, statistical testing can confirm theories. Christopher Clarke (2015) voiced a similar view on preferences in economic theory and logical positivism acknowledging that economists read preference assignments in several ways, all of which have a positivistic flavor.

Is economics a neopositivist science? A contrary point of view, according to which the mainstream economics is not a neopositivist science was voiced by Schinckus (2010), who attempted at reconstructing and operationalizing the neopositivist methodology. The Lancasterian economist argued that the logical-positivist ideal of science is fulfilled by a new field of economics, i.e., econophysics, that, for this reasons, should be considered to be a new discipline instead. Schinckus (2010) described a neopositivist science as one that combines empiricism, the ideal that observational evidence is indispensable for knowledge of the world with a version of rationalism incorporating mathematical and logico-linguistic constructs and deductions in epistemology (p. 3815). According to Schinckus’s (2010) reconstruction, the logical-positivist science has following features: (1) their theories are empirically funded, (2) observations are essential in the process of theory appraisal, (3) there are only synthetic and analytic statements in theories, (4) theories and models have empirically observable and measurable consequences, (5) unobservables, if discussed, must have empirical justification, (6) theoretical laws, i.e., laws referring to unobservables, must be empirically funded. After operationalizing the neopositivist methodology, the Lancasterian economist argued that the mainstream economics and a recent approach to studying economies, namely econophysics are two different disciplines because they employ alternative methodological frameworks. Schinckus (2010, p. 3817-3820) argued that economics cannot be included in the positivist science because its research lacks empirical dimension by focusing on idealized economic world entailing perfect competition, profit-driven companies, and instantly adjusting prices. On the contrary, econophysics employs data-driven models instead of theoretical ones dealing with abstractions and hence fulfills the ideal of neopositivist science.

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1.3. Neopositivist economics Various philosophers and economic methodologists differently define logical positivism14. This section strives for delivering a consistent operationalization of logical positivism in the context of economic research. The attempt delivered below sticks to the traditional interpretation. In general, there are six characteristic features of logical positivism in the context of economic research: (1) rejection of metaphysics as unscientific and advising positive science, what implies (2) confirmation as a method of demarcation and (3) basing science on empirical evidence. Additionally, neopositivists believed that (4) causality is to be deprived of metaphysical content and reduced to constant conjunctions, which (5) science is aimed at discovering and describing using laws. (6) Constructed laws are employed to explanation and prediction in line with the deductive-nomological or inductive-statistical models of explanation.

Scientiic economics Logical positivists aimed at analyzing the language and methods of science and therefore considered the question what science is. These early-twentieth-century philosophers held that meaningful are the statements that can be verified (formerly) and, after the demarcation criterion was liberalized, confirmed (or, finally, for which a method of confirmation can be conceived. Therefore, logical positivists (1) rejected metaphysics as meaningless (i.e., not saying anything about the world). The term “metaphysics” or, in other words, unconfirmable statements include normative theories and ethical considerations, impossible to confirm or disconfirm theories and laws (such as unrestricted ceteris paribus laws), and considering the central tenet of scientific realism named by Carnap “external existence” of theoretical entities. The opinions of above-discussed neopositivists and economic methodologists considering this doctrine are coherent and state that economic research conducted in line with logical positivism should not focus on the above-listed examples of meaningless statements. Since meaningful, scientific statements for logical positivists are those that can be (2) confirmed, economists, in their research practice, should be interested in confirming their theoretical propositions. The distinction between science and non-science implied by the verificationist criterion of meaning underlined by logical positivists in the early stages of their development15 entails the belief that each statement should be, in 14

Divergent readings of the doctrine of logical positivism among philosophers can be exemplified with the traditional and revisionist interpretations. Economic methodologists are more consistent in terms of understanding neopositivism (which is usually interpreted in line with either a simplified or fully developed traditional interpretation), but their opinions on whether economics is a neopositivist discipline differ (cf. Sarrano (2006), Boland (1991), and Schinkus (2010) for examples of contrary views). 15 Carnap liberalized the criterion of meaning in the 1930s. According to the fully-fledged neopositivist doctrine, statements are meaningful as long as it is possible to conceive of a method of their confirmation, what was incorporated in the LSE interpretation of neopositivism discussed by Boland (1991, p. 90).

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principle, at least, possible to confirm or disconfirm. Therefore, theories constructed in line with neopositivism should entail operationalized definitions of terms that are not commonsensical16. A similar concept to the confirmation criterion, the doctrine of operationalism, was developed independently by Percy Bridgman (1927). Boumans and Davis (2016, p. 13-14) exemplified the process of operationalization (to call Bridgman’s (1954) terminology) with the case of unemployment, which is defined theoretically as the number of people who are jobless, looking for jobs, and available for work. (…) [T]he definition of the terms “looking for jobs” and “available for work” involves human motivation, and thus cannot be observed as if it were a physical fact, such as oranges being orange. Therefore, if economists are to talk about unemployment in a meaningful way (i.e., possible to confirm), then the two terms underlined by quotation marks are to be further operationalized. According to Baumans and Davis (2016, p. 14), “unemployment persons”, for instance, are understood as “All persons without a job during the survey week who have made specific active efforts to find a job during the preceding four weeks, and were available for work (unless they were temporarily ill). All persons who were not working but were waiting to be called back to a job from which they had been laid off.” Hands (2004) discuss the problems connected to operationalizations of theoretical terms in economics in detail. Very roughly speaking, Carnap (1966, p. 20) understood the process of confirmation as looking for observations confirming a law and not finding cases that contradict it. Therefore, economists should employ laws to their analysis (and possibly models17) that are already confirmed or attempt at confirming new theoretical developments. The details of the process of confirmation depend on whether the traditional or the revisionist interpretation, which highlights uncertainty of knowledge due to the impossibility of complete confirmation, is accepted. However, logical positivism is undoubtedly strongly grounded in empiricism, hence (3) theories, models, and data should confirm laws. Boumans and Davis (2016, p. 35) mentioned as a curiosity the fact that both logical positivists and econometricians moved to the United States due to the World War II and that econometrics in its roots is a logical positivist science. The authors of Economic Methodology. Understanding Economics as a Science exemplify this thesis with Tinbergen’s (1939) piece of econometrics aimed at empirical verification of the business-cycle theories18. As Hutchison (1938) believed, economists (similarly to physicists) should not restrain from the theoretical analysis (i.e., constructing theoretical models that were opposed to empirical laws, empirical regularities), but such analysis should be empirically grounded and confirmed by data. For instance, the British economic methodologists argued that certain assumptions widely 16

However, since there is a conceptual grid acknowledged by economists, not each of the theoretical terms is to be defined in every article or book. 17 The philosophers of science focused their analyses on laws instead of models in the first half of the twentieth century. However, the neopositivist doctrine can easily be extended and its conclusions employed to an analysis focused on models instead. 18 However, it should be noted that not each kind of econometric research is indeed neopositivist in its nature.

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accepted by neoclassical economists are unconfirmed and meaningless. Therefore, in opposition to Friedman’s (1953) famous essay, neopositivism states that axioms of theoretical models should be grounded in observational statements and also be subject to the process of confirmation/disconfirmation.

Explanation, causality, and laws Logical positivists believed that (4) metaphysical theories of causality are meaningless and this term should be used to name constant conjunctions, in line with Hume’s reductionism. Even though this issue was not widely discussed in the economic methodology literature, the causal interpretation of laws should be explicitly stated because theoretical or empirical laws can also be read as a description of functional dependence what, as Cartwright (1989) acknowledged, is a popular interpretation of the laws of physics. Since the causal structure of the world is believed to be described in terms of constant regularities, science, according to the neopositivist doctrine, is aimed at discovering such regularities and (5) describing them as either empirical or theoretical law. Such laws were formerly believed to serve as an economic description of phenomena, but later this viewpoint evolved and scientific laws were employed to explaining and predicting. The laws are subject to the meaningful/meaningless distinction discussed above and should be constructed in a way that makes confirmation or disconfirmation possible. Therefore, economists should either restrain from adding ceteris paribus clause or specify what determinants should stay unchanged for a law to hold. Otherwise, laws are constructed in a data-proof way, to use the Hutchinson’s (1938, p. 58) term. Additionally, the constructed law should be named to be either statistical or deterministic one. Finally, since the aim of science was reformulated from delivering economic descriptions to explaining and predicting, scientific laws should be useful for this purpose. Logical positivists widely accepted Hempel’s (1965) account of scientific explanation. Therefore, economic research conducted in line with logical positivism should entail not only constructing falsifiable laws and attempting to confirm them, but also employing the deductive-nomological and inductive-statistical models of explanations. However, economics is probably underdeveloped or economic systems too random for these models of explanations to be employed, since, as Hempel believed, explanations are valid as long as explanans is sufficient to predict explanandum appropriately. It should also be noted that according to the neopositivist doctrine, the relation between explanation and prediction is symmetrical. In other words, explanations are valid only if they are sufficient to predict phenomenon under consideration.

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2. FALsIFICATION AND ThE METhODOLOGy OF ECONOMICs The falsificationist methodology of science was aimed at opposing (in some aspects) and continuing (in others) the neopositivist stance. Karl Popper, in contrary to the logical-positivist views (cf. chapter 1), believed that what distinguishes science from non-science is falsifiability instead of verifiability or – later – conformability. The essential term for the Popperian philosophy of science denotes a feature of a theory or a statement that can (at least possibly) be proven to be wrong. In other words, scientific theories should be, at least theoretically, refutable. For instance, the statement ‘The sun will rise tomorrow, or it will not rise’ is not falsifiable because it is true regardless the state of the world (p or q1). Such statements or theories, due to being impossible to refute, are, according to Popper’s fallibilism, nonscientific and metaphysical. The Popperian philosophy focuses on epistemology and is prescriptive. However, the fallibilist guidance implicitly presupposes certain aspects of reality and hence is also descriptive regarding ontology. Fallibilism is not only a solution of the demarcation problem but also offers to solve the riddle of induction by dismissing inductive method from science. Popper’s solution of the latter is grounded in the viewpoint according to which scientists do not justify their propositions inductively but, instead, put forth hypotheses and attempt at refuting them. Therefore, his philosophy of science highlights fallibilism of the endeavor and rejects the epistemic dimension of scientific realism: scientific theories, even if true, could never be acknowledged to be so. However, in line with scientific realism, falsificationism accepts the ontological and semantic dimensions thereof and excludes the context of discovery from the philosophy of science. Popper (1968) believed that the endeavor of science is conducted objectively and the role of scientists is diminishable. Popper’s views evolved, but, in general, he believed that even if a theory would be correct, it could not be ascertained to be so. In contrary to the logical-positivist doctrine, Popper believed that scientific theories aim at being true (in the correspondence meaning), but we can never be sure if a theory under consideration is true: We thus obtain the fittest theory within our reach by the elimination of those which are less fit. (By “fitness” I do not mean merely “usefulness” but truth [defined in the correspondence manner]) (Popper 1953, p. 15). Later, he developed means of measuring verisimilitude (the degree to which theory is correct), which were sharply criticized by logicians and philosophers of science. The stance of the LSE-based philosopher of science is described in section 2.1. Assuming that p: ‘the sun will rise tomorrow’ and q: ‘the sun will not rise tomorrow’ and that the state of the world can be either p or q, then p or q describes all possible states of the world (Wp and Wq) and is always true.

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Despite the current popularity of the scientific-realist school in the methodology of economics, falsificationism was widely discussed by methodologists and economists, and it seems one of the most notable schools in the philosophy of economics. Caldwell (1991) listed G. Archibald, Jack Birner, Mark Blaug, Lawrence Boland, Wade Hands, Friedrich Hayek, T. W. Hutchison, Joop Klant, Kurt Klappholz, Spiro Latsis, Stanley Wong, and Bruce Caldwell as the most influential philosophers of economics who grounded their views in the fallibilist methodology. Possibly due to the number of attempts, the reconstruction of Popper’s views present in the philosophyof-economics literature is diversified and, in some cases, misguided (Thomas 2016). For instance, Boland (2016) acknowledged that Blaug’s (1992) reconstruction of the Popperian philosophy was substantially influenced by Imre Lakatos and hence fundamentally ignorant (ibid., p. 22). In Section 2.2., the reconstructions of the Popperian philosophy of science delivered by a handful of methodologists of economists are discussed. Finally, the research guidance of the falsificationist school is summarized (cf. Section 2.3.). Interestingly, Karl Popper not only influenced economics by shaping the mainstream methodology thereof but also promoted the neoliberal views on markets and society. He co-funded (together with, among others, Hayek, Machlup, and Misses) the Mont Pelerin Society, a think tank uniting liberally oriented economists, philosophers, historians, and business leaders (Mirowski 2015).

2.1. The fallibilist epistemology Karl Popper, in his life-long academic career, aimed his attention at several philosophical problems. Considering the purpose of this book, the discussion of falsificationism focuses on the solution of the problems of (1) demarcation and (2) induction, (3) theory-ladeness of observations, (4) the method of falsificationism, (5) verisimilitude and corroboration, and, (6) to some degree differentiated methods of natural and social sciences. Additionally, criticism of the Popperian philosophy is reviewed and Lakatos’ methodology of scientific research programmes summarized. Popper’s political views advocated in Open society and its enemies (Popper 2012) are excluded from further considerations (cf. Shearmur 2002 for a comprehensive introduction) due to its limited relevance to the issues under consideration.

The problem of demarcation Popper (1962, p. 42) believed that the problem of demarcation is one of the most prominent issues in the philosophy of science. Therefore, as he acknowledged during a lecture given at Cambridge (Popper 1953, p. 1), he had attempted at addressing the questions “When should a theory be ranked as scientific” or “Is there a criterion for the scientific character or status of a theory?” since the beginning of his academic

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career, when, before focusing on philosophy, he studied psychology. According to the then widely-accepted consensus (cf. chapter 1.), scientific statements were believed to be verifiable and, later, confirmable. However, the neopositivist demarcation criterion faced a few obstacles. Scientific laws (due to describing an infinite number of instances, some of which have not happened yet) were impossible to be verified and, therefore, should, according to the previous demarcation criterion, be included in metaphysics. Therefore, scientific statements had to be justified inductively. Popper (1962) argued that no knowledge can be sure and scientific theories should only be provisionally accepted as long as they are not falsified. It should be noted that not every scientific statement must be, according to the Popperian philosophy of science, falsifiable. Refutability is only demanded from theories (i.e., single statements constituting a theory does not have such property) what constitutes an essential difference to logical positivism. The latter doctrine states that each meaningful statement is to be verifiable and – later – confirmable. According to Popper’s (2013, p. XX) definition, a theory is falsifiable if and only if there exists at least one potential falsifier – at least one possible basic statement that conflicts with it logically.

Dismissing induction from science In addition to addressing the problem of demarcation, the fallibilist doctrine offers a solution to the problem of induction. Alternatively, to be more strict, dismissing the problem of induction from the philosophy of science. Karl Popper was one of the very few philosophers who fully accepted Hume’s (1963) skepticism. In contrary to the usual practice of producing counterarguments dismissing the fallacies of inductive reasoning or quantitative approaches to measuring probability of inductively-justified statements, Popper disagreed with the empiricist consensus according to which scientific knowledge is based on inductive reasoning. Popper admitted that science proceeds from putting forth courageous theories (i.e., easily falsifiable) to empirical tests. The role of empirical data in the falsificationist methodology is much different compared to the logical-positivist doctrine. Karl Popper was an anti-inductivist: Induction, i.e., inference based on many observations, is a myth. It is neither a psychological fact, nor a fact of ordinary life, nor one of scientific procedure (Popper 1953, p. 17). According to falsificationism, empirical data can only be used to falsify, never to support a theory. Opposing logical positivism, Popper (2002, p. 19) wrote that his proposal is based upon an asymmetry between verifiability and falsifiability; an asymmetry which results from the logical form of universal statements. For these are never derivable from singular statements, but can be contradicted by singular statements.

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The second reason why Popper had inductive reasoning in disregard was the fact that he opposed the so-called neutral observation language postulated by logical positivists (Fuller 2002, p. 143). Despite certain similarities to the logical-positivist concept of confirmation (e.g., Carnap (1936) believed that no law could be confirmed with certainty), falsificationism coined by Popper rejects the observation-theory distinction supported by the above-discussed neopositivist philosophers of science. As Thornton (2017, p. 17) put it, Popper argues that the only logical technique which is an integral part of scientific method is that of the deductive testing of theories which are not themselves the product of any logical operation. In this deductive procedure conclusions are inferred from a tentative hypothesis. These conclusions are then compared with one another and with other relevant statements to determine whether they falsify or corroborate the hypothesis. Such conclusions are not directly compared with the facts, Popper stresses, simply because there are no ‘pure’ facts available; all observation-statements are theory-laden, and are as much a function of purely subjective factors (interests, expectations, wishes, etc.) as they are a function of what is objectively real. In other words, Popper rejected the logical-positivist theory-observation distinction. Instead, he, in line with Poincare’s conventionalist philosophy of science, believed that observations are, to some degree, determined by theories (Harding 2012).

Theory-ladeness of observations Rejecting the neutrality of observation language leads to the conclusion that there are many theoretical frameworks able to deliver a description of experiments or observations. Changes in theory imply different descriptions of observations. Popper (2002, p. 82) believed that observational statements are not absolute and are as liable to testing and (eventually) falsification as theories themselves2. According to the Popperian philosophy, observational statements are outcomes of (1) observer’s interpretation and (2) employing a determined theoretical framework (Shearmur and Stokes 2016). Due to the theory-ladenness of observational statements, they can be modified when a new theory is coined. It should be noted that admitting that basic statements are not justifiable by our immediate experiences, but are (…) accepted by an act, a free decision (Popper 2005, p. 92), leads to the difficulty known since Henri Poincaré’s conventionalism (Folina 2014). When an experiment E1 contradicts a theory T1 (i.e., its result contradicts hypothesis which is a testable implication of theory under consideration), then it is not apparent whether T1 should be rejected or, in contrary, one of the observational statements (S1, S2…, Sn) was false and should 2 It should be noted that the below-discussed Blaug’s (1992) interpretation of falsificationism that put emphasis on confronting theory with data is not supported by appropriately reconstructed falsificationism.

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be reformulated. According to Thornton’s (2017) opinion, Popper’s assertion that his methodology is not a form of conventionalism cannot be accepted.

The fallibilist method As it was previously mentioned, Popper (1962) believed that science does not employ inductive reasoning. In contrary, science proceeds by the method of conjecture and refutation. First, a theoretical proposition is coined. Second, it is tested in an experiment and (possibly) refuted. As McGrew, Alspector-Kelly and Allhoff (2009, pp. 460-461) put it, [h]e proposed that science proceeds, not from careful observation to induced theory, but by conjecture and refutation. A conjecture (or hypothesis) is formulated first, he insisted, before the collection of data. (…) The scientist then proceeds, not to attempt to confirm it [theory], but instead to ruthlessly subject it to tests that will demonstrate that it is wrong. Because Popper rejected the viewpoint according to which asserting that a theory is true is ever justifiable, he dismissed the problem of induction. Theories can be provisionally accepted when they pass severe testing. In contrary to logical positivism, which states that theories are inductively confirmed, falsificationism states that theories are never known to be true; they can only be known to be false. Popper (2002, p. 10) was evident in his fallibilist approach to evidence by acknowledging that a positive decision [i.e., an experimental result confirming a theory under consideration] can only temporarily support the theory, for subsequent negative decisions may always overthrow it. So long as theory withstands detailed and severe tests and is not superseded by another theory in the course of scientific progress, we may say that it has ‘proved its mettle’ or that it is ‘corroborated’ by past experience. Despite the voices accusing Popper’s method of being a version of empiricism3, corroboration differs from confirmation in a few important aspects. First, as highlighted above, Popper believed that all knowledge is hypothetical and can never be proven to be right. Second, the degree of corroboration depends on how severely a theory was tested. Third, corroborating a theory under consideration is a side effect of attempts at falsifying it (Keuth 2005, p. 109). In contrary, the neopositivist doctrine advises attempting at confirming a theory, i.e., finding supportive evidence. The confirmation-corroboration distinction can be instantiated with Keuth’s (2005, p. 45) example: a (…) statement [S1] such as “All men are mortal” can be highly corroborated on the basis of observed instances of death. According to the confirmationist approach, many observations of dying men would more and more confirm S1. 3 E.g. Bradley (2015, ch. 8) did not see a deeper difference between corroboration and confirmation: [t]he only disagreement between Popper and inductivists is over the starting point – inductivists think that each hypothesis begins with some prior probability, whereas Popper rejects the concept of prior probability as applicable to science. After that disagreement, both agree that science proceeds by the elimination of hypotheses.

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In contrary, a fallibilist would assert that S1 is (highly) corroborated, but it can never be sure that S1 is true. Popper’s approach to the problem of theory choice is contrary to the usual empirical method not only due to the emphasis put on negative (i.e. falsifying) evidence instead of supporting one, but also in the aspect of advising scientists to prefer improbable theories because they offer higher predictive power and are therefore more likely to be falsified. Karl Popper coined his fallibilist philosophy of science inspired by a lecture given by Einstein (Thompton 2017). Comparing the general theory of relativity to the psychoanalytic theories of Freud and Adler made Popper observed the following distinction. The psychological theories and Marxism were vague and unspecific so that their predictions were accurate in many states of the world. In other words, they were challenging to falsify: by making their interpretations and prophesies sufficiently vague they were able to explain away anything that might have been a refutation of the theory had the theory and the prophesies been more precise (Popper 1953, p. 12). In contrary, Einstein’s highly logically improbable general theory of relativity produced novel predictions that contradicted hypotheses drawn from previous physical theories. The former theory was constructed to deliver testable and highly improbable implications and the latter one employed imprecise terminology so that any state of the world could be explained regarding the latter theories (McGrew, Alspector-Kelly and Allhoff 2009, p. 459). Therefore, they were unfalsifiable and, according to the demarcation criterion, unscientific. As Popper (2014, p. 311) put it, [w]e also stress that truth is not the only aim of science. We want more than mere truth: what we look for is interesting truth – truth which is hard to come by. And in the natural sciences (as distinct from mathematics) what we look for is truth which has a high degree of explanatory power, in a sense which implies that it is logically improbable truth. McGrew, Alspector-Kelly and Allhoff (2009, p. 460) explained that if a theory takes no risk, then the fact that it suffers no defeat can command no respect.

Getting closer to the truth The notion of truth in Popper’s philosophy of science changed in time. Nevertheless, Popper (2014) believed in his life-long academic career that science converges to the true description of the world in a rational, evolutionary process. Therefore, his falsificationism accepts the ontological dimension of scientific realism. He held that there is an ontological difference between theories and the herein described world. Popper (1979, p. 143) briefly defined his three-world ontology. The first world consists of physical bodies: of stones and of stars; of plants and of animals; but also of radiation, and of other forms of physical energy. The second world, the mental or psychological world, the world of our feelings (…) of perceptions and our observations; in other words, the world of mental or psychological states or processes, or of subjective experiences. Finally, [b]y world 3 I mean the world of the products of the human mind,

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such as languages; tales and stories and religious myths; scientific conjectures or theories, and mathematical constructions (p. 144). Popper’s ontological views seem to be in line with the ontic dimension of scientific realism (cf. section 2.1.). At an early stage of his academic career, the LSE-based philosopher of science believed that if science proceeded in line with his epistemic guidance, it would converge on truth in an evolutionary process. However, Popper avoided asserting that a theory which is corroborated is true-for clearly if every theory is an open-ended hypothesis, as he maintains, then ipso facto it has to be at least potentially false. For this reason Popper restricted himself to the contention that a theory which is falsified is false and is known to be such, and that a theory which replaces a falsified theory (because it has a higher empirical content than the latter, and explains what has falsified it) is a ‘better theory’ than its predecessor. However, he came to accept Tarski’s reformulation of the correspondence theory of truth, and in Conjectures and Refutations (…) he integrated the concept of (…) verisimilitude (Thornton 2017, p. 26). Additionally, the concept of measuring or (at least) comparing verisimilitude of different theories was aimed at supporting Popper’s view according to which choice among competing theories can be proceeded rationally, by comparing their degrees of verisimilitude (Popper 2014, p. 294). Popper (2014, p. 233) offered two different methods of comparing verisimilitude. According to the first, qualitative (Thornton 2017) or comparative (Keuth 2005) approach, theory A should be preferred over B only if [AT4]>[BT] and [AF]≤ [BF]. In other words, a theory is preferred over the competitive one when its consequences are correct in a greater number of cases than the other theories and, at the same time, its consequences are fallacious in a fewer number of cases. As Keuth (2005, p. 159-160) argued, [i]t may indeed seem plausible to expect the verisimilitude of false sentences to increase if their truth content, but not their falsity content, increases, or if their falsity content, but not their truth content, decreases. The German philosopher (Keuth 2005, p. 160 et seq.) argued that this definition of verisimilitude is inapplicable, if not contradictory. It should be noted that relatively recently several new approaches to measuring verisimilitude were coined (e.g., Miller 2015; Schurz and Weingartner 1987; Kuipers 1987), but discussing them, considering lack of influence on economic methodology, exceeds the scope of this book. According to the second, quantitative account, verisimilitude is measured by quantification of truth content [TT] and falsity content [TF]. Also, the quantitative approach to comparing verisimilitude of two competing theories includes logical improbability of a theory. Popper believed (Thornton 2017) that what follows from his latter approach to verisimilitude is the fact that falsified theories can be legitimately believed to be better due to their broader content. Quantifying verisimilitude allowed Popper (2014, p. 312-313) to justify his optimistic viewpoint on science. The above4

Simplifying Popper’s notion, [AT] denotes the truth-content of theory A and [AF] falsity content of theory A.

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mentioned negative induction, according to which the history of science is full of theories that turned out to be false can be interpreted as evidence in favor of scientific progress (theories are closer and closer to truth even though we do not know how near to or how far from the truth we are, we can, and often do, approach more and more closely to the truth (for examples, cf. Popper 2014 p. 536-537). The concept of verisimilitude faced considerable criticism. Thomas Kuhn (cf. chapter 6.) convincingly argued that accepting the theory-ladenness of observations and the absence of theory-neutral language leads to the situation where different theories are hardly comparable known as the incommensurability of theories. If theories T1 and T2 employ different, untranslatable languages, then comparing verisimilitude of two theories T1 and T2 is impossible. Laudan (1981) criticized the concept of convergent realism similarly. The assumption that the extent to which two theories are true can be compared implies that the two theories are (at least possibly) described in the same language (i.e., they belong to the same paradigm, employing the Kuhnian terminology). Additionally, Miller (1974) and Tichy (1976; 1978) criticized Popper’s method of comparing verisimilitude on the ground that both above-described definitions of verisimilitude can only be satisfied when the next (closer to truth) theory (T2) is precisely true. In detail, the definitions delivered by Popper cannot be met because, as Miller and Tichy proved, (…) in the case of a false theory t2 which has excess content over a rival theory false t1 both the truth-content and the falsity-content of t2 will exceed that of t1. With respect to theories which are[partially] false, therefore, Popper’s conditions for comparing levels of verisimilitude, whether in quantitative and qualitative terms, can never be met (Thornton 2017, p. 38). Popper acknowledged his mistake and indicated that he should have foreseen the criticism voiced by Tichy and Miller. Nevertheless, Popper (1979, p. 372) argued that the fallacious implications of his definitions of verisimilitude cannot be employed as evidence in favor of a thesis according to which the problem is unsolvable, i.e., he believed that the term of verisimilitude is possible to be defined despite his proven wrong concept. Additionally, in “Objective Knowledge,” Popper (1979, p. 59) disagreed with the face-value interpretation of his quantitative definition and stated that the degrees of verisimilitude (…) can ever be numerically determined except in certain limiting cases. In contrary, according to the view presented in Popper’s later work (1979; 2013), the measures of verisimilitude were provided aiming at only exemplifying intuition on the relations between the true and false content of theories.

Testing theories In addition to the concept of comparing verisimilitude of theories, Popper (2002, p. 9) defined four lines of deductive testing: formal, semi-formal, comparative and predictive. First, the internal consistency of a new theory is tested: there is the logi-

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cal comparison of the conclusions among themselves, by which the internal consistency of the system is tested (ibid.). Second, the empirical content of a new theoretical proposition is checked: the investigation of the logical form of the theory, with the object of determining whether it has the character of an empirical or scientific theory, or whether it is, for example, tautological. Third, the new theory under consideration is compared to other theories in the field with the aim of addressing its novelty and scope (i.e., higher empirical content implying greater predictive power): the comparison with other theories, chiefly with the aim of determining whether the theory would constitute a scientific advance should it survive various tests. Fourth, novel predictions of the theory are tested: the testing of the theory by way of empirical applications of the conclusions which can be derived from it (Popper 2002, p. 9). It should be noted that Popper restrained from being a radical falsificationist and has never advised rejecting a theory after a single negative test result or when no better framework is accessible. As Thornton (2017, p. 22) put it, Popper advised not to abandon the present theory until such time(…) [as one has] a better one to substitute for it. The LSE-based philosopher was aware of the fact that falsification is never absolute and ultimate. Falsificationism is sometimes criticized on the ground that a negative result of theory testing can be caused by infinitely many factors (e.g., inadequate theory, failure in measuring tool, fallacious calculations, etc.). Popper addressed the problem of underdetermination by advising scientists to assume that only one element of theory or hypothesis is under test and all the assumptions (auxiliary hypotheses) are ‘background knowledge,’ which is not refuted in a considered experiment. In Realism and the aim of science, the third postscript to his Logic of scientific discovery, Popper (2013, p. 188) argued that in the everyday practice of research, scientists usually introduce minor changes to the background assumptions so that the influence of each of them is minimized: background knowledge is usually varied by us during the tests, which tends to neutralize mistakes that might be involved in it. Nevertheless, the background knowledge was never considered to be constant and the possibility of its refutation in another experiment was acknowledged by the LSE-based philosopher of science. The problem of indicating what is falsified in case of obtaining a negative test result was exemplified with four economic-theory examples by Sawyer, Beed, and Sankey (1997). In addition to the question about what exactly was falsified (one of the observational statements, background hypotheses, or the theory under test) when an experiment gives a negative result, falsificationism faces another difficulty. In detail, it is always possible to defend a weak theory from falsification by adding additional assumptions (the so-called auxiliary hypotheses) or reformulating the theory. In response to the objection that it is possible to reformulate or modify a theory so that a new observation is incorporated, Popper advised restraining from adhockery in defending old theories: [i]t might be said that even if the asymmetry is admitted, it is still impossible, for various reasons, that any theoretical system should ever be conclusively falsified. For it is

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always possible to find some way of evading falsification, for example by introducing ad hoc an auxiliary hypothesis, or by changing ad hoc a definition. (…) the empirical method shall be characterized as a method that excludes precisely those ways of evading falsification. (Popper 2002, p. 19-20). Due to these difficulties, the Popperian philosophy should not be read radically, as an invitation to testing and falsifying theories after a single counter instance. As Fernandes (2013, ch. 5) indicated, Popper (1979) put emphasis on the rationality of the choice between competing theories and argued that we should prefer as basis for action the best-tested theory (…) [s]ince we have to choose, it will be ‘rational to choose the best tested theory (ibid., p. 22). Such a theory should be more unified, better corroborated and more powerful. In fact, he even admitted that a falsified (known to be erroneous) theory could be used after being falsified: for instrumental purposes of practical application a theory may continue to be used even after its refutation (Popper 2013, p. 113). Such an interpretation of Popper’s methodological guidance is, in fact, similar to the later-discussed Lakatosian proposition. As Lawrence Boland put it, Popper advocated the same view of learning that Socrates advocated in Plato’s early dialogues. Specifically, Popper says we learn by criticizing and then correcting our knowledge errors. Thus, for Popper, Science as a process of learning is devoted to criticism (Boland 2016, p. 22).

The (literal) falsity of social sciences Despite focusing on the method of natural sciences, the LSE-based fallibilist was also interested in the social sciences and did not disregard their then-contemporary results: [u]ltimately, the idea of verisimilitude is the most important in cases where we know that we have to work with theories which are at best approximations – that is to say, theories of which we actually know that they cannot be true. (This is often the case in the social sciences.) In these cases we can still speak of better or worse approximations to the truth (and we therefore do not need to interpret these cases in an instrumentalist sense) (Popper 2014, p. 319). The passage states that, in Popper’s opinion, social sciences are not true to the degree characteristic to the social sciences. In fact, Popper’s opinion precedes the scientific-realist discussion on the question whether economic models are realistic. Nevertheless, Popper believed that unrealisticness of the models is not an argument for acknowledging that the then-current theories are falsified. Instead, Popper seems to have believed that the social sciences are at an earlier stage of the process of converging onto the accurate account of the social phenomena. In other words, instead of calling these theories (strictly) false, he characterized them as possessing a limited degree of verisimilitude. It should be noted that Popper’s opinion on the social sciences is a notable example showing that the radical interpretation of fallibilism inherited by the philosophy of

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economics from Blaug’s (1992) work (cf. section 4.2.) is not appropriate. First, even though a theory is known to be strictly false, it can be employed for practical reasons (scope, content, simplicity, etc.). Second, it was never Popper’s aim to argue that a single case of falsification is evidence for disregarding it. In contrary, abandoning a theory is only advisable when a new, better proposition was coined. Additionally, the choice between two competing theories is a decision undertaken by a scientific community in a rational way (what opposed the Kuhnian stance on the matter). In addition to coining and developing the falsificationist philosophy of science, Karl Popper was also interested in the philosophy of history. Mentioning his views on the descriptive social sciences (history being the exemplary case) described in “The Poverty of Historicism” (Popper 2002) is useful for economic methodology. The LSE-based philosopher believed that the doctrine of fallibilism (i.e., making predictions and testing them) is also an advisable method for the social sciences. In other words, Popper (2002, p. 122) opposed those defenders of social sciences which stated that their scientific disciplines are impossible to be tested: I cannot accept their view that it is impossible to submit theoretical systems to empirical tests. Some of them are testable, I think; that is, refutable in principle; and they are therefore synthetic (rather than analytic); empirical (rather than a priori); and informative (rather than purely instrumental). Above, Popper rejected the viewpoint according to which social reality is too complicated for making predictions and testing them, what can be read as opposing the critical-realist school in the philosophy of economics5 (cf. section 3.1.). In contrary to the views of Roy Bhaskar and Tony Lawson, Popper (2002) advised considering historical, descriptive approaches as theories and looking for testable hypotheses implied by them: indeed, those rare ideas inherent in these approaches which can be formulated in the form of testable hypotheses, whether singular or universal, may well be treated as scientific hypotheses (p. 139). In the above-quoted passage, Popper argued that the historical approaches present in a few social sciences should be treated as theories and testable hypotheses should be deduced from them. Therefore, in “The Poverty of Historicism,” Popper (2002) opposed descriptive approaches that attempt at not being testable. For instance, the early Marxist doctrine produced testable hypotheses (e.g., predicting that revolutions will happen in highly industrialized countries) (Parsons and Somerville 1977, p. 76). However, since the events of early-twentieth-century contradicted this prediction (a communist revolution happened in the poorly industrialized Russia instead), it was modified so that the fully-developed Marxism was not prone to falsification. Popper (1967) also focused explicitly on the methodology of economics and advised employing situational analysis to researching economic phenomena. His method resembles the method of difference coined by John Stewart Mill because it is 5 However, considering the time of publishing the first edition (1957), Popper could not, due to time precedence, aim his criticism at critical realism.

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grounded in generalizing conclusions from case studies. Ayer (1994, p. 12) described it in the following way: The Method of Difference (…) obliges us to find an instance of a phenomenon and one of its absence which are the same in every respect except one, which occurs only in the presence of the phenomenon; and plainly this is a cause of the phenomena under consideration. According to Noretta Koertge’s (1975; 1979) reconstruction of the method of situational logic/situational explanation, there are four steps of this method of finding schemata of behavior. First, an economist should describe the situation: agent A1 is in situation S1. Second, the situation should be analyzed aiming at generalization: in situations similar to S1, agents An should do X. Third, rationality principle according to which agents An always act appropriately to their situation should be employed. Fourth, the method of situational analysis leads to the following explanation: in a situation similar to C1, agent A2 did X.

Popper’s followers Another notable philosopher who influenced the fallibilist philosophy of science is Imre Lakatos, who coined the methodology of scientific research programs (1980). The Hungarian philosopher of science is widely recognized for coining the term ‘research programme.’ Imre Lakatos was lucidly aware of the difficulties with the approach to theory testing advocated by Popper. The Cambridge-based philosopher of science was aware of the fact that Popper’s falsificationism does not lead to the reconstruction of the history of science. According to Lakatos, the purpose of falsificationism is not descriptive but normative. He attempted at constructing the fallibilist account of science aiming at adequacy to the research practice of scientists. It should be noted that there was a dispute in the philosophy-of-economics literature on whether Popper’s falsificationism is a descriptive theory or a normative guidance. In the former case, it would be refuted by the history of science (Lakatos and Feyerabend 1999). In the latter case, falsificationism should be included in metaphysics if popperianism were self-reflexive (Lakatos 1976). The consensus is that the Popperian doctrine of falsificationism is normative and arguments stating that scientists do not obey it do not undermine it (Blaug 1992; Hands 1991). As Caldwell (1991, p. 4) put it, [t]he fact that Popper’s position is not falsifiable implies that it cannot be refuted by the history of science. Popper’s methodology is prescriptive it cannot be refuted for being descriptively inadequate. Fernandes (2013, ch. 5) named Popper’s falsificationism regulative metaconjectures. The Lakatosian views are a more elaborate version of Popper’s falsificationism that offers better descriptive adequacy to how science proceeds. According to his views on science, the endeavor is conducted in research programs instead of competing theories constructed by independent scientists as Popper argued. Such research programs are characterized by different methodological commitments (i.e., different methods of research). Another characteristic of a research program is that it consists of two main

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elements, the hard core with its protective belt, and the positive heuristic (Pheby 2015, p. 56). Hard cores are, according to the definition delivered by Lakatos (1980, p. 48), axioms, research methods, and presuppositions that are defended by scientists belonging to a particular research program: [t]he negative heuristic of the programme forbids us to direct the modus tollens at this ‘hard core’. Instead, we must use our ingenuity to articulate or even invent ‘auxiliary hypotheses,’ which form a protective belt around this core, and we must redirect the modus tollens to these (ibid.). In other words, in contrary to Popper, Lakatos believed that scientists do not reject falsified theories or, at least, criticize them in a rational process, but aim at defending them with disregard for Popper’s epistemic guidance. The protective belt constituted by auxiliary hypotheses and non essential theories can be appropriately modified to make the hard core adequate to new observations. Lakatos (1980) grounded his considerations in Newton’s gravitational theory. According to his reconstruction, scientists, when faced a counterexamples refuting their theory, defended it in the following way: [w]hen it [Newton’s gravitational theory] was first produced, it was submerged in an ocean of ‘anomalies’ (or, if you wish, ‘counterexamples’), and opposed by the observational theories supporting these anomalies. But Newtonians turned, with brilliant tenacity and ingenuity, one counterinstance after another into corroborating instances, primarily by overthrowing the original observational theories in the light of which this ‘contrary evidence’ was established. In the process they themselves produced new counter-examples which they again resolved. They ‘turned each new difficulty into a new victory of their programme’ (p. 48). In this and similar passages, Imre Lakatos (in his opinion) deemphasized the importance of refutation for theory appraisal. Lakatos (1980, p. 48) explicitly stated that the core is ‘irrefutable’ by the methodological decision of its proponents: anomalies must lead to changes only in the ‘protective belt’ of the auxiliary, ‘observational’ hypotheses and initial conditions. However, if that were the case, how would theories change? After Popper proposed his method, the issue was widely debated. Michael Polanyi and Thomas Kuhn (among others, cf. chapter 6.) advocated the viewpoint according to which theory choice should be explained in terms of social psychology and is possibly an irrational process (Fleck 2012). In contrary, Lakatos, to some degree, defended Popper’s belief in the rationality of theory choice. Lakatos believed that a change of theory could be identified with a change in problems under consideration (so-called problemshift). He divided problemshifts into progressive and degenerative ones. The former is defined in the following way: let us call a problemshift progressive if it is both theoretically and empirically progressive, and degenarating if it is not (Lakatos 1976, p. 183). Lakatos (1980) understood theoretical progressiveness as extending the scope of a theory so that a new theory has some excess empirical content over its predecessor, that is, if it predicts some novel, hitherto unexpected fact (p. 33). Empirical progress is identified with corroborating these novel predictions: a problemshift is also empirically progressive (…) if

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some of this excess empirical content is also corroborated, that is, if each new theory leads us to the actual discovery of some new fact (p. 34). Lakatos believed that scientists rationally choose a framework (research programme) in which they work so, if a research programme stopped to be empirically progressive, it would be rejected. Distinguishing between progressive and degenerative problem shifts allowed to coin a new demarcation criterion. Namely, Lakatos (1980, p. 34) argued that scientific are problem shifts that are at least theoretically progressive. Introducing the concept of progressive and degenerative problem shifts made it possible to describe the process of falsifying theories more adequately. Lakatos believed that scientists do not reject a theory as soon as one contradicting observation appears: [t]hey do not abandon a theory merely because facts contradict it. They normally either invent some rescue hypothesis to explain what they then call a mere anomaly or, if they cannot explain the anomaly, they ignore it, and direct their attention to other problems (1980, p. 4). According to the Lakatosian fallibilism, old theories are abandoned only when a new one is accessible. Lakatos (1980, p. 36) curiously observed that usually even the new theories are ‘refuted’ at the beginning, i.e., they contradict already known facts and only scientists’ efforts (coining auxiliary hypotheses, modifying the protective belt) make it adequate. It is useful for this book to mention Lakatos’ viewpoint on ceteris paribus clauses that are of a notable importance in economics. According to the Lakatosian methodology, CP-clause can be tested in a way similar to how econometricians analyze whether model specification shapes obtained results, i.e., using robustness checks. In other words, Lakatos advised introducing minor changes in the experiment setting, so that influence of each methodical decision is diminishable: [h]ow one can test a ceteris paribus clause severely? By assuming that there are other influencing factors, by specifying such factors, and by testing these specific assumptions. If many of them are refuted, the ceteris paribus clause will be corroborated (Lakatos 1980, p. 26). Before focusing on reconstructions of falsificationism delivered by philosophers of economics (cf. section 2.2.), Lakatos’ categorization of different versions of falsificationism is briefly reviewed. The Cambridge-based philosopher of science distinguished dogmatic falsificationism from fallibilism and sophisticated methodological falsificationism from the naïve one. According to Lakatos (1976, p. 171), [d]ogmatic falsificationism admits the fallibility of all scientific theories without qualification, but it retains a sort of infallible empirical basis. (…)[Additionally, it assumes that] science cannot prove any theory. To put it differently, first, naïve falsificationists are said to incorporate the neopositivist viewpoint according to which there is the substantial difference between undisputable, observable facts and possibly false theories. Second, they, in line with Popper, highlight that it is impossible to prove any theory. According to Lakatos (1976), dogmatic falsificationism draws a sharp distinction between theoretical and empirical science. The logic of dogmatic falsificationism states that science grows by the repeated overthrow of theories with the help of hard facts.

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However, as Lakatos argued, dogmatic falsificationism is impossible to be employed to the scientific practice because observations are never sure. The following problem arises when observations differ from predictions: should the theory under consideration be abandoned or, in contrary, the initial conditions were mistaken? In other words, what exactly is falsified by a particular experiment? Lakatos exemplified his considerations with the case of Galileo observing the moon and concluded that [p]ropositions can only be derived from other propositions, they cannot be derived from facts: One cannot prove statements from experiences“ no more than by thumping the table.” This is one of the basic points of elementary logic, but one which is understood by relatively few people even today. If actual propositions are unprovable, then they are fallible. If they are fallible, then clashes between theories and factual propositions are not “falsifications” but merely inconsistencies. Both theories and factual propositions are fallible. Thus we cannot prove theories and we cannot disprove them either. The demarcation between the soft, unproven “theories” and the hard, proven “empirical basis” is nonexistent: All propositions of science are theoretical and, incurably, fallible (Lakatos 1976, p. 176). Therefore, the Lakatosian fallibilism highlights the importance of methodological decision instead of pure, automatic falsifications and, in consequence, treats methodological falsificationism as a brand of conventionalism. Additionally, Lakatos (1976, p. 172) distinguished naïve falsificationism from the sophisticated one. For the naïve falsificationist, any theory which can be interpreted as experimentally falsifiable is “acceptable” or “scientific.” For the sophisticated falsificationist a theory is “acceptable” or “scientific” only if it leads to the discovery of novel facts: [t]he falsificationist demands that once a proposition is disproved, there must be no prevarication: The proposition must be unconditionally rejected. To (non-tautologous) unfalsifiable propositions the dogmatic falsificationist gives short shrift: He brands them “metaphysical” and denies the scientific standing”(ibid.). The above-reviewed Lakatosian considerations lead to the conclusion that the dogmatic version of falsificationism is not only descriptively inadequate but also virtually employable. Since the radical interpretation (dogmatic falsificationism) is both unacceptable as a normative guidance and descriptive account of how science proceeds, then falsificationism is, in fact, a branch of conventionalism, where both ‘facts’ and ‘theories’ are equally fallible and prone to criticism and refutation. Are philosophically oriented economists and philosophers of economics aware of the problems with the radically interpreted falsificationism?

2.2. The falsificationist methodology in the philosophy of economics Wade Hands (1993, p. 189) acknowledged that falsificationism remains one of the dominant approaches to economic methodology. Nevertheless, As Caldwell (1991)

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noted, the reception of fallibilism among economists is exceptionally differentiated: What practicing economists might have taken away from Popper is as varied as their possible reading of him. Some might have learned that it is good to try to test one’s theories as severely as possible; others to be suspicious of theories that repeatedly manage to survive by having many small ad hoc adjustments made in their initial conditions. Some may have learned to welcome falsifications, which are more interesting than confirmations because they lead one to reexamine one’s hypotheses. Others might have gained a new, somewhat schizophrenic mindset, in which one tries to keep one’s mind open to new ideas while simultaneously submitting those ideas to intense critical scrutiny (p. 5). According to Hands (1993), Hutchison’s books (1938; 2000) were chronologically the first introduction of the falsificationist methodology into economics that remains one of the dominant approaches to economic methodology (Hands 1993, p. 189). This approach to the methodology of economics is usually employed with the aim at criticizing the practice of theoretical modeling that use certain measures against falsification such as the ceteris-paribus clause. Hutchison (1938) misread the Popperian philosophy by acknowledging the observable-unobservable distinction and understanding the process of corroboration similarly to confirmations what, in fact, made his philosophical stance in line with logical positivism opposed by Popper. Lawrence Boland (1982, p. 172) acknowledged that, in economic methodology, there is a Conventionalist Pseudo-Popper accusing the philosophers of economics of not promoting ‘strong’ interpretation of falsificationism.

Blaug’s version of the Popperian methodology Certainly, the most popular reading of falsificationism is Mark Blaug’s (1992 [1980] attempt at promoting this methodology among economists. However, despite widespread recognition among economists, the question what reading of Popper’s thought was employed by the economic methodologists stays open. Mäki (2014, p. 89) indicated that there indeed were two (or more) different versions of falsificationism, and it seemed the versions were often conflated, and were invoked inconsistently. A good example of such inconsistent interpretation of falsificationism can be found in “The methodology of economics: Or, how economists explain”. Blaug’s considerations are difficult for interpretation. On the one hand, he acknowledged the Duhem-Quine thesis and rejected Popper-as-a-naïve-falsificationist interpretation. On the other hand, Blaug implicitly presupposes the theory-observation distinction, believing that ‘facts’ are less prone to falsifications than theories: a theory is well corroborated, not if it agrees with many facts, but if we are unable to find any facts that refute it (Blaug 1992, p. 24). According to Boland (2016), Popper was aware of the fact that observations are theory-dependent (what supports the above-described reconstruction thereof, but Blaug’s (1992) views are inspired by Lakatos (e.g., 1976), who misinterpreted the

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Popperian thought in line with the naïve falsificationism in order to promote his role in the history of philosophy of science. As he put it, [i]t is Lakatos who invented the idea of a Popperian falsificationism and the phony view of Popper of his being a ‘naïve falsificationist’ – the phony view that claims scientists are only interested in testing and refuting theories and models. Imre did not really understand Popper and created this to promote his own role in the philosophy of science. (…) [I]t persisted in economic methodology discussions mostly because of Blaug’s promotion of that view (Boland 2016, p. 21). This interpretation can be additionally supported by Boland’s (1992, p. 171) observation that Blaug believes that Friedman’s methodology is merely a version of Popper’s philosophy of science. It is true, as we have previously argued, that Friedman rejects Conventionalism. Putting aside his misunderstanding of Friedman’s viewpoint which can be convincingly be read as a version of instrumentalism, Blaug is said to interpret both Popper’s and Friedman’s views on methodology as rejecting conventionalism (Boland 2016). However, when one focuses on Blaug’s reconstruction of Popper’s thought, despite putting emphasis on falsificationism and excluding Popper’s views on the social sciences and historicism, it seems not being committed to the fallacy of the naïvefalsificationist interpretation. Blaug (1992) seems to have incorporated two interpretations of Popper’s thought. First, he reconstructed his views in line with (fully developed) fallibilism (p. 3-28). Second, he employed a naïve version of falsificationism to the analysis of case studies (p. 237-249). The main argument of Blaug’s (1992) falsificationist manifesto states that economists do not attempt at testing their theories. Instead, they only look for confirmations: what is wrong is that economists do not practice what they preach (p. xxvii). In contrary, economics is dominated by the confirmationist approach: theories are not squeezed to produce risky implications prone to falsification, but empirical methods are only employed to support the current theories. The purpose of Blaug’s (1992) philosophizing about economics, similarly to Popper, is normative: he advised economists to test their theories. As it was previously mentioned, Blaug’s reconstruction of Popper’s thought found in the first, descriptive chapters of his book (1992), despite partial, is appropriate. Blaug (1992, p. 12) rightly indicated that Popper excluded the context of discovery from his philosophy and highlighted that his book focuses on the problem of theory appraisal: we seek methods of appraising scientific theories once they have been proposed. He later reconstructed Popper’s (2015, p. 376 et seq.) argument against confirming proving theoretical statements such as ‘All swans are white.’6 Blaug (1992, p. 15) highlighted the implication of the Duhem-Quine thesis and argued that induction from facts is impossible because choosing observations shapes obtained results. Therefore, Blaug acknowledged that there are no “brute facts” and all facts are 6 He later (Blaug 1992, p. 13-14) committed himself to the fallacy of naive falsificationism, discussing testability of propositions instead of theories. However, considering the following discussion of theories, it is rather a poor argument for interpreting Blaug’s reconstruction as sticking with the naive falsificationism.

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theory-laden. The theory-ladeness of observations make falsification never ultimate (Blaug 1992, p. 18) because a negative test result can be caused by a fallacious observation (i.e., in the case of economics, inappropriate data). Therefore, there is no certain empirical knowledge, whether grounded in our own personal experience or in that of mankind in general (p. 26). Blaug (1992, p. 23) mentioned the Popperian viewpoint on the truth of scientific theories: Popper denies the view that scientific explanations are simply “inference tickets” for making predictions acknowledging the critical difference7 between falsificationism(s) and instrumentalism. On the other hand, Blaug (1992, p. 19) listed nine hints on how economic research should be conducted that are influenced by the naïve-falsificationist interpretation. He advised adopting such rules as will ensure the testability of scientific statements (instead of theories, what is demanded by the sophisticated falsificationism). Similarly, economic theories can only be constituted by testable statements. Blaug (1992, p. 19) also advised restraining from introducing auxiliary hypotheses since they are conventionalist stratagem unless they do not diminish the degree of falsifiability of the system in question, but on the contrary, increase (…) it. Finally, Blaug (ibid.) admitted that [w]e shall take it [theory] as falsified only if we discover a reproducible effect which refutes the theory. In other words, we only accept the falsification if a lowerlevel empirical hypothesis which describes such effects proposed and corroborated, what contradicts Lakatos’ (1980, p. 36) opinion on the issue who argued that falsification is, in fact, a decision between two different theories.

The naïve and fully-ledged stances Boland’s (2016) accusation of employing naïve falsificationism is supported by reading case studies analyzed by Blaug (1992), who summed up the conclusions stating that the central weakness of modern economics is, indeed, the reluctance to produce the theories that yield unambiguously refutable implications, followed by a general unwillingness to confront those implications with the facts (p. 238). This conclusion applies to (1) the mainstream economics (p. 243-244), (2) heterodox approaches such as game theory8, and (3) econometrics. According to Blaug (1992, p. 241), the project of econometrics is grounded in the confirmationist approach: modern economists all too frequently are satisfied to demonstrate that the real world conforms to their predictions, thus replacing falsification, which is difficult, with verification, which is easy. Blaug exemplified his accusation with cases of then-recent 7 The Popperian philosophy accepts the ontic and semantic dimensions of scientific realism. Instrumentalism, in contrary, states that appropriate predictions are the ultimate goal of scientific theories and prefers theories producing better predictions even if they were false (in terms of correspondence definition of truth). 8 Blaug (1992, p. 240) criticized game theory for not producing testable hypotheses: [g]ame ‘theory’ per se is no more empirically verifiable than an alleged translation from English into an unspoken language. Yet its application to specific economic or political social situations produces many testable statements (…) It would be better to say “may” produce testable statements, for such statements have so far been few and far away.

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research on economic growth determinants. The confirmationist philosophy (“cookbook econometrics” as Blaug named it) in the methodology of economics was described in the following way: express a hypothesis in terms of an equation, estimate a variety of forms for that equation, select the best fit, discard the rest, and then adjust the theoretical argument to rationalize the hypothesis that is being tested (p. 241)9. The historian of economic thought finished his opus magnum on methodology asking what events, if they materialized, would lead us to reject that program? A program that cannot meet that question has fallen short of the highest standards that scientific knowledge can attain (Blaug 1992, p. 248). Here, Blaug limited his considerations of the Popperian methodology to the naïve falsificationism by excluding Popper’s views according to which falsification is always a rational decision (e.g., Keuth 2005, p. 69). According to Thornton’s (2007) argument, a falsification can never be final because it can be defended by changing observational statements or background-knowledge assumptions what additionally supports the thesis that Popper’s philosophy is conventionalistially-flavored. Therefore, Blaug’s understanding (from his case-studies) is fallacious. However, it should be once more underlined that Mark Blaug’s views are inconsistent and prone to divergent readings. On the one hand, Blaug highlighted the necessity of empirical tests and rejecting falsified theories, but, on the other hand, he seems to be lucidly aware of the difficulties connected to employing the naïve-falsificationist approach to the methodology of economics. For instance, due to the ceteris paribus clause, most of the economic models cannot be proved to be falsified because their defender can always put up an auxiliary hypothesis according to which not every vital factor was equal (and some of them certainly changed indeed). Therefore, empirical testing can show, not so much whether particular models are true or false, but whether or not they are applicable in a given situation (Blaug 1992, p. 110). Considering Blaug’s (1975) opinion according to which Popper is a sophisticated falsificationist, not a naïve one (p. 401), ‘different Poppers’ that can be read from his notable book can possibly be explained by acknowledging that the historian of economic thought was aware of the difficulties connected to various interpretations of falsificationism and attempted, with a limited success, at sticking to the ‘right’, i.e., sophisticated falsificationism.

Boland’s reading Boland (2003 [1982]) acknowledged that Popper’s view of science is the most popular stance among the methodologists of economics. Boland (2003) criticized the 9 Recently, econometricians seem to look for novel results instead of the confirming ones what produces switches of their opinion (cf. Goldfarb 1995; Goldfarb 1997; Maziarz 2017). In other words, it is not necessarily their aim to confirm a theory. Instead, when a theory is well confirmed, institutional factors promote obtaining new, disconfirming (falsifying) regressions.

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common picture of the Popperian philosophy of science present in the methodology of economics. The Canadian methodologist believed that Popper was introduced into the methodology of economics in the way his thought was reconstructed by Imre Lakatos. For instance, Boland (2003, p. 165) indicated that Popper also claims to be opposed to both Conventionalism and Instrumentalism, yet both are openly promoted in mainstream neoclassical economics. Despite rejecting conventionalism, Popper from Boland’s reconstruction does not advise naïve falsificationism. In contrary, Boland was lucidly aware of Popper’s later views on science, who apparently believed that learning (i.e., science) is a process without an end and observations and experimental results are as fallible as theories: (…) all knowledge is essentially theoretical conjecture. Any conjecture may be true or false – but even if it is true, there is no way we can ever prove that it is true (Boland 2003, p. 166). Not only Popper’s doctrine of falsificationism shaped the contemporary methodology of economics. In addition to the falsificationist methodology, the philosopher of science from London School of Economics influenced neoclassical school by promoting his anti-psychological and anti-historical views. Boland (2003) argued that Popper’s agenda strongly influenced the neoclassical economics. For Boland, Popper’s influence on the neoclassical school can be summarized by listing four items as follows: (1) anti-justificationism, (2) anti-psychologism, (3) rational decisionmaking, and (4) situational dynamics. Other philosophers of economics restrained from the naïve version of falsificationism. For instance, Caldwell (1991) indicated that falsifying is always a difficult enterprise to practice. First, as the Duhem-Quine thesis states, there are always many auxiliary hypotheses that can be modified or believed to be falsified. It is never known which of them if the right one. Second, scientists, when they test a hypothesis, usually accept some statements as given (‘facts’), but the empirical basis is itself conventionally accepted and thus subject to revision. (p. 3). Blaug (1992) seems not to accept this viewpoint. Third, facts change when theory does.

Caldwell’s falsiicationism Bruce Caldwell (1991), in contrary to Boland (2003), emphasize the following three aspects of the Popperian philosophy: (1) writings on falsificationism and demarcation, (2) on situational analysis, and (3) critical rationalism. Additionally, Caldwell’s (1991) reconstruction differed from Blaug’s viewpoint in the aspect of interpreting negative test results and putting emphasis on falsifying theories instead of statements (i.e., rejecting the naïve-falsificationist viewpoint. A case of a negative test result does not prove that a theory under consideration is false. According to Caldwell, Popper approved Thomas Kuhn’s views on theory choice: a falsified theory can still be used

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by scientists if there is no better theory to replace it10. Caldwell (1991) emphasize the fact that falsifications are more interesting because they lead to reconsidering a theory. The historian of economics from Duke University agrees with Blaug on advising restraining from ad hoc theory adjustments and auxiliary hypotheses. Interestingly, Caldwell (1991) presented the viewpoint according to which the naïve falsificationism is a too strong tool for those who aim at criticizing economics because economic theories are easily falsifiable. However, a fully-developed methodology of economics should incorporate and solve the problems raised by the theory-ladeness of observations. Caldwell (1991 p. 7) believed that [t]he Popperian response is to acknowledge the difficulty, to insist that tests be taken seriously anyway, and most important of all, to insist that, whenever a refutation is encountered, any proposed theory modification be free of the taint of immunizing strategems. In other words, Caldwell (1991) advised economists not to defend their then-current theories in their present form, but, in contrary, to attempt at improving them when a ‘falsifying’ test result occurs. It should be noted that, according to Lakatos (1976), dogmatic falsificationism draws a sharp distinction between theoretical and empirical science. Translating his views from physics into economics leads to the conclusion according to which theoretical economists should construct new theories that are tested using econometrics that aim at measuring economy that similarly to Nature, [which] are the observable facts which refute or fail to refute the scientific hypothesis. However, Popper was not the dogmatic falsificationist because he emphasized the fact that not only theories are fallible but also ‘observational statements’ (how neopositivists would call it): Popper maintains that there is no observation without theory (Hickey 2016, p. 118).

hands’ disentanglement D. Wade Hands (1985) attempted at operationalizing the epistemic guidance delivered by Popper into the context of economics. He acknowledged that in the philosophy-of-economics literature, there was a consensus according to which falsificationism is not practiced. The reason why the Popperian methodology could not be practiced is the fact that employing the hard-line interpretation of the doctrine would lead to rejecting all the economic theories. The question discussed in economic methodology today is whether falsificationism should be practiced. Hands (1985) suggested two different Poppers: Popper the falsificationist and Popper the philosopher of social sciences (characterized by coining the method of above-depicted situational analysis that, as he (p. 97) put it, is, in fact, the method of economic analysis, and the rationality principle) and argued that the latter Popper is in line with what economists do. Hands (1985, p. 93) instantiated his point with the case of the discus10 A significant difference should be noted: the Khunian approach employs social factors instead of highlighting the rationality of theory-choice decisions.

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sion of philosophers on the falsifiability of the rationality principle11 that resembles the discussion on the falsifiability of the maximization hypothesis by economists. In his later work, Hands (1992) divided Popper’s philosophy into two areas: Popperian falsificationism is composed of two separate theses: one demarcational (concerned with demarcating science from nonscience) and one methodological (concerned with how science should be practiced) (p. 20). The above-cited passage suggests that only one part of the falsificationist doctrine can have normative implications. Such viewpoint is misguided to some degree. Demanding from theories to be (potentially, at least) falsifiable does indeed shape methodology of economics (even if the practice of economists is not prone to such criticism) because it justifies advising producing falsifiable theories (e.g., Czarny 2016).

Research programs in economics The economic methodology was also influenced by the Lakatosian concept of the research programs. Blaug’s (1992) case studies show that (in its naïve version, at least) falsificationism is not practiced by economists. Hands (1992, p. 36) voiced a similar opinion: [i]t appears that in the final evaluation of the “Popperian economic methodology” must be given low marks. Falsificationism, Popper’s fundamental program for the growth of scientific knowledge, seems extremely ill-suited to economics. Popper’s situational analysis view of social science is precisely what economists do (…).Therefore, the discussion focused instead on the question whether the Lakatosian philosophy of science is adequate to how economists do their research. Wade Hands (1985) addressed the question whether the Lakatosian MSRP is a methodology employed by economists. He directly applied the methodology of research programs to evaluating Keynes’ general theory and analyzed progressivity and degeneracy of the Keynesian and Walrasian research programs. Hands (1990, p. 414) argued that the Keynesian economics is progressive both empirically and theoretically: [t]he Keynesian research programme not only contained “novel facts” but it also made novel predictions about familiar facts. Nevertheless, he acknowledged that [a] casual examination of the history of thought reveals that modifications such as the change to generalized utility functions which reduce the empirical content of the theory are often considered, ex post facto, to be progressive moves by the majority of economists (Hands 1985, p. 95). In his later work, Hands (1990) argued that Keynesian economics constitute a new hard core in economics due to employing not only a new concept but also a new approach to analyzing the economy, what he exemplified with the shift to aggregated variables. The Keynesian “protective belt” likewise bristled with new auxiliary hypotheses: the consumption function, the mul11

Boland (1981) also analyzed the status of rationality principle in the Popperian philosophy and the assumption of the utility maximization in the neoclassical economics and concluded that they are both irrefutable.

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tiplier, the concept of autonomous expenditures, and speculative demand for money, contributing to stickiness in long-term interest rates. (p. 413). Guy Ahonen (1989) disagreed with Hands (1985) and put forth three counterarguments. First, the economist from Helsinki accused Hands of misinterpreting the methodology of falsificationism and argued that Keynesian economics is more prone to falsification than the neoclassical program and therefore it is progressive. Second, he disagreed on the interpretation of novelty. Third, employing the Kuhnian perspective on science (incommensurability, in detail) and argued that comparing the progress between the two competing research programs (characterized by two different hard cores) is impossible. Blaug (1987) also disagreed with Hands on whether General theory was progressive by putting forth the argument according to which progress occurs only as Lakatos defined it: predicting novel facts (p. 76), i.e., when a new research program is empirically progressive. However, it should be noted that the Lakatosian doctrine states that progress can also be of theoretical nature. Despite the counterarguments, Hands voiced his unchanged pessimism about the Lakatosian economics: the overall fit of economics into the MSRP is not good (Hands 1992, p. 36).

2.3. The fallibilist methodology As Blaug (1992, p. xvi) noted, a prescriptive methodology like falsificationism must be descriptively adequate or at least not descriptively impractical. Mäki (2014) believed that, despite Blaug’s opinion cited above, his interpretation of fallibilism was too strict for economists to practice. He indicated that Blaug’s meta-theoretical claims about economics often were descriptively unrealistic in that they tended to oversimplify and exaggerate, thereby ignoring important facts about scientific inquiry. Considering that, as shown above, Blaug’s reconstruction is internally inconsistent and, in some aspects, opposes the views voiced by other philosophers of economics, an attempt at delivering a unified Popperian stance in the methodology of economics is offered below. The focus is put on the following aspects of fallibilism: (1) the demarcation criterion, (2) the rejection of inductive reasoning, (3) the difficulties resulting from the rejection of the ‘factual statements’, (4) the locus of truth in the Popperian methodology, (5) the Popperian solution to the problem of theory appraisal, (6) the practice of the falsificationist method, and (7) the method of situational analysis.

Fallibilist science First, Karl Popper (1962, p. 42) coined the new, above-discussed demarcation criterion according to which theories are not justifiable or verifiable as they were previously believed, but, in contrary, they are falsifiable. The doctrine of falsificationism

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was misunderstood by a handful of economic methodologists. On the one hand, the demarcation criterion offered by Popper should not be employed as epistemic guidance: theories should be falsifiable, but they should not be falsified mechanically, i.e., a negative result of an experiment does not automatically lead to rejecting a theory for the below-discussed reasons. On the other hand, falsifiability is the feature that should be a characteristic of theories not singular statements12. Second, Popper dismissed the inductive reasoning from science. He argued that scientists do not justify their theoretical propositions by means of induction, but only provisionally accept theories that were corroborated. Therefore, data play a very different role in science than in the case of the neopositivist methodology. According to the fallibilist stance, data are only used to test, to falsify theoretical propositions that are coined by reconsidering previous, falsified theories. This aspect of the fallibilist methodology reduces the role of econometrics. The empirical branch of macroeconomics should not be used to infer regularities or to calibrate the real-business-cycle theory models. Instead, econometric models should be employed to theory testing by drawing hypotheses and comparing them with the models of data. Also, Blaug (1992, p. 42) opposed the ‘cookbook’ econometrics, exemplifying his thoughts with the case of research on growth determinants13. Third, the issue of ‘factual’ statements (as Lakatos named what belongs the observation language according to the neopositivist doctrine) should be clarified. During his long-life academic career, Popper opposed the viewpoint according to which a neutral language (observational language) exists (Fuller 2002, p. 142). The appropriately interpreted fallibilist doctrine states that observational statements are as fallible as theories themselves (e.g., Popper 2002, p. 82). Therefore, the reading of Popper according to which the emphasis is put on theory testing understood as comparing theories with facts is not justified. It was popularized and labeled ‘naïve falsificationism’ by Lakatos (1976), who attempted at popularizing his role in the philosophy of science (Boland 2016, p. 21). In contrary, the LSE-based philosopher of science was lucidly aware of the fact that there are no pure ‘facts’ and observations change when a new theoretical setting is introduced into a field. According to Harding (2012), Popper knew that observations are, to some degree, determined by theories. Due to the theory-ladenness of observations, they also are prone to falsification. As Popper (2005, p. 92) put it, basic statements are not justifiable by our immediate experiences, but are (…) accepted by an act, a free decision. Additionally, the following problem arises. 12

For instance, Blaug (1992, p. 84) mentioned the falsifiability of statements instead of writing about hypotheses resulting from the law of demand or the neoclassical theory. 13 A realistic view of this branch of empirical macroeconomics was depicted by the inintroductory part of Sala-IMartin’s (1997) article. The data can be employed to justify contradictory conclusions on whether a variable under consideration is positively correlated with economic growth because the field proceeds by estimating numerous models which specification is not supported by theory.

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Considering that an observational statement S1 contradicts a hypothesis H1 implied by theory T1 and acknowledging the theory-ladeness of observations (i.e., that there are not purely-factual statements) leads to the conclusion that either T1 is false or S1 fails at depicting a ‘fact.’ Due to the dilemma, the method of falsificationism cannot be employed in the research practice of economists as a step-by-step checklist that would make testing theories automatic. In contrary, it is a method of rational criticism, and each falsification is a decision (that, as Popper believed, is rational). Nevertheless, falsificationism is, in fact, a branch of conventionalism because, as Popper (2005, p. 91) put it, [f]rom a logical point of view, the testing of a theory depends upon basic statements whose acceptance or rejection, in its turn, depends upon our decisions. Thus it is decisions which settle the fate of theories. Therefore, Popper’s falsificationism should not be taken literally as a guide to test each hypothesis and reject or corroborate a theory under consideration, but an attitude to the edifice of knowledge, which, like every human activity, is fallible.

Truth of economic theories Fourth, some clarification is needed on Blaug’s opinion on reading falsificationism and Friedman’s instrumentalism as similar methodology-of-economics stances. Indeed, both naïve falsificationists and Friedman (1953) emphasize empirical tests of theories. However, there is one huge difference. Namely, the instrumentalist methodology (cf. chapter 5.) rejects the concept of truth and aims at utilitarian benefits such as accurate predictions in the case of Friedman’s methodology. In contrary, falsificationism is committed to the concept of verisimilitude14 according to which theories converge on truth defined in the correspondence way. Therefore, the above-discussed scientific-realist methodology accepts the ontic dimension of SR, i.e., scientific theories are believed to be about the world and should be ‘true’ account thereof. In contrary, Friedman (1953) argues that prediction is the only aim of science. Despite seemingly purely-theoretical considerations, they have practical implications for economic methods. In detail, the falsificationists should not accept theories that are obviously false (e.g., the famous as-if statements from the instrumentalist manifesto (Friedman 1953)) even if they produce appropriate predictions. This implication is a severe obstacle to those methodologists of economics that defend economic theories by arguing that the realisticness of axioms not influence whether a theory or model should be accepted. 14

In spite of the considerable amount of criticism, Popper defended this concept especially in the cases of social sciences and employed it to putting forth the argument according to which they are literally false but similar to truth what resembles later discussion on realisticness of economic theories: the idea of verisimilitude is the most important in cases where we know that we have to work with theories which are at best approximations – that is to say, theories of which we actually know that they cannot be true. (Popper 2014, p. 319).

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Fifth, the Popperian philosophy of science has a serious implication for the problem of theory appraisal which, according to Hausman (1989), is one of the most fierce issues thereof. Popper coined two approaches to the problem of theory choice. On the one hand, he advised comparing the truth content of theories and accepting those that are at least partially true. Thornton (2017, p. 22) argued that Popper has never advised falsifying a theory when no better alternative is accessible, what, in fact, partially foresaw Lakatos’ methodology of scientific research programs according to which theory is not rejected as long as a new, better theory is accessible. In contrary, falsification and theory choice could only take place when more than one alternative is accessible. When this is the case, a theory that possesses bigger truth content (falsity content being constant) or smaller falsity content (truth content being constant) should be preferred. From the viewpoint of falsificationism, theories should aim not only at truth but the interesting truth, a highly-falsifiable truth. Therefore, economic theories that do not specify when their prognoses will be fulfilled are poorly rated from the Popperian perspective. For instance, the neoclassical program defends itself from falsification by employing unspecified ceteris paribus clauses and predicting what will happen in the long run without specifying how long it is. The majority of the Popperian methodologists of economics (e.g., Caldwell 1991; Blaug 1992) agreed that the best theories (the most easily-tested ones) forbid the most. In other words, their falsification is easy. The concept of comparing verisimilitude can be (crudely, at least) translated into the Lakatos’ viewpoint on the progress in science according to which new theories should be empirically progressive (i.e., some of the novel predictions are corroborated) and theoretically progressive (i.e., predict novel facts). The methodology of scientific research programs states that problemshifts can be accepted as scientific if they are at least theoretically progressive (Taber 2009, p. 108). For instance, Blaug (1987) employed the methodology of scientific research programs to criticize the Keynesian economics as not progressive what shows that progress is one of the features influencing the process of theory appraisal in economics. In addition to the method of comparing verisimilitude, Popper coined four ways of appraising theories. According to the formal, semi-formal, comparative and predictive theory testing, they should be (A) internally consistent, (B) possess empirical content, (C) be theoretically progressive regarding MSRP, and (D) be empirically progressive. In contrary to the previously-discussed method criticized due to its logical inconsistency, this method can be easily employed in the methodology of economics. It should be noted that both Popper (2002) and Blaug (1992) (and also others philosophers of economics inspired by falsificationism) believed that inferring testable hypotheses from theories is possible in the case of social sciences. Sixth, as Lakatos (1976, p. 176) put it, [i]f factual propositions are unprovable, then they are fallible. If they are fallible, then clashes between theories and factual propositions are not “falsifications” but merely inconsistencies. Therefore, in con-

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trary to Blaug’s (1992) stance underlying his case-study analyses15, falsificationism cannot proceed in a mechanical way and falsifications are never sure. Considering it, the question what exactly is refuted in case of a negative test result should be addressed. In later stages of his academic career, Popper believed that both theories and ‘factual statements’ are fallible, but the process of falsifying and improving refuted theories is a rational one. As Boland (2016, p. 22) put it, Popper believed that Science [is a Socratic, rational (…)] process of learning (…) devoted to criticism. The strong reading of falsificationism leads to the conclusion that any auxiliary hypotheses aimed at defending theories are not good for science, but, as Caldwell (1991) indicated, employing naïve falsificationism or the hard-line interpretation (Hands 1985) to theory appraisal in economics would lead to refuting all economic theories. However, this opinion is questionable taking into account ceteris paribus clauses so visibly present in economic laws and models. Lakatos (1978, p. 26) advised testing the CP clause [b]y assuming that there are other influencing factors, by specifying such factors and by testing these specific assumptions. If many of them are refuted, the ceteris paribus clause will be regarded well corroborated. Due to Hands’ (1985) and Coldwell’s (1991) opinion on economics being doomed if the method of naïve falsificationism were employed, even Blaug (1992, p. 19) allowed for introducing such hypotheses when they do not diminish the fallibility of a theory. The criticized auxiliary hypotheses can be useful when they are not ad hoc and are aimed at improving a theory. Some advice for those who deal with falsification in practice is delivered by the Lakatos’ (1980, p. 48) differentiation between hard core and protective belt. According to Lakatos, as long as there is no new research program, potential refutations result only in changes in the protective belt instead of a rejection of the hard core of a theory under test. Finally, Popper (1967) depicted the method of situational analysis which was believed to be descriptively adequate to the research practice of economists (Hands 1985). According to this method, economists should describe situation S in which agent A acts in a particular way and generalize their behavior onto similar situations. The method of situational analysis is relatively unresearched.

15 Blaug’s belief in the certitude of ‘factual statements’ or, to put it in the language of economics, data is clearly visible when he (1992, p. 241) criticized economists for not attempting at falsifying their theories: instead of attempting to refute testable predictions, modern economists all too frequently are satisfied to demonstrate that the real world conforms to their predictions. Here, or anywhere else in his Popperian methodology manifesto the fallibility of data is never considered in connection to economics. Blaug (1992, p. 39) discussed the issue of theory-ladenness of ‘facts’ but concluded that if we couple the concept of theory-laden facts with the Kuhnian notion of content loss in successive theories, paradigms, or SRPs, so that competing theoretical systems become difficult to compare if not literally incommensurable, we reach a position in which there would appear to be no grounds whatsoever for a rational choice between conflicting scientific theories (…) position of theoretical anarchism. Therefore, Blaug (1992, 39), in the latter part of his book, seems to accept the viewpoint according to which in economics [t]here are facts that are observed events, where the observations are so numerous or self-evident that the fact is question is universally accepted as conclusive.

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3. INsTRuMENTALIsM The term ‘instrumentalism’ was popularized on the ground of the philosophy of science by Popper (1956), who, in Three Views Concerning Human Knowledge opposed this stance. Nevertheless, it is one of the most-widely accepted viewpoints in the philosophy of economics. Instrumentalism is especially supported by economists. It is also a notable position in the philosophy of physics known as pragmatism. On this ground, the now-discussed doctrine is identified with the thought of John Dewey (1910; 2007 [1925]; 1996 [1938]), Charles Sanders Pierce1 (1974) and William James (1975 [1910]). Later philosophers included into this school are Richard Rorty (1995), Hilary Putnam, and Robert Brandom (Hookway 2016). The instrumentalist/pragmatist doctrine treats theories and models as tools. In other words, the pragmatist philosophy of science rejects the semantic dimension of scientific realism and defines truth in terms of the utility of a given observer/in a particular context instead of employing the correspondence definition of truth. In its usual form, instrumentalism accepts the theory-observation distinction also acknowledged by logical positivists and therefore highlights the role of facts in testing theories. Finally, pragmatism is skeptical regarding the unobservable entities, rejecting the ontological dimension of scientific realism. In section 3.1., the pragmatist philosophy of science is further discussed. Instrumentalism in the philosophy of economics is prescriptive: it delivers guidance on research methods and theory appraisal. The search for correspondingly defined truth is replaced with pragmatic value: good theories (models) should be helpful in producing useful predictions. Among philosophers of economics, in contrary to those who do economics, the instrumentalist methodology is not the most popular stance. The most notable supporter of pragmatism is Milton Friedman, who popularized it in his 1953 essay The methodology of positive economics. Interestingly, the essay also known as F53 (Maki 2009) is one of the most-widely commented pieces of the philosophy-of-economics literature. In fact, Reiss (2010, p. 103) praised it as perhaps the (…) most influential and most widely and hotly debated papers on economic methodology. Lagueux (1994, p. 147) voiced his surprise of the numerous comments in the following way: [w]hat is (…) surprising, however, is the number of interventions – many of them from highly respected economists and philosophers – which have been devoted to analyzing a short text usually described as brilliant but misleading, confused and written by an author who was ignorant of the important 1 The pragmatism of Charles Peirce can be, along Popper’s and Nicholas Rescher’s views be labeled a version of fallibilism (Nowak-Posadzy 2016, p. 164).

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developments in the philosophy of science. The essay won its place in the economic methodology literature despite (or, possibly, thanks to) the difficulties connected with its interpretation, fuzziness and consisting of a number of doctrines, such as fictionalism, social constructivism, and realism (Maki 2003, p. 504). For instance, Nagel (1963) listed three different meanings of ‘realistic’ within F53. In fact, most of the philosophers of economics attempted at interpreting Friedman’s essay in line with their own viewpoint. Hence, Friedman (1953) was accused of promoting positivism, falsificationism, pragmatism, neo-Bayesianism (Mariyani-Squire 2017, p. 69), scientific realism (Maki 2009), scientific constructivism (Scheuer 2015), and constructive empiricism (Lagueux 1994). It should be noted that despite best efforts, the list most likely is not full. In section 3.2., F53 is discussed and reinterpreted in line with the most widely-accepted instrumentalist reading. Finally, the instrumentalist research guidance is summarized (section 3.3.).

3.1. The sources of the instrumentalist methodology The pragmatist philosophy of science emerged as an American response to idealism popular in eighteenth-century Europe. As Dicker (1971, p. 221) put it, [a] central thesis of John Dewey’s social philosophy is that the principal source of progress in man’s estate has been science and its fruits. This belief implies that science is perceived by pragmatists as a useful enterprise and, at the same time, that its purpose is to be fruitful. Contrary to instrumentalism in the philosophy of economics, pragmatists were interested in the methods of the scientific enterprise and strived for delivering a description of how the world Suarez (2013) defined the pragmatist philosophy in terms of five maxims. First, pragmatists believe that concept of any object is exhausted by what we conceive to be its effects, or practical consequences (p. 13). Second, in contrary to the other two branches of empiricism (i.e., operationalism and verificationism), pragmatists reject the necessity of reducing ontological commitments to observables but consider their practical results instead. Third, the pragmatist philosophy of science should not limit itself to conceptual analysis or historical reconstructions. The methodologists working in this framework should actively engage with the sciences, by refining, changing or adding to their concepts (p. 15). Fourth, the pragmatist tradition opposes Humean reductionism regarding causation, what also contradicts the neopositivist school. As Suarez (2013, p. 16) put it, [t]he pragmatist tradition on the whole has eschewed Humeanism along with any other attempt to reduce our causal talk to anything else. Peirce, in particular, freely employed the language of causes, tendencies, and powers, while not attempting to provide any theory that would reduce such concepts to more basic, elementary, or empirically accessible ones. Finally, the pragmatist science can accept those scientific theories that postulate hypothetical or fictional entities (p. 17). Considering the lively debate of the

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(un-)realisticness of the assumptions among the philosophers of economics, the last maxim of pragmatism acknowledges the position of Friedman’s instrumentalism as a pragmatist stance. Below, the aspects of the pragmatist philosophy relevant for the methodology of economics are further discussed.

Pragmatism Hookway (2016) defined the pragmatist philosophy indicating their maxim according to which a philosopher should aim at explaining hypotheses by tracing their observable, practical consequences. Pragmatists are skeptical regarding the classical definition of truth, i.e., in terms of correspondence with reality. First, obtaining a true account of the world can never be possible. Second, even if we had a true theory, such an account is impossible to be conclusively decided upon because no tool can play a judgmental role regarding the unobservables. If there were two theories T1 and T2 that would serve a given purpose equally good, but differ regarding the unobservables (e.g., their predictions would be equally good), then, according to the pragmatist stance, they both would be true (Rorty 1991). For this reason pragmatists reject metaphysics as long as they do not imply observable (practical) consequences (Rosenbaum 2003, p. 251). Therefore, this doctrine is less skeptical than logical positivism, which aimed at uprooting metaphysics in any form regardless the consequences. For pragmatists, what is true (i.e., useful) depends on context. James (1907) discussed the following seminal example of a person attempting at catching a squirrel that rushes around a tree: both squirrel and man surround the tree. Does the man go around also the squirrel? For pragmatists, the answer depends on the (practical) context determining the meaning ‘go around’: If you mean passing from north of him to east, then south, then west, then the answer to the question is ‘yes.’ If, on the other hand, you mean first in front of him, then to his right, then behind him, and then to his left, before returning to being in front of him again, then the answer is ‘no.’ (Hookway 2016, p. 11). The following difference between the neopositivist and instrumentalist views on theoretical terms (unobservables, employing the realist terminology) can be highlighted. According to the pragmatist approach, such terms should not be considered literally as referring to entities impossible to observe. In contrary to the scientific-realist interpretation of unobservables as assertoric hypotheses, they should be read as logical, theoretical constructs aimed at arriving at an economic description of phenomena. On the other hand, logical positivism does not take sides in this controversy but presents the point of view according to which such terms are meaningless as long as they do not imply observable, measurable consequences (cf. Section 1.1.).

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The aims and methods of science James (1907, p. 33) strongly opposed the correspondence definition of truth. He believed that the traditional view that is common among early methodologists and scientists could be defined as looking at theories as descriptions of thoughts of the Creator. The American pragmatist argued that contemporary research is aimed at problem-solving instead: no theory is absolutely a transcript of reality, but that any of them may from some point of view be useful. Therefore, a theory should be viewed as an instrument: it is designed to achieve a purpose – to facilitate action or increase understanding (ibid.). Regarding the methods of sciences, pragmatism can be located on the opposed side of the spectrum of skepticism than the Popperian philosophy. The pragmatist philosophers accepted inductive reasoning as a practice employed by scientists despite notable differences. Dewey’s account correspond[s] to the conjectures formed via abduction together with the elaboration of their testable consequences corresponding to deduction (Cochran 2010, p. 97). In contrary, Pierce developed original ideas about statistical reasoning. The pragmatist justification of induction is, to some degree, similar to the reasons for its rejection by Popper. Instead of demanding of absolute knowledge, the pragmatist philosophers look for the useful one. They acknowledge that the inductive reasoning is fallible, but argue that this method of scientific inquiry is useful for practical purposes (Dewey 2008, p. 446 et seq.). In contrary to the Popperian advice according to which all knowledge is doubtful, Peirce (1868) put forth the argument criticizing skepticism as an impractical stance: doubting should be grounded in a reason instead of being unconditional. This viewpoint was further developed by James (2016), who highlighted the trade-off between certainty and utility of knowledge: putting too much emphasis on the certitude of knowledge leads to refusing to accept true propositions as such. Therefore, a pragmatist should weight this trade-off and put a great weight on avoiding error only in special cases of great importance. Finally, James (2016, p. 260) advised Believe truth! Shun error! – these, we see, are two materially different laws; and by choosing between them we may end by coloring differently our whole intellectual life. We may regard the chase for truth as paramount, and the avoidance of error as secondary; or we may, on the other hand, treat the avoidance of error as more imperative, and let truth take its chance. The pragmatist acceptance of induction is grounded in their acceptance of the methods of science. For instance, contrary to the endeavor undertaken by Popper, Dewey (1938) attempted at reconstructing how science proceeds. In summary, pragmatism (as the name indicates) is a school in the philosophy of science that strives for reconstructing the methods that lead science to the success but is also normative. It is oriented at problem-solving instead of discovering a true account of the world. Therefore, theories are analyzed as tools allowing for economic thinking and aimed at fulfilling their purposes instead of depicting phenomena.

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Therefore, they are not regarded as true or false but as useful or not instead. Similarly to the neopositivist stance, pragmatism accepts the theory-observation distinction, acknowledging that facts described by protocol sentences (employing the Popperian framework) are less prone to error. On this ground, theories can be tested by comparing their prediction with facts without entailing the conventionalist difficulties. As Dewey (2008, p. 11) put it, [t]he verification of a theory, or of a concept, is carried on by the observation of particular facts. Even the most scientific and harmonious physical theory is merely a hypothesis until its implications, deduced by mathematical reasoning or by any other kind of inference, are verified by observed facts. However, pragmatism put emphasis on the utility of knowledge instead of its infallibility and hence rejects ontological considerations (unless practical consequences follow) and accepts theories if they were not proven to be wrong. This philosophy of science is less methodologically strict than more skeptical approaches what can be exemplified with its acceptance of the inductive reasoning. Did Friedman (1953) ground his Methodology… in this stance?

3.2. Friedman’s essay and its (mis-)interpretations As it was noted above, Friedman’s essay was interpreted in many ways. For this book, F53 (Friedman 2008 [1953], p. 145-179) is interpreted as the instrumentalist manifesto, what seems to be the contemporary mainstream reading (Mariyani-Squire 2017; Reiss 2012). This section consists of the following three parts: (1) Friedman’s (1953) essay is reviewed, (2) its various interpretations are briefly discussed, and (3) arguments supporting the instrumentalist reading are delivered.

Reading F53 At the beginning of the discussion, it should be highlighted that Friedman focused mostly on epistemology, i.e., on the problem of theory appraisal. His essay is normative: it provides help in choosing models and research methods. However, certain ontological claims are presupposed by the instrumentalist epistemic advice. Therefore, instrumentalism is considered to be normative regarding epistemology and descriptive about ontology. In the introductory part, the emphasis is put on the distinction between positive and normative science (p. 146). Friedman reviewed John Keynes’ views on three distinctive aspects of economics: (1) descriptive knowledge (positive science), (2) rules of behavior (normative science) and (3) art of fulfilling one’s goals (policy-making, in the case of economics). Despite limited applicability to economics (Reiss 2017), it is one of the aspects of the essay that shaped the methodologyof-economics discussion for the next five decades. According to the Durham-based philosopher, Friedman’s essay thus gives a clear statement of what I would like to

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call the fact/value separability. (...) Factual statements are known ‘scientifically’ by examining the evidence; value-judgments require beliefs about ethics, religion and politics. (Reiss 2017, p. 135). Friedman argued that the science of economics should entail only the former kind of statements, that economics should be a positive science what is an argument for those who attempt at interpreting the essay as a piece of the neopositivist methodology (e.g., Coddington 1972). Interestingly, Friedman’s (F53) argument against normative economics is not grounded in the presupposition according to which values should not influence policy-making. The belief that economists fight against each other because they employ divergent models often justifying contrary solutions supports his opinion: I venture judgment, however, that currently in the Western world, and especially in the United States, differences about economic policy among disinterested citizens derive predominantly from different predictions about the economic consequences of taking action – differences that in principle can be eliminated by the progress of positive economics – rather than from fundamental differences in basic values, differences about which man can ultimately only fight (p. 147). For instance, the opponents and supporters of the minimum wage do agree that the earnings of the less-educated employees should be raised but discuss the effects of such raise on unemployment and wages in the long run. Therefore, F53 is not a justification of ‘economic positivism’ which is abundantly evident in current textbooks [that. (…)] make it clear that economists are interested in positive economics (Boland, 1991 p. 1), but the viewpoint according to which controversies among economists result from inappropriate and underdeveloped economic theory. The judgment that the major differences about economic policy in the Western world are of this kind is itself a “positive” statement to be accepted or rejected on the basis of empirical evidence (F53, p. 147). What is positive science for Friedman? According to the essay, such science is aimed at producing appropriate predictions: [t]he ultimate goal of a positive science is the development of a „theory” or „hypothesis” that yields valid and meaningful (i.e., not truistic) predictions about phenomena not yet observed (F53 p. 148). Here, Friedman’s methodology, in contrary to the pragmatist viewpoint according to which theories should serve their purposes, limits the aim of science to prediction only. Friedman believed that logic shows whether a theoretical framework is consistent, but only factual evidence alone can show whether the categories of the „analytical filing system” have meaningful empirical counterpart, that is, whether they are useful in analyzing a particular class of concrete problems (F53, p. 148). Therefore, Friedman’s methodology is a branch of empiricism that excludes the context of discovery from analysis and focuses on methods of theory appraisal. His solution to the problem is to choose those models that have superior predictive power in a domain under consideration: theory is to be judged by its predictive power for the class of phenomena which it is intended to „explain” (ibid.).

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Friedman acknowledged that [f]actual evidence can never prove a hypothesis; it can only fail to disprove it, which is what we generally mean when we say, somewhat inexactly, that the hypothesis has been „confirmed” by experience (p. 149), what is often interpreted as evidence for the Popperian reading (Frazer and Boland 1983). In a similar vein, Friedman seems to have written about corraboration by acknowledging that the hypothesis is rejected if its predictions are contradicted („frequently” or more often than predictions from an alternative hypothesis); it is accepted if its predictions are not contradicted; great confidence is attached to it if it has survived many opportunities for contradiction (F53, p. 149). However, this viewpoint can also be grounded in the pragmatist stance: in, for example, Peirce’s considerations of statistical inference (Ketner and Putnam 1992 p. 67). Additionally to empirical adequacy, theories can be discriminated due to their simplicity and fruitfulness. Friedman considered different propositions describing the effects of excise tax and concluded that [t]he choice among alternative hypotheses equally consistent with the available evidence must to some extent be arbitrary, though there is general agreement that relevant considerations are suggested by the criteria „simplicity” and „fruitfulness”, themselves notions that defy completely objective specification (F53, p. 149). In spite of accusations of not being philosophically-informed, the essay delivers strict definitions of simplicity which indicates that less the initial knowledge needed to make a prediction within a given field of phenomena (ibid.). Fruitfulness is for Friedman an umbrella term denoting precision of predictions and scope of theory. On the next pages (F53, p. 150-151), Friedman regretted that economics is devoid of the experimental method, but concluded that it should not be seen as a doomed science, since other non-experimental sciences (e.g., astronomy) have noted an empirical success: [e]vidence cast up by experience is abundant and frequently as conclusive as that from contrived experiments; thus the inability to conduct experiments is not a fundamental obstacle to testing hypotheses by the success of their predictions (p. 151). Friedman seems to diminish the influence of factors from outside of model (the openness of the economic system, employing the critical-realist term). He believed that repeating experiments will solve this problem by averaging out the nonsystematic influences (ibid.). Considering the Lawsonian criticism of economics (cf. Section 3.2.) according to which predicting economy is impossible due to a vast number of interfering factors, Friedman rejected this position and argued that economic theory must be more than a structure of tautologies if it is to be able to predict and not merely describe the consequences of action (p. 152). Further, Friedman considered the issue of the realisticness of assumptions and argued that empirically-informative theories must be based on unrealistic assumptions: [T]ruly important and significant hypotheses will be found to have “assumptions” that are wildly inaccurate descriptive representations of reality, and, in general, the more significant the theory, the more unrealistic the assumptions (in this sense)

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(F52, p. 153). The above-cited statement can also be interpreted in line with scientific realism according to which models are aimed at isolating and idealizing reality instead of being a 1:1 map (cf. Maki 2009). However, considering Friedman’s latter opinion (F53, p. 154-155) that the realisticness of the assumptions should be judged context-dependently, his commitment to instrumentalism is clearly visible. The analysis of thought experiment – the case of realisticness of the assumption of vacuum in Galileo’s law of free-falling bodies made Friedman conclude that the only relevant standard of comparison is the air pressure for which the formula does or does not work under a given set of circumstances (F53, p.155): under certain circumstances, a simpler (more unrealistic) theory does not work well enough (for a given purpose) and a more realistic one should be employed. On the next pages of his essay (F53, p. 156-157), Friedman discussed two additional case studies of unrealistic theories: (1) the case of leaves that deliberately calculate and maximize their sun exposure and (2) pool players employing mathematics and physics in order to define the best hit with their cue sticks and argued that such hypotheses resemble the situation of the neoclassical assumption of profitmaximization: [i]t is only a short step from these examples to the economic hypothesis that under a wide range of circumstances individual firms behave as if they were seeking rationally to maximize their expected returns (F53, p. 158). What purpose do such false assumptions serve? According to Friedman, they offer an economic way of describing phenomena: [t]he example of the leaves illustrates the first role of assumptions. Instead of saying that leaves seek to maximize the sunlight they receive, we could state the equivalent hypothesis, without any apparent assumptions, in the form of a list of rules for predicting the density of leaves: (…) It [the assumption of rationality] is more compact and at the same time no less comprehensive (F53, p. 160). Here, Friedman clearly acknowledges the pragmatist viewpoint according to which theories should only serve a purpose which, according to the monetarist economist, is to predict economic phenomena. For Friedman, the prediction is not only a purpose of economic modeling but also a way of assessing these models. Exaggerating, scientific realists seem to limit their considerations to ontology and do not consider epistemology, i.e. a method of judging whether a particular model depicts (idealized) reality. In contrary, the pragmatist philosophy focuses on epistemology, having the ontological considerations in disregard. The following problem arises: how can economists know whether an assumption is realistic without direct knowledge of economy? As Friedman put it, [s]uch a theory cannot be tested by comparing its “assumptions” directly with “reality.” Indeed, there is no meaningful way in which this can be done (F53, p. 172). For instance, we do not know if companies maximize their profits or undertake their decisions differently but the result is similar. Friedman claimed that the only method for judging upon the realisticness of assumptions is testing predictions of a hypothesis: What is the criterion by which to judge whether a particular departure from realism is or is

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not acceptable? (…)The obvious answer is because the first makes more difference to business behavior than the second; but there is no way of knowing that this is so simply by observing that businessmen do have costs of different magnitudes and eyes of different color. Clearly it can only be known by comparing the effect on the discrepancy between actual and predicted behavior of taking the one factor or the other into account. Even the most extreme proponents of realistic assumptions are thus necessarily driven to reject their own criterion and to accept the test by prediction when they classify alternative assumptions as more or less realistic (F53, p. 166). Friedman (p. 167) advised testing predictions instead of assumptions. In addition to the epistemic inaccessibility, the second issue with the problem of realisticness is the fact that the answer to the question whether a theory is realistic or not depends on the situation. For some purposes, a simpler theory can be regarded as a useful approximation. For other ones, the more ‘realistic’ (i.e. complicated) theories are necessary. Here, Friedman’s considerations highlight the utilitarian value of theories instead of their truth (F53, p. 167-168). Finally, the essay should be interpreted keeping in mind the aim of econometric theories indicated by Friedman (good enough predictions): even if an assumption is false (leaves do not calculate their sun exposure by means of mathematics), such unrealistic assumptions can serve the purpose of economic description. In such a situation, accepting hypotheses describing economy by means of modality (counterfactuals and the as-if statements) is advisable: [i]t is frequently convenient to present such a hypothesis by stating that the phenomena it is desired to predict behave in the world of observation as if they occurred in a hypothetical and highly simplified world containing only the forces that the hypothesis asserts to be important (F53, p. 171). It is worth mentioning that Friedman did indeed talk about ‘realisticness’ and ‘realism’ but did not define these terms in line with the contemporary scientific-realist usage. In contrary, these terms should rather be replaced by ‘empirical adequacy.’ As it was mentioned above, Friedman hold theories as tools aimed at predicting: the question whether a theory is realistic “enough” can be settled only by seeing whether it yields predictions that are good enough for the purpose in hand or that are better than predictions from alternative theories (F53, p. 172).

Why so many interpretations? According to Friedman (2009, p. 355), the very fact [that F53 is so widely discussed] is a severe condemnation of the essay. Surely, if the essay had been really lucid, scholars should not today still be having different opinions about what it says. A possible reason for so many and often contradictory readings is the fact that the essay, instead of aiming at popularizing a stance in the methodology of economics, was written in defense of the neoclassical economics. In the 1950s, there were two mainstream schools: neoclassicals and institutionalists. According to the historical

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exegesis, the purpose of F53 was to deliver a critical appraisal of the neoclassical system: Friedman aimed at popularizing the Marshalian methodology and appraising the neoclassical school (which supporters believed in theorizing without empirical testing (Meyer 1993, p. 215-216), but highlighting the necessity of checking on empirical adequacy of models. In a similar vein, Wible (1984) argued that the purpose of F53 is to defend the neoclassical school against the accusation of unrealisticness formulated by institutionalist economists and acknowledged that Milton Friedman’s essay on positive economics [was] written as a reputation of institutional economics (…) has recently been reinterpreted as an institutionalist philosophy of economic science (p. 1049). As Mayer (1993) indicated, the philosophical interpretations miss the historical context of the essay: [i]n the context of its time, it was a plea for a positivistic interplay of theory and observation. On such a reading Friedman’s plea for unrealistic assumptions becomes much more defensible, and Friedman’s essay is broadly consistent with the methodology that most economists now affirm, at least in principle (p. 218). Another cause of the number of various interpretations was given by Hirsch and de Marchi (1988, p. 1), who indicated that every eminent economist who has been foolish enough to say anything about economic methodology is terribly inconsistent if not downright silly. In other words, F53 is prone to different readings because of including fragments of stances of many philosophical positions and being internally inconsistent. Finally, the economics-of-science perspective might suggest that ‘proving’ that Friedman’s essay is a voice popularizing one’s viewpoint might help to win methodological debates2. It should be noted that despite the numerous interpretations of the essay, Friedman has never taken sides regarding the ‘right’ interpretation. In this way, he sticks to his decision not to reply to his commentators but focus on doing economics – in my opinion, if not a more worthy, a more attractive cause (Friedman 2009, p. 355). Below, a handful of various readings is discussed.

Missed interpretations Starting from the problematic ones (Mariyani-Squire 2017), or – to put it differently – differing the most from the instrumentalist interpretation, Mäki (2009; 1989) attempted at reading F53 as a piece of scientific-realist methodology. The Finnish philosopher of economics indicated that F53 can be interpreted in some ways and attempted at justifying the scientific-realist reading. Mäki (2009) accused Friedman of being inconsistent in talking about unrealisticness. On the one hand, the term means the violation of nothing but the truth and, on the other hand, the violation of the whole truth. Considering his previously discussed views on isolation and idealization 2 Interestingly, virtually all of the most notable philosophers of economics reread F53 in line with their own views. The rereading-rewriting strategy was recently criticized by Mariyani-Squire (2017), who opposed Mäki’s (2009) scientific-realist interpretation..

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(cf. Section 2.2.), the latter way of unrealisticness is not inconsistent with the scientific-realist view on science: realism (…) is perfectly comfortable with unrealistic assumptions (p. 15). Further, Maki (2009) distinguished between two kinds of as-if assumptions that are usually cited as evidence for the antirealist (either instrumentalist or factionalist) stances. On one hand, the as-if assumption can serve the purpose of isolation, i.e., describing conditions under which only the theoretically isolated real forces are active (p. 18). On the other hand, this kind of assumption can serve for the factionalist account: phenomena behave as if those forces were real (p. 19), i.e., they are not real. Considering the case of leaves discussed by Friedman, Mäki (2009) admitted that it represented a fictionalist use of as-if assumptions and acknowledged that his realist rereading of F53 will ignore this passage (ibid.). In contrary, Friedman’s views on the trade-off between scope of theory (explanatory unification, to use the scientific-realist term) and adequateness of predictions are in line with the scientific realist stance according to which [t]he world is (…) not as it appears to be: appearances are deceptive manifestations of more fundamental structures. (…) A theory unifies apparently disconnected phenomena by showing them to be manifestations of the same fundamental structure (p. 21). A similar viewpoint on the stratification of social reality is held by Lawson (2001) who called Friedman’s position ‘predictive instrumentalism’ characterized by the strategy of collecting data on observables (p. 164). The critical-realist methodologist critically commented on the instrumentalist philosophy of economics. Lawson (2001) stated that instrumentalism defined by the thesis that theories are to be interpreted merely as practical tools or instrument for some purpose other than causal explanation (p. 2001, p. 158) does not help in improving economics because such a methodology does not illuminate the social world since it is committed to analyzing appearances of phenomena instead of the underlying reality (to use to critical-realist term): for the realist, a constant conjunction of events can be expected to occur only under certain special conditions – those in which the operating of some enduring causal mechanism is effectively isolated from the effects of other mechanisms (Lawson 1989, p. 240). However, he acknowledged that it offers a solution based on limiting the endeavor of science to the level of appearances and instead of solving the problems with economics (focus on theoretical modeling that does not help in formulating causal explanations), instrumentalism advises accepting its current state: [i]t is clear that instrumentalism does offer a strategy for handling most of the tensions, difficulties or puzzles of modern economics. But it does not provide much help with overcoming the problem of poor empirical fit (Lawson 2001, p. 156). In contrary to the above-reviewed interpretations, Lageux (1994) understood F53 in line with Van Frassen’s (1980) constructive empiricism. This doctrine, in short, falls in between scientific realism and the antirealist stances: (1) it accepts the epistemic dimension of scientific realism regarding the observable part of theories only

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and (2) acknowledges the ontological dimension (theories can be descriptively right (i.e., true) or descriptively wrong (i.e., false) what contradicts the instrumentalist stance. Finally, (3) constructive empiricism literally reads theories regarding the observable entities. As Van Frassen (1980, p. 4) put it, the aim of science is to correctly describe what is observable. Lageux (1994) discussed Friedman’s thought experiment of leaves and billard players and concluded that Friedman states that theory should be preferred that appropriately describes observable appearances. E.g., leaves behave as if they maximized their sun-exposed. Considering the constructive-empiricist focus on the descriptive adequacy and suspending judgment on the truth of the part of the theory describing unobservable entities, Lageux (1994) argued that Friedman, in fact, foresee the stance coined by Van Fraassen. Additionally, he answered his question [a]s economics, like physics, deals with observable phenomena (…) which are explained by a constructed theory, it is natural to ask whether unobservable entities play a similar role in this theory. But does economics refer to such unobservable entities? (p. 161) Indicating that skepticism regarding the unobservable is necessary. In conclusion, the Canadian philosopher of economics voiced his opinion according to which economists and methodologists, instead of talking about ontology what is a misdirection of intellectual effort (p. 164), should focus on analyzing the problem of theory appraisal, i.e., work on when a theory should be accepted or rejected.

various intstrumentalisms Finally, there are a few readings acknowledging the instrumentalist inspiration of F53. Wible (1984), being inspired by Boland’s (1979) chronologically first instrumentalist reading, compared the instrumentalisms of Friedman and Dewey and concluded that the stance presented in F53 could be interpreted, in a philosophical sense, as a special case of Dewey’s (p. 1049). Wible (1984, p. 1051) summarized his reading of Friedman’s position with the following labels: (1) instrumentalism, (2) short-run predictive success, (3) replicability, (4), infinite regress, (5) epistemological anarchism and (6) ontological agnosticism. First, F53 states that theories are tools that cannot be true or false but only useful for predicting. Second, these theories should only be evaluated by their predictive success (ibid.). Third, the predictive performance should be replicable. Fourth, inductive reasoning is accepted as useful (despite its fallibility). Fifth, the instrumentalist economics is not concerned with the truth (agnosticism). Sixth, similarly, the ontological considerations about realisticness3 of economic theories are excluded from economics. 3 Here, Wible (1984, p. 1051) employed the term realism of perfect competition, maximizing rationality, and other theoretical concepts. Nevertheless, ‘realisticness’ seems more appropriate, considering the contemporary scientificrealist literature.

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In order to compare the views of Friedman and Dewey, Wible (1984) also reconstructed the pragmatist philosophy of the latter (p. 1053-1054). Similarly, the features of Deweyian philosophy were indicated. First, Dewey believed that [r]eflective thought (…) is instrumental in nature (instrumentalism). Second, contrary to Friedman, the Deweyan pragmatism acknowledges that realistic psychological assumptions are required for investigating human social phenomena (psychological realism). Third, pragmatism acknowledges the evolutionary development of knowledge (evolutionary continuity). Fourth, Dewey understood research as an active, patterned, evolving life process that reduces indeterminacy (ibid.) (inquiry). Fifth, Dewey accepted the coherence theory of truth. Finally (p. 1054), Dewey highlighted that the contemporary instrumentalist tradition differs from Dewey’s stance. Accepting the similarity of Dewey’s and Friedman’s stances leads to the conclusion that F53 opposes realism due to being agnostic about ontology. Wible (1984, p. 1061) believed that Friedman [d] Do not take any explicit ontological position or talk about realism. Such views are unnecessary for scientific progress defined as prediction. Therefore, the above-discussed Maki’s reading is not justified. However, Wible’s (1984) conclusion is the indication that Friedman’s piece is purely a methodology of economics science and nothing more [i.e., not a philosophy of science piece] (p. 1060). Therefore, according to Wible, F53 disagrees with the philosophical aspects of Dewey’s philosophy because it is agnostic about epistemological and ontological issues. Finally, Wible (1984) asserted that Friedmanian’s views can be interpreted as a reduction [a special case] of Dewey’s philosophy (p. 1065). It should be noted that Wible’s conclusion faced considerable criticism. Liebhafsky and Liebhafsky (1985) and Dennis (1986) opposed the above consideration on the ground that (1) Friedman did not focus on epistemological or ontological problems and (2) accusing Wibble of unrealistic reconstruction of Dewey’s philosophy. Boland (1979) is another interpreter that supports the instrumentalist reading. In addition to defining Friedman’s instrumentalism similarly to Wible (1984), his analysis advances the discussion in a few aspects. His argument states that the hitherto accusations (e.g., Samuelson’s (1963, p. 233) criticism indicating that factual inaccuracy cannot be tolerable) according to which F53 is inconsistent or unclear, but [h]is methodological position is both logically sound and unambiguously based on a coherent philosophy of science – instrumentalism (Boland 1979, p. 503). The misunderstandings resulted from not grasping that „Instrumentalists,” such as Friedman, are only concerned with the usefulness of the conclusions derived from any theory. Unlike conventionalists, instrumentalists may allow that theories or assumptions can be true but argue that it does not matter with regard to the usefulness of the conclusions (p. 507). Boland (ibid.) acknowledged that Friedman (and instrumentalists in general) provisionally accept the theories justified inductively, but are aware of its fallibility. Finally, Boland (p. 508) indicated the purpose of Friedman’s essay, which is to coin a pragmatist solution to the problem of theory appraisal: [s]o long as a theory

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does its intended job, there is no apparent need to argue in its favor (or in favor of any of its constituent parts). For some policy-oriented economists, the intended job is the generation of true or successful predictions. According to Boland’s interpretation, F53 does not deal with the ‘realisticness of assumptions’ defined correspondingly, i.e. assumptions are not realistic or not because of how the world is. In contrary, Friedman had in mind the aprioristic truth: if a theory or model that provides true predictions or conclusions, a priori truth of the assumptions is not required if it is already known that the conclusions are true or acceptable by some conventionalist criterion (p. 509). The assumptions of theory serve only as an economic description instead of being a description of the nature of the world. Similarly to the computer compression of graphical files, quality (truth) is lost in exchange for an economic description. In contrary to Boland’s (1979) and Wible’s (1984) interpretations, Caldwell (1980) rejected the Friedman-as-a-philosopher-instrumentalist reading and labeled his position ‘methodological instrumentalism’. According to Caldwell’s reconstruction, the methodological instrumentalism accepts conventionalism (i.e., the viewpoint according to which there are many theories that explain a finite set of observations and the choice among them is a convention) but, contrary to the contemporary constructivist philosophy of science, Friedman presupposes that observations are constant and certain. As Caldwell (1980) put it, Friedman’s response to the problem of induction is to ignore the truth and limit one’s assertion to usefulness: acceptance of instrumentalism rules out disconfirmation in science: a theory that is neither true nor false can be found inadequate but not disconfirmed (p. 371). Therefore, instrumentalism is, in fact, a skeptical approach to science. In an article following his 1980 interpretative work, Caldwell (1992) revised his earlier reading and argued that Friedman was a predictive instrumentalist but, contrary to the earlier opinion, denied noncognitive instrumentalism (as he acknowledged that theories can be true or false). A revised reading can be summarized in the following way: Friedman’s predictivist instrumentalism can therefore be stated as follows: The only goal of science is the development of theories which are good instruments for prediction. Given this end, the best attributes a theory can possess are predictive adequacy and simplicity. The „realism of assumptions” (their truth-value) does not matter. Indeed, many of the „best” theories in economics have assumptions which are false (Caldwell 1992, p. 124). Finally, Caldwell (1980) highlights the difference in opinion between him and Uskali Maki regarding false assumptions. The Finnish philosopher admits that the unrealistic assumptions are a virtue of theories. In contrary, Caldwell argued that false assumptions do not matter to Friedman (what matters is predictive adequacy) (1992, p. 126). In other words, Caldwell called F53’s position on the (un)realisticness of assumptions ‘agnosticism’.

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Contradicting your own methodology Above, F53 and its several interpretations were discussed. In spite of diminishable differences between the instrumentalist-interpretation camp, this reading seems to be the mainstream and most accurate (Mariyani-Squire 2017, p. 17) opinion among the philosophers of economics. Nevertheless, despite advising this stance, Milton Friedman (1969) seems not to stick to the rules of instrumentalism he established. As Betamarco (1985) argued, Friedman committed two sins. First, he did not employ data to test his theories. Instead, he coined the quantity theory of money by adumbration (p. 33), i.e. by means of inductive reasoning and generalizing empirical observations. Second, Friedman, in a small-m methodology debate, supported his theory indicating its superior realisticness. As Betamarco indicated (1985, p. 32-33), Friedman, who stipulated prediction as the primary standard by which one should judge a theory, himself strayed from this instrumentalism and attempted to develop an explanatory theory of sorts. His contention that a “pin theory of business cycles” should be rejected out of hand, even in the face of a strong correlation between aggregate consumption expenditures and pin production (Friedman 1969, pp. 213-214), can certainly not be upheld on the instrumentalist ground. A consistent instrumentalist would have to argue that if the pin theory yielded the best predictions, then it is the one which should be used. To argue otherwise consistently would require an apriorist, or at least a realist, methodological stance.

3.3. The instrumentalist economics Daniel Hausman (1998, p. 187) argued that pragmatism, positivism and pessimism motivate instrumentalism. Instrumentalism seems to be often practiced by economists and rarely supported by the methodologists of economics. What are the research methods employed by instrumentalist economists? The above discussion of the pragmatist philosophy of science and the various views on the instrumentalist methodology of economics indicates the following features: (1) the rejection of ontological considerations and agnosticism about the unobservable entities, (2) opposing the Humean tradition regarding causality, (3) considering theories as tools, (4) defining the purpose of theories as prediction (the Friedmanian instrumentalism), (5) the instrumentalist approach to the problem of induction, (6) accepting the theoryobservation distinction.

Dismissing the unobservables debate First, the American pragmatists rejected the scientific-realist considerations (cf. chapter 4) for its futility. Pragmatism is skeptical about whether the means of sci-

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ence are sufficient for a justified description of the unobservable entities (James 1907, p. 33). For this reason, the pragmatist philosophy is agnostic about the unobservables. However, in contrary to the logical-positivist doctrine, pragmatist methodologists are willing to accept metaphysical statements as ‘true’ if they are followed by useful implications (Rosenbaum 2003, p. 251). It should be noted that in economics and the methodological debate upon it, unobservables played limited role. As Reiss (2012, p. 364) put it, in Friedman’s (1953) essay ‘unobservables’ played no role. A similar opinion regarding economics was voiced by Hausman (1998), who indicated that there are no espistemically problematic unobservable entities in economics. On this ground, Reiss (2017, p. 368) advised redefining the realism-instrumentalism debate in terms of the respective attitude towards causal claims (p. 368) and argued that the instrumentalist approach is more fruitful: [f]orecasters now reject these ideas after realizing that models are frequently mis-specified (i.e. they do not represent the underlying structure completely), and socio-economic systems tend to change a lot. (…) it cannot be proved that true causal models beat non-causal models in forecasting competitions (p. 373). Therefore, in economics, the pragmatist/instrumentalist skepticism about metaphysical claims should be read as restraining from attempting at discovering or explaining the ‘true nature’ of the economic world. Considering the fact that instrumentalists deny that theories and theoretical terms should make real references [and therefore they (…)] consider the truth status of theories, hypotheses, or assumptions to be irrelevant for any practical purposes so long as the conclusions logically derived from them are successful (Boland 1979, p. 508).

Causality Second, the first-wave pragmatists opposed the Humean tradition regarding causality (Suarez 2013). For instance, Dewey (1938) explicitly discussed causal relations which are crucial for the natural sciences. This suggests that such causal talk is accepted (similarly to the above-discussed case of metaphysical considerations) if its implications are useful. On the ground of economic methodology, F53 is ambiguous in this aspect: the hypothesis of calculating leaves (i.e., employing a false mechanism for predicting) can also suggest that Friedman held the reductionist view on causality. Nevertheless, instrumentalists acknowledge that useful models can misspecify true causal structure. Frank Knight, who anticipated Friedman’s stance (Hammond 1991), acknowledged that [s]cience, then, is merely the technique of prediction. It is the mental mechanism or process by means of which we act intelligently (Knight 1935, p. 109). Additionally, the early-twentieth century economist was very lucid in defining the instrumentalist approach to causality: [p]robably the ‘commonest’ meaning of cause is that it is the phenomenon which we can control directly, and by controlling which we are able indirectly to control another phenomenon upon which we cannot act directly (p. 115). Here, the pragmatist approach of judging propositions by their

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utility is employed to defining the relation between cause and effect: Knight defined causal relations as the relation invariant under intervention (cf. Woodward 2005).

The purpose of models and theories Third, the pragmatist philosophy of science analyzes theories as instruments and rejects the notion of truth regarding them. Instruments (tools) cannot be true or false. They can only be useful for a given purpose. In other words, true theories are the useful ones what implies that truth depends on context (James 1907, Hookway 2016; F53, p. 167-168). For instrumentalists, theories are not aimed at describing the world. In contrary, they only serve its purpose (which, for Friedman, was prediction). As Boland (1979, p. 508) put it, do not have to be considered true statements about the nature of the world, but only convenient ways of systematically generating the already known „true” conclusions. According to Friedman’s famous essay (F53), theories are appraised by comparing their predictions with future observations4. In addition to empirical adequacy, instrumentalists favor fruitful and straightforward theories (F53, p. 149). Praising these features of theories is implied by the role of theories in the pragmatist philosophy of science which Caldwell (1980, p. 367) called the organizational function of theories: theory construction is undertaken to organize a complex of facts into a coherent whole. As it was highlighted above, theories are not interpreted as (possibly true) descriptions of the world, but as tools allowing for the economic description of phenomena (i.e., aiming at ontological unification, to put it in the scientific-realist words) or prediction and its ontological commitment is not interpreted literally. In his follow-up article, Caldwell (1992) indicated the superiority of instrumentalism over other positions: it avoids difficulties connected with other views by refusing for theories to be true or false. On the other hand, despite the instrumentalist viewpoint, the theories used as instruments can be true or false when employed as tools for explaining. Additionally, instrumentalists (including Friedman’s essay) often speak as if they belonged to a branch of realism. Fourth, according to pragmatists, theories, being instruments, should serve its purpose (e.g., explanation, prediction, being a good didactic device, etc.). Friedman (F53, p. 148) limited the aim of economic theories exclusively to prediction. In Caldwell’s words (1992, p. 124), [p]redictivist instrumentalism states that the only goal of science is the development of theories which are good instrumentalist for prediction. It should be noted that F53 does not contain a detailed analysis of what prediction means. Considering the picture of pragmatism delivered above, prediction can be understood in the following two ways: (1) as an unconditional prediction, e.g. ‘what will happen next year?’, or as a conditional prediction, i.e., indicating results 4 F53 does not take sides on the issue of defining prediction. The term can be understood strictly, i.e. as predicting future events, or as the out-of-sample model testing. Additionally, the unconditional and conditional predictions can be differentiated (cf. the next paragraph).

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of a particular action: “what are the effects of raising the minimum wage?”. The instrumentalist stance is inherently connected to skepticism about human abilities in discovering ‘reality’. Rorty (1991) believed that if two contradictory (regarding postulated mechanisms, unobservable entities, etc.) theories posses the same predictive power and empirical adequacy, then they are indistinguishable from the pragmatist perspective. For this reason, Friedman’s (F53, p. 153) consideration on the unrealisticness of axioms should not be read as (in line with Maki’s (2009) interpretation) an invitation to false theories. Instead, pragmatists are agnostic about, for instance, the unobservable mechanism of how leaves maximize their sun exposure. As Friedman put it, [s]uch a theory cannot be tested by comparing its “assumptions” directly with “reality.” Indeed, there is no meaningful way in which this can be done (F53, p. 172). What matters, considering F53’s insistence on prediction, is empirical adequacy to the observations. As Wible (1984, p. 1050) summarized, [i]nstrumentalists are not concerned with truth. As long as theories lead ultimately to successful predictions, then the truth-status and realism of such theories is irrelevant. Predictive power, in addition to being the purpose of theories, is also a method of assessing whether these theories are right (useful). As Caldwell (1992) indicated, the prediction is the instrumentalist link to the real world. Friedman (F53, pp. 150-151), in contrary to the contemporary practice of economists, indicated that there are no experiments in economics. However, he believed that it is not a drawback of this discipline: economists should use the accuracy of predictions instead of experimental control for assessing theories. Here, Friedman clearly did not consider the influence of disturbing factors what indicates the presupposition that economy is a closed system. Even if economic models produce perfectly adequate predictions, they can fail if an out-of-model factor shapes the modeled variable (cf. Black et al. 2017). In other words, Friedman did not consider the openness of the economic world, unspeakably assuming that it is closed. Additionally, it is worth highlighting that the ‘method of prediction’ gives a solution to the problem untouched by scientific realists, i.e., the question when models are right. As Reiss (2012, p. 380) put it, the instrumentalist has to take empirical evidence more seriously than the realist because he doesn’t have the excuse that empirical anomalies can be ignored for the sake of greater realism (…). The instrumentalist’s model either serve its purpose or it doesn’t.

skepticism Fifth, the instrumentalist methodology accepts the inductive reasoning but, at the same time, is skeptical. The Deweyan approach (Dewey 1938) is grounded in an attempt at delivering a descriptively-adequate account of science. According to his reconstruction of science, the inductive reasoning is crucial for science, and, despite being possibly fallacious, very successful. Therefore, the results of inductive reasoning are provisionally accepted (Cochran 2010, p. 97) when the outcome of accept-

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ing a false hypothesis (type II error) does not entail severe consequences. Despite accepting the fallacious method of induction, instrumentalism is, in fact, a skeptical approach to science. Gouinlock (1990, p. 251) argued that Rorty’s main thesis (…) is that objective knowledge is impossible, and hence instrumentalism limits the scope of research to prediction, i.e., it focuses on observables. Additionally, the results of inductive reasoning are not acknowledged as a true account of how the world is but only as a useful device that helps in solving a particular problem. Sixth, the instrumentalists, in line with the logical-positivist philosophy of science, accept the theory-observation distinction. Both Friedman (F53) and Dewey (2008, p. 11) discussed verification (testing) of theory by means of comparison (of its predictions in the case of the monetarist economist) with reality. For such a test to be possible, the reality is to be described (observed) without employing the theoretical framework under consideration. In a similar vein, the instrumentalist methodologists presuppose the fact-value separability (Reiss 2017, p. 135).

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4. sCIENTIFIC REALIsM The fall of the logical-positivist school in the philosophy of science was partially caused by the historical turn that appeared in the 1960s prompted by the philosophical works of Thomas Kuhn, Paul Feyerabend, and Norwood Hanson (described below). Jarrett Leplin (1984) noticed that, after the fall, the philosophy of science was divided into two groups diverging due to employing different methods of analysis: either formal or semantic and contextual. The philosophy of scientific realism emerged when several tenets of logical positivism were rejected in the late 1950s and the 1960s. In short, scientific realism was established as an answer to the question how the success of sciences was possible. Its advocates indicated as the reason the fact that the unobservable entities postulated by scientific theories exist and the world is as the theories picture it. Considering that scientific realists proceed by studying the output of scientists (usually models in the case of economics) and on this ground strive for informing the philosophical discussion, the endeavor is descriptive in nature. Section 4.1. focuses on scientific realism in the philosophy of science and discuses the development and evolution of the doctrine. The most sound arguments in favor of and against scientific realism are summarized. The realist stance in the philosophy of science is internally divided and therefore the scientific-realist thought can only be described at a general level. According to Leplin’s opinion (1984, p. 1) actual at the time when it was voiced, scientific realism [was] a majority position whose advocates are so divided as to appear in minority. The following chapter 5. aims at reconstructing the critical-realist though, which diverges from scientific realism in several aspects. Uskali Mäki (2005), one of the most widely-recognized philosopher of economics and scientific realist defined the doctrine advocated by himself as the three-dimensional commitment: semantic, ontic (or metaphysical), and epistemological. The semantic commitment states that statements drawn from theories are either true or false in line with the correspondence definition of truth. In other words, an answer to the question whether a theory or a model under consideration is true1 depends on how things are in the world. The ontic commitment states that entities described by theories exist mind-independently what contradicts, for instance, below described constructivist approach. The epistemological commitment is the belief that our most advanced theories (either the current or possible) are true or close to true (e.g., veri1 Considering the widely accepted viewpoint that only sentences can possess truth values (i.e. be either true or false), stating that a model is true (or false) is shorthand for stating that a hypothesis implied by a model under consideration is true (or false). Such abbreviations, in spite of being unjustified from the viewpoint of logic, are very common in the philosophy-of-economics literature, cf. for instance the title of Mäki’s (2013) article, where question whether explanatory models can be true is voiced.

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similar). The third dimension of the scientific-realist commitment is also defined as having reasons to believe that theories are (at least approximately) true. Section 4.2. is devoted to summarizing the scientific-realist debate about economics. Section 4.3. strives for reconstructing the scientific-realist research guidance from the views of the philosophers of economics belonging to this school.

4.1. Development and main arguments In his textbook focused on presenting the scientific-realist views on scientific theorizing, Jerrold Aronson (1984) voiced an opinion shared by virtually all realist philosophers of science. Namely, the professor of philosophy at the State University of New York believed that understanding how scientists arrive at their theories can be achieved, to a great extent, if we adopt a stance which treats theories primarily as systems which depict the nature of things, not logical algorithms for the organisation and prediction of data (p. 5-6). This viewpoint is one of the most central tenets of the scientific-realist doctrine. As it was previously mentioned, most of the contemporary philosophy of science emerged from and in opposition to logical positivism. Contrary to the neopositivist viewpoint, scientific realists find the question whether the unobservable/abstract entities exist meaningful. They accept the existence of unobservables and affirm that the theoretical entities exist in terms of the ‘external existence’ raised by Carnap (1950).

The rejection of the received view According to Stathis Psillos’ (2011) reconstruction, the departure from the received view in the philosophy of science took several steps. Herbert Feigl (1950) defined the so-called surplus meaning of theoretical terms. In other words, the ex-member of the Vienna Circle voiced a hypothesis according to which theoretical terms refer to unobservables (theoretical entities). Herbert Feigl was, at the later stage of his academic career, aware of the fact that either adoption of scientific realism or excluding the realism/antirealism dichotomy from the philosophy-of-science discourse as a meaningless problem is a matter of convention because there is no theory-neutral position to answer questions such as, for example, ‘if atoms really exist’. One year later, Willard Quine (1951) argued that the observational/theoretical distinction highlighted by the logical-positivist doctrine is not justified because the dichotomy is not strict. For instance, Richard Boyd (1983), in his one of the most important defenses of scientific realism in the history of philosophy of science, discussed two frameworks for the observable/unobservable distinction. On the one hand, observables are defined as quite plainly observable to persons with normal perceptual abilities. On the other hand, the class of observable entities can also entail objects that can be detected by the senses

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when the senses have been aided by devices whose reliability has been previously established by procures that do not beg the question between empiricists and scientific realists (Boyd 1983, p. 51). Therefore, according to Quine’s line of argumentation, it is justified to read our best, most mature theories literally. In this way, Quine (1951) formulated the semantic dimension of scientific realism. In addition to the progress in the processes of rejecting the meaningful/meaningless and observable/unobservable distinctions, another factor that promoted accepting the realist turn in the philosophy of science was the development of the causal theory of reference. According to the previously accepted descriptivist account, the referent of a term is fixed by a description that is associated with that term; roughly, if a description changes, then so does the referent (McGrew, Alspector-Kelly and Allhoff 2009, p. 575). In contrary, according to the causal theory of reference, the referent is an independent object that caused setting up its description. Therefore, accepting the causal theory of reference allowed scientific realists to deny Thomas Kuhn’s and Paul Feyerabend’s viewpoint, according to which different (e.g., newer and older theories describing the same phenomena) refer to other entities. The new approach to the problem of reference states that referents stay the same even if its description changes, or, in Hillary Putnam’s (1984) words, different theories refer to the same entities in different ways. Due to the rejection of the observable/unobservable dichotomy and the development of semantics in the 1950s scientific realism became widely accepted. As Psillos (1999, p. 83) put it, [b]y the 1960s, the tide has started to move the realist’s way. The agonizing over semantic issues have led to a new consensus: realist (that is, face value) semantics. According to the then-recently established consensus, two presuppositions were believed to be true. The first is that established contemporary scientific theories are approximately true (and we are justified in taking them to be so). The second is that the history of science has consisted in a progression of theories that constitute closer and closer approximations to the truth (McGrew, Alspector-Kelly and Allhoff 2009, p. 574).

Why is science successful? Scientific realism emerged in the philosophy of science as an attempt at explaining how the success of science was possible. One of the most famous arguments in favor of accepting the scientific-realist viewpoint is the so-called no-miracles argument coined by Boyd (1983). According to Putnam’s (1983, p. 140-141) reconstruction the line of argument is as follows: the modern positivist has to leave it without explanation (the realist charges) that ‘electron calculi’ and ‘space-time calculi’ and ‘DNA calculi’ correctly predict observable phenomena if, in reality, there are no electrons, no curved space-time, and no DNA molecules. If there are such things, then a natural

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explanation of the success of these theories is that they are partially true accounts of how they behave. However, it should be noted that, to apply the no-miracle argument, the success to be explained is to exist. In other words, the theories are to be successful. The question if the economic theories are such stays open. Therefore, scientific realists commonly hold that their viewpoint is only justified about mature theories or mature sciences2.

Counterarguments This viewpoint was shaped as one of the several responses to the antirealist argument called pessimistic induction. This objection against scientific realism is believed3 to be raised by Larry Laudan (1981) in his famous article ‘A Confutation of Convergent Realism.’ Convergent realism, or, more generally, the viewpoint listed by Leplin (1984, pp. 1-2) as one of the assumptions of the scientific-realist doctrine, according to which science develops over time states that subsequent theories converge (move in the direction of, get closer to) on truth. Convergent realism belongs to the set of the scientific-realist theories, according to which newer, more developed theories are closer to the truth. However, the convergence-account supporters face several difficulties. First, if theories are only approximately true, then they are strictly false and (therefore) being a realist about entities postulated by such theories is a doubtful philosophical stance. Second, even though many attempts at formalizing the process of convergence to truth were undertaken, each of them has severe technical problems. For instance, Pavel Tichý (1976) criticized Karl Popper’s (1972, pp. 231-236) formalistic account of verisimilitude defined as a comparison of true and false consequences of a theory under consideration on the ground that the Popperian approach implicitly demands from a new theory to be (strictly) true. According to Laudan’s (1981) formulation of the pessimistic induction, the history of science delivers evidence that there is a vast number of empirically successful theories that were later proved to be wrong regarding reference. One of the most sound examples is the phlogiston theory of heat which delivered more accurate predictions than the atomistic theory, even though, as our current chemistry theories 2 The question whether it is justified to be scientific realist about economic theories lies beyond the scope of this book. However, it should be noted that, at least, serious doubts were recently raised. Scheuer and Dokurno (2017) argued that macroeconomics is an immature science due to the fact that there are several contradictory paradigms established in opposition to each other. In a similar manner, Uskali Mäki (in press), in his recent article, employed the tools of analytic philosophy to analyzing how economists failed at producing (approximately) true models, instead of explaining how they succeeded because of there-discussed vast criticism of the mainstream economics after the financial crisis of 2007-2008. 3 The so-called pessimistic metainduction was observed by historians and philosophers of science earlier. For instance, Henri Poincaré (2001, ch. IX) called the phenomenon bankruptcy of science. The philosophically oriented mathematician considered the vast number of theories which are nowadays known to be false (both in terms of serving as a tool for predictions and refering to inexistent then-unobservable entities. Considering the theories abandoned one after another made Poincaré call their nature to be ephemeral.

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suggest, the entity named in the name of the theory does not refer (Wisniak 2004). In a similar vein, the Ptolemaic theory (model, to be strict) produced better predictions than the Copernican, heliocentric model despite being later proved wrong (Donahue 2004, pp. 3-28)4. The antirealist viewpoint was also supported by Putnam (1978), who, similarly to the pessimistic induction argument undermining the epistemic dimension of scientific realism, argued that the history of science shows that many now-rejected theories failed to refer appropriately. Therefore, repudiating the causal theory of reference and taking into account the implication of the pessimistic induction argument leads to the conclusion that the theoretical terms postulated by our currently best theories can also be refuted in the future. Due to the above-depicted antirealist arguments, scientific realists usually demand from a theory under consideration to be mature. It should be noted that the scientific-realist defense is circular because (1) mature sciences are defined as those that entails approximately true theories (2) that genuinely refer and, at the same time, (3) successive theories in mature sciences preserve ontology of their predecessor. Larry Laudan (1981) criticized the scientific realist approach on the ground that (3) it is not empirically adequate with the history of science. For instance, despite the textbook reconstruction according to which general relativity theory is a generalized version of Newtonian mechanics, Laudan (1981) argued that it is a simplified picture. Additionally, in line with arguments put forth by several philosophers of science (Laudan 1981, Worall 1989), the term ‘mature’ is not defined strictly. Therefore, scientific realists can ad hoc defend their position from accusations of theory change being equal to entity change by indicating that the previous theory was not mature enough. In addition to the requirement of maturity, scientific realists demand from theories not to be ad hoc (Worrall 1989; Psillos 1999, p. 105) to refute the argument that there is an infinite number of theories empirically adequate with data. Underdetermination of theory by data was first described by Pierre Duhem (1906), who showed that there is an infinite number of geometries that are possibly plausible with (adequately adjusted) physics. The following thought experiment can instantiate the underdetermination argument against scientific realism (also known as the empiricist argument). An econometrician aims at modeling an empirical law of demand for a particular market. They choose to employ two models: (1) traditional regression and (2) neural net. Assume that both models are equally adequate. In this case, it is impossible to choose which of the two functions is real regarding relating to the function describing how consumers react to price changes indeed. The argument against realism grounded in the underdetermination problem is possibly refuted by the demand of non-adhoc-ness (as Carrrier (1988) argued) and discussed below explanatory considerations (Laudan 1990). However, if empirical evidence is assumed to be the only source of 4

However, it was the Copernican model that was preferred due to its explanatory power.

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knowledge, then the argument, according to McGrew, Alspector-Kelly, and Allhoff’s opinion (2009, p. 574) is the most substantial ground for rejecting scientific realism.

Reined positions Due to the above-depicted difficulties faced by the usual formulation of the scientific-realist commitment, several realist positions were developed. John Worall (1989) coined new arguments in favor of structural realism5. According to his studies of the history of science, theory-change does indeed modify the ontic worldview when abstract entities are considered. However, the mathematical structure is believed to stay unchanged. For instance, the London-School-of-Economics philosopher showed that when the ether theory of vibrations was abandoned for Maxwell’s theory of electric and magnetic fields, the mathematical structure depicting these phenomena stayed unchanged. In contrary to the philosophy of science (and physics), structural realism did not attract more extensive attention among philosophers of economics. This situation can be caused by the fact that economic theories differ regarding postulated structures instead of theoretical terms. For instance, Milton Friedman’s (1983) monetarism and John Keynes’s (2016) general theory of employment are ontologically committed to the same entities (money, GDP, inflation, etc.), but differ in the offered descriptions of the relations between these entities. In contrary to the previous scientific-realist theories, Ronald Giere (2004) advised philosophers of science to focus on the process of modeling instead of never-ending inquiries into the nature of relations between models and reality. According to his neopragmatist-inspired philosophical position called later scientific perspectivism (2006), scientists construct models that are aimed at depicting and referring to reality, but the process of modeling is conducted in a pragmatic context. Similarly to the argument put forth by Uskali Mäki (2013) in his article focused on delivering the below-depicted model of modeling [ModRep], Giere (2004; 2006) believes that the pragmatic context of modeling shapes scientific endeavor. Mariusz Maziarz (in press, p. 5) summarized this philosophical position as follows: perspectival realism was developed as a response to the current practice of sciences, which employed various models to deal with different aspects of (the same) reality. For instance, your cup of espresso can be described by quantum mechanics, which catch the Brownian motion process or, if you are interested in its heat, you can appeal to the thermodynamic theory. However, the relata of both theories is the same cup of coffee and they are both true in spite of mirroring divergent aspects (and in different ways) of the same reality. The perspectival-realist framework was applied by Kevin Hoover (2010) to defending the realist stance in the ontology-of-econometrics debate. 5

This philosophical position can be traced back to Henri Poincare (2001), and Bertrand Russell.

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The realism-antirealism debate in the philosophy of economics focused on issues that were not central tenets of the realistic philosophy of science even though Uskali Mäki, one of the philosophers of economics who established this field, is believed to belong to the mainstream scientific-realist tradition in the analytic philosophy. There are other realist voices. Nancy Cartwright grounded her philosophical position of being a realist about capacities in analyzing econometrics (and physics). Kevin Hoover, who attempted to read the project of econometrics in a realist way (2002) and later ‘liberalized’ his viewpoint and employed above-mentioned scientific perspectivism. Another, divergent from the realist school in the philosophy of economics is critical realism promoted by Tony Lawson.

4.2. The scientific-realist philosophy of economics The scientific-realist doctrine entered the philosophy of economics literature as one of the possible solutions to the problem of realisticness of economic models. Uskali Mäki (1992, p. 23) traced back the problem of realisticness of economic models to the last decades of the nineteenth century and indicated that the terms ‘being realistic’ and ‘unrealistic’ were not strict and used as a synonym for not resembling reality. The debate silenced when Milton Friedman voiced the vital opinion (1953) according to which realisticness of axioms does not matter. Even though the father of monetarist macroeconomics is known to be instrumentalist (cf. chapter 6.), Uskali Mäki (1992) read his instrumentalistically-flavored manifesto in the realist manner. According to his reconstruction, the essay (Friedman 2008[1953]) is prone to various interpretations, but three core theses can be found: (1) hypotheses should be judged by comparing predictions with observations, (2) theory appraisal should be based on provisional acceptance of (temporarily) unfalsified theories and (3) predictive power of competing theories should be compared. Additionally, Mäki (1992) argued that unrealistic axioms are in line with scientific realism and can serve as a method of idealization. This approach was adopted by the scientific-realist school of philosophy of economics, and the debate moved from discussing realisticness of axioms to the problem of relations between models and reality.

Models and reality In a textbook introduction to scientific realism, Mäki (2008, p. 435) acknowledged that being the scientific realist about economics equals acknowledging the correspondence definition of truth: truth is independent of our ways and chances of finding about it. Pragmatists of various sorts contain the negation of this realist idea. In general, economic reality is currently believed to be too complicated for a ‘realistic’ model to be obtainable and useful. As Stephen Toulmin (1953) put it, the relation

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between theories and reality can be instantiated by comparing maps to the depicted reality. Therefore, models and maps characterized by perfect correspondence or, to employ the map metaphor, 1:1 scale would be useless for practical purposes. Due to these pragmatic considerations, the consensual viewpoint states that economic models serve as abstractions or idealizations and depict (represent) only essential aspects of reality. There are various, slightly different concepts of correspondence in the philosophy-of-economics literature. The Finnish philosopher of economics elaborated on the concepts of isolation, idealization, and correspondence. According to the offered reconstruction, isolation is a process of reducing the influence of or excluding some determinants of phenomena under consideration to depict only those that a modeler is interested in (Mäki 1992, p. 322-323). In other words, a process under consideration is isolated from other determinants, what is similar to constructing nomological machines, as Nancy Cartwright would call isolation (cf. below). Mäki (1992, p. 322-323) distinguished horizontal and vertical isolations. The former is connected to a constant level of abstraction. In contrary, the latter entails abstracting (simplifying) a modeled phenomena. It should be noted that Mäki’s (1992; 2008) views on modeling face criticism voiced by other scientific realists. For instance, Till Grüne-Yanoff (2011) argued that isolation and idealization are two inseparable activities indicating that economists make idealizing assumptions on processes they attempt at isolating. However, the Finnish philosopher proposed that Mäki’s account of isolation should be seen as a sufficient (albeit not necessary) criterion of model success (p. 17).

unrealistic but true At a general level, Uskali Mäki can be described as acknowledging the correspondence definition of truth: [m]odels are representatives of some target systems: they are surrogate systems that stand for their targets and are examined in place of their targets (2009, p. 58). However, as previously noted, the scientifically oriented philosophers do not support the concept of exact correspondence, i.e., 1:1 mapping. Mäki (2008) developed his views on how economists model reality by analyzing the case study of Johann von Thünen’s model called the isolated state. Such a study is a good example in favor of labeling the scientific-realist school a descriptive approach. It is based on analyzing a product of economic research (the model of isolated state) with the aim at informing the philosophical discussion about how models depict reality and what are the features of economic models. The classic model, sometimes referred to as the first economic model, was described in the German-language book Der Isolierte Staat in Beziehung auf Landwirtschaft und Nationalökonomie initially published in 1863 (Thünen, Tribe and Sundum 2009, p. 1). According to the Finnish philosopher of economics,

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the model is a perfect example of the process of modeling in economics because (1) it is based on unrealistic assumptions and (2) the results seemingly do not correspond. Thünen et al. (2009) aimed at addressing the question what determines the purpose for which grounds are used. The German economist listed 16 axioms depicting the isolated city/state located on an entirely plain area isolated from any other economic activities by wilderness impossible to cross (Mäki (2008, p. 53). The flavor of unrealisticness of the axioms can be exemplified considering the assumptions depicting transpiration of tradable goods in the isolated state, which state that (1) there are no roads in the isolated state, (2) transportation cost is proportional to distance and (3) all economic activity is conducted in the town located in the centre of the state only. The most simplified version of the model predicts spherical zones of farmland use determined by transportation cost: the more expensive transportation cost, the closer to town the production is located, cf. Picture 1.

Picture 1 Farmland distribution in the isolated state. The dot represents a city. The white area around it (1) represents dairy and market gardening; (2) the forest for fuel; (3) field crops and grains; (4) Ranching and livestock.







Source: Silversmith E., Von Thünen’s city circles, Wikimedia Commons,  https://en.wikipedia.org/wiki/File:Von_Th%C3%BCnen_circles_city.svg, retrieved: 20.02.2017.

 

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According to Mäki’s (2008) argumentation, the model is unrealistic regarding contradicting commonsensical experience but is true because it idealizes other causally relevant geographic factors by isolating only one determinant of farmland use, i.e., transportation cost. Mäki (2008, p. 54) believes that theoretical modeling is a procedure similar to conducting experiments: [i]n analogy to experimental procedure, such idealizing assumptions in many contexts serve the further strategic purpose of theoretical isolation. By neutralizing other subsidiary causes and conditions, they help isolate a major cause and its characteristic way of operation. (…) What is isolated by his simple model is distance (or transportation costs) as a major cause of land use distribution. The second aim of Mäki’s article (2008) is disagreeing with the standard approach to models as not linguistic entities and arguing that models possess truth-value. It should be noted that von Thünen (2009) further developed his model of the isolated state by excluding some of the axioms what made the model more realistic (regarding being less idealized or, in other words, more detailed).

The evolution of Mäki’s stance Even though the core of the scientific-realist research program in the philosophy of economics, i.e., the views on isolation and idealization being essential for economic modeling were constant, it should be noted that Uskali Mäki’s views on the relation between models and their relata evolved along the 30-year history of the realist philosophy of science. In short, the rise in importance of pragmatist considerations can be observed, but Mäki (2009, p. 59) still can be ascribed to the scientificrealist project, since he has never rejected the idea that resemblance is a feature of a model describing how adequately the model functions as a representative. However, as Julian Reiss (2013) noted, Mäki’s views depart from the usual way of thinking of models as representations. The pragmatics of the process of constructing economic models are implied by Uskali Mäki’s ‘model of modeling’ [ModRep] that strives for delivering a description of how economists produce models. Mäki (2009, p. 59) summarized [ModRep] as follows: [m]y account of models as representations can be nutshelled like this: Agent A uses object M (the model) as a representative target system R for purpose P, addressing audience E, prompting genuine issues of resemblance between M and R to arise; and applies commentary C to identify the above elements and to coordinate their relationships. The model was further developed and, in addition to the pragmatics of the modeling (understood as non-reality determinants of the process) constituted by purpose P and audience E, the most recent account Mäki (in press, p. 6) added context X. It should be noted that Mäki’s model of modeling is a similar construction to the four-dimensional process of modeling described by Giere (2006, p. 60). The text description of the model of modeling is following:

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Agent A uses multi-component object M as a representative of (actual or possible) target R for purpose P, addressing audience E, at least potentially prompting genuine issues of relevant resemblance between M and R to arise; describing M and drawing inferences about M and R in terms of one or more model descriptions D; applies commentary C to identify and coordinate the other components; and all this takes place within a context X. (Mäki in press, p. 6)

Econometric models Econometrics usually falls outside the scope of the scientific-realist project. However, there are a few philosophers of economics interested in the quantitative discipline, and their most notable example is Nancy Cartwright, who attempted at merging empiricist and realist philosophies by emphasizing causality. According to Psillos’s (2009) reconstruction, Cartwright holds her position, because assuming the argument also raised by Kevin Hoover (1997), that empirical methods of inquiring are appropriate, leads to the conclusion that unobservables should be acknowledged as existing. Cartwright (1983) prioritized her realist commitment about causes and argued that explanations are appropriate if they entail active causes: if c caused e, then, clearly, there must be events c and e which are thus causally connected (p. 5). Her philosophical position is very original because Cartwright (1994; 1999) prioritized capacities over causal laws. According to the acknowledged ontology, entities possess capacities or powers to behave in certain ways. For example, acetylsalicylic acid has the capacity to cure headaches. However, if a singular case of taking aspirin is considered, then the result, i.e., whether a headache suffered by, for instance, the philosopher of economics writing these words will be cured depends on other determinants (such as the tolerance to painkillers caused by the recreational use). Therefore, Cartwright (1999, p. 49) argued, capacities always exist even if they are not actualized. On the contrary, laws are only observable when one constructs an experimental setting isolating a phenomenon under consideration from other influences. In Cartwright’s terminology, what produces an observable law is ‘nomological machine.’ It should be noted that the capacities-postulating ontology is questioned on the ground that the concept is not defined strictly and has no extra content over the usual account of causal laws (Psillos 2009) or mechanistic approach to causality. In contrary to Uskali Mäki, Cartwright considered the research project of econometrics and defined its goal as measuring causal effects of nomological machines

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that cannot be isolated in an experimental setting (Maziarz in press, p. 4). According to her interpretation, estimated coefficients can be read as causal, probabilistic laws. The realist reading of econometrics was also attempted at by Kevin Hoover (1997, p. 18), who, in line with Cartwright (1994), argued that [e]conometrics is possible and compatible with realism because the argument for realism implies the existence of robust regularities. Econometrics aims to characterize those regularities. In his earlier ontological investigation, the Duke-University philosopher of economics analyzed a few case studies and voiced the viewpoint similar to Mäki’s version of scientific realism, according to which econometric models isolate a causal structure or, in other words, most important relations between exogenous and endogenous variables. Later, Hoover (2010) liberalized his viewpoint on the relation between econometric models and reality and employed the perspectival-realist position developed by Ronald Giere (2006). In line with this account, there are various sets of appropriate determinants, and therefore several econometric models can be estimated with an aim at depicting different aspects of reality.

The realism-antirealism debate In the mid-1980s, the realism-antirealism debate in the philosophy of economics fiercely reopened due to Deidre McCloskey’s (1983) article ‘The Rhetoric of Economics’ (1998) and subsequent book with the same title, and Arjo Klamer’s (1984) ‘Conservations with Economists.’ The detailed discussion of the rhetoric of economics will be delivered in chapter 6. In short, McCloskey argued that economic methodology is split. On the one hand, there is official, ‘modernist’ (i.e., neopositivist) methodology supported by philosophers and methodologists of economics. On the other hand, what economists do, how they research economy resemble a discourse or conversation, where, as Peter (2001) put it, many forms of reasoning and many styles of argumentation prevail (p. 572). This divergence grounds the viewpoint, according to which the endeavor of economists is not a rational enterprise. McCloskey’s rhetoric of economics can be read out in line with epistemological anarchism coined by Paul Feyerabend (1975) (Garnet 2005; Boylan and O’Gorman 2004; Butos 1987). Therefore, the rhetoric of economics suggests adopting the antirationalist and (due to the lack of grounds for committing to the epistemic dimension of scientific realism) antirealist stance. However, Mäki (1988) argued that these seemingly-contradictory research programs are in agreement: it concerns me that they have opened up a gap between rhetoric and realism (p. 89). According to the fusion of rhetoric and realism coined by the Finnish philosopher of economics, the research program started by McCloskey and Klamer should focus on the descriptive aspect of the philosophy of economics, i.e., reconstruct methods of how economists argue and what makes these arguments convincing. In contrary, the philosophers devoted to analytic philosophy and scientific realism should debate on the relations between models and their relata, i.e., economic reality.

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Despite the passing time, the realism-antirealism debate in the philosophy of economics seems to wait for a consensus to establish. Daniel Hausman (1998) voiced a clear opinion: instead of taking part in the debate himself, he argued that, even though the debate is one of the central tenets of the philosophy of economics, it is of relatively limited importance. Furthermore, the question whether theoretical entities exist is not relevant for economic methodology. This line of criticism can be extended by voicing the argument according to which economics, in contrary to the scientific-realist opinion about other sciences, do not develop progressively. For instance, the twentieth-century history of macroeconomics seems to be created by switches of consensus among economists (at least among those engaged in the process of policy-making). They supported the Keynesian macroeconomics in the 1930s and 1940s, Friedman’s monetarism, real business cycle theory in the 1970s and 1980s and a new neoclassical synthesis which started to establish in the 1990s (Woodford 1999) and, after the recent global financial crisis, committed to Keynesian thought described in Treatise on Money (1960) in order to theoretically support bailout funding (Leijonhufvud 2009). Moreover, the success of science that scientific realism is aimed at to explain is questionable when, for example, the vast criticism of mainstream economics published after the global financial crisis of 2007-2008 (Colander et al. 2009; Krugman 2009; Krugman 2011) is considered.

A skeptical turn? Facing the above-sketched and other arguments against being scientific realist about economics, even Uskali Mäki, whose work, in fact, can be identified with the scientific-realist doctrine in the philosophy of economics, recently switched his opinion about the epistemic dimension of scientific realism about economics. Mäki (2011) revised his position and coined a minimal version of scientific realism. According to this philosophical stance, the usual scientific-realist commitments were liberalized. Instead of demanding of economic models to be true, [m]inimal realism does not require models to be (justifiably believed to be) true, but rather that they have a chance of being true (p. 10). In other words, the traditional view that our current theories are right is exchanged for the liberalized view that they may (but possible are not) correct. The switch in Mäki’s project is also visible in his most recent publication on the philosophy of economics. In Modelling failure, Mäki (in press) discussed the post-crisis criticism of economics and employed his model of modeling [ModRep] to analyze possible ways of economists’ endeavor failure. Even though the question he raised is crucial for indicating how the current economics could be improved, the problem stays unaddressed, and the reasoning itself might be accused of being an exercise in analytic philosophy instead of considering the position and difficulties faced by post-crisis economics, considering the conclusions. Mäki (in press, p. 7) acknowledged that [i]t appears that all components listed in [ModRep] have been or can be

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charged for not having done well, using which he refused to indicate the ‘whipping boy’ among one of the dimensions of his model of modeling.

4.3. successful modeling The indeterminate conclusions voiced recently by Mäki (in press) can be caused by his opinion on scientific realism. According to the Finnish philosopher (Mäki 2005, p. 348), scientific realism does not deliver strict methodological guidance and is, comparing to other schools in the philosophy of economics, less critical: [the] project has been more neutral: the normative implications are expected to be more indirect and to require lots of factual premises that go beyond realism as a philosophical doctrine. The project of scientific realism strives for delivering a description of economic modeling and on this ground inform the philosophical disputes. The scientific-realist epistemic advice can be reconstructed from analyzing what models are regarded as most successful. The neutral approach to scientific practice is grounded in the epistemic commitment of scientific realism, according to which current theories are (generally or approximately) true, what diminishes the need to deliver explicit research advice and to constrain the methods employed to research. However, the methodological guidance advised by scientific realism can be reconstructed on the ground of analyzing what kind of economic models are studied as cases of most successful pieces of economics.

Truth The most general epistemic guidance of the scientific-realist project is to aim at discovering true (regarding, differently understood, correspondence) account of phenomena under consideration: [n]ormatively, the global perspective encourages all of science to acquire true information about the world (Mäki 2011, p. 11). In contrary to the earlier-discussed project of logical positivism advocating a unified methodology of economics, scientific realism promotes discipline-specific methodology grounded in the peculiar ontic characteristics of (…) subject matter (ibid.). Four characteristic features of the scientific realist methodology advocated by philosophers of economics can be enumerated. (1) Focus on investigating causes of phenomena rather than searching for constant regularities which do not explain, (2) putting emphasis on theoretical modeling aimed at isolating the most crucial features of modeled phenomena, the essences of things, (3) methods of theory appraisal grounded in explanation and ontological superiority and (4) specifically-understood6 fallibilism. 6 The difference between the scientific-realist account of fallibilism and the approach advocated on the ground of the Popperian philosophy of economics most notably by Mark Blaug will be discussed in Section 1.4.

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The role of causal explanation In contrary to the previously-discussed methodology of logical positivism that was skeptical about causality in line with Humean criticism, (1) scientific realists’ attitude to cause-effect relations is positive. In fact, certain philosophers concerned with economics emphasized causality in their ontology. For instance, Cartwright (1983, p. 6) argued that the usual approach to explanation, inference to best explanation (IBE, also called abductive reasoning7) is only valid if active causes are entailed in explanation and coined the process of explanation advocated by herself ‘inference to the most likely cause’ IMLC. Causality plays a central role also in Mäki’s project. As Łukasz Hardt put it (2013a, p. 119), the scientific endeavor is synonymous to finding causal relations. For instance, in his case-study analysis of exemplary economic model set up by von Thünen (2009), Uskali Mäki (2011) expressed his opinion on economists’ endeavor, who should focus on analyzing causally relevant determinants. In a similar vein, Mäki (2001) defended the model of perfect competition, which, according to the scientific-realist reconstruction, depicts/resembles/isolates economically essential aspects of the market. In this account, theoretical models should be constructed so that they resemble essential (for a given context and purpose) determinants. The case of isolated state also shows that highly abstracted models can later be made more realistic by the inclusion of previously isolated factors. The example discussed by Mäki (2011) also shows the redefined goal of science. According to the scientific-realist doctrine, scientists aim at explaining phenomena (by referring to actual causes) instead of predicting them (employing empirical laws). Even though Mäki (2011) did not discuss the issue in detail, it seems to be justified to acknowledge that even the more realistic versions of the isolated state model (i.e., those including rivers, streets, and soil fertility) will not deliver predictions of considerable accuracy. Scientific-realist optimism about (2) theoretical modeling in economics is grounded in (justified, to some degree) presupposition that economic systems are epistemically inaccessible to be studied. Maziarz (2015) indicated that despite the growing emphasis put on experimental methods in economics connected to rise in popularity of game theory and behavioral economics, this approach to causal investigations is still unorthodox. The epistemic impossibility of isolating phenomena dealt with by economics is probably the reason why the so-called gold standard for causal inference is still an unorthodox method. Mäki (2005, p. 303) also listed other grounds: [t]he reasons for employing and examining substitute systems are various, including ethical (using animals in medical research instead of human subjects since the latter would be ethically objectionable), economic (examining the target system directly would be too expensive), and epistemic (the target systems are inaccessible in full since they are too small, too large, too far away in space or time, or too complex. However, Mäki 7

The subject will be further discussed in Section 1.3.

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(2009) later explained the epistemic inaccessibility of economy only with its extreme complexity. In spite of emphasizing theoretical modeling, the scientific-realist philosophers of economics do not reject the project of econometrics: Cartwright (1983) and Hoover (1997; 2010) are explicitly positive in their works.

Theory appraisal Theory choice (3) is one of the central tenets of every school of philosophy-ofeconomics thought (Hausman 1989). Even though, as previously noted, the scientific-realist methodology is limited in delivering epistemic constraints, the problem of theory choice was widely discussed by philosopher of economics and scientific realists interested in other fields. For example, Glymour (1984) analyzed the case of Copernican revolution and indicated that the Copernican system explained facts mysterious for the geocentric theory, suggesting that theory choice is grounded in comparing explanatory power of competing theories: theories that explain more empirical regularities should be preferred if other features are similar. Mäki (1990, p. 331; quoted from Hardt 2013b, p. 75) defined the scope of explanation in the following way: [l]ogical unification is brought about when more and more statements within a discipline become derivable from the same set of axioms, or when the same set of statements becomes derivable from a smaller set of axioms. Hardt (2013a, p. 108-112) discussed several scientific-realist approaches to the problem of theory appraisal. In addition to the previously mentioned scope of theory (i.e., number of different phenomena which can be explained with a considered theory, also ontological unification is a demanded factor (Hardt 2013a, p. 125)). Since ontological unification can be defined as reducing the number of entities postulated by theories, then considering ontological unity in theory choice suggests choosing those theories and models that postulate ontology more acceptable from the viewpoint of other theories provisionally accepted in the field.

Fallibilism Finally, even though the usual account of the scientific-realist philosophy of science entails the epistemic commitment, according to which theories are (at least approximately) correct, what should undermine attempts at modifying current theories, scientific realists usually describe themselves as fallibilists. Mäki (2008, p. 346) defined fallibilism as the view that knowledge claims are in principle fallible (and possibly corrigible, revisable in the light of further evidence and arguments) so that full certitude is unattainable. Realists typically are fallibilists, opposing both dogmatism and radical skepticism. Even more, realism is often defined to presuppose fallibilism. However, the fallibilist approach advised by scientific realists differs from

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the Popperian methodology, primarily if the latter is understood in line with Blaug’s radical reconstruction, according to which economists should put their theories under test. Acknowledging the theory-observation distinction and putting aside the problem of underdetermination, a negative test result undermines a theory under consideration. In contrary, fallibilism, here, means somewhat a viewpoint according to which theories are likely to be replaced by newer, better antecessors due to new arguments or evidence instead of automatic, instant falsification. According to the scientificrealist doctrine, theories should be provisionally accepted as long as better theories are accessible. Hence, theory choice is a complicated and multidimensional process dependent on theoretical developments and context of inquiry, and the empirical evidence is only one of its aspects. Several philosophers voiced the above-stated interpretation. Larry Laudan (1981, p. 610) highlighted that part of what separates the realist from the positivist is the former’s belief that the evidence for a theory is evidence for everything the theory asserts. Where the stereotypical positivist argues that the evidence selectively confirms only the more ‘observable’ parts of the theory, the realist asserts literal truth of the whole theory (i.e., observable and unobservable entities, and causal relations between them). The weak-version-of-fallibilism interpretation is grounded in the stance that scientists and economists choose among theories if more than one theoretical account is accessible instead of rejecting a falsified theory and looking for a new one. For instance, Jerold Aronson (1984, p. 137) advocated the viewpoint according to which theories are only confirmed in comparison to their rivals. In his appraisal of the scientific-realist philosophy, Nicholas Rescher (1984, p. 40) explicitly stated that fallibilism does not mean that one must give up on the idea that scientific inquiry is a matter of the pursuit of truth regarding the workings of nature. Fallibilism merely means that we must make those descriptive and ontological claims of science in somewhat tentative and provisional tone of voice. Scientific realism evolved from the logical-positivist doctrine due to the rejection of the observables-unobservables distinction, what lead to acknowledging all entities as existing. The doctrine was set up an explanation of the success of science. It proceeds by analyzing cases of most successful economic models with a view to inform the philosophy-of-science discussion. Therefore, the purpose of this school is descriptive. Scientific realism covers both ontology and epistemology of economics. Even though the viewpoint according to which economics is also a successful science is more risky, with the most notable example of Uskali Mäki’s works, scientific realism dominated the philosophy-of-economics research.

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5. CRITICAL REALIsM Another realist school in the philosophy of economics is critical realism put forth by Tony Lawson, who employed Roy Bhaskar’s viewpoint on the philosophy of social sciences (e.g., 2008; cf. Collier 1994 for an introduction). In general, scientific and critical realism are two divergent schools despite being committed to the abovedescribed ontological dimension of scientific realism. In contrary to scientific realism, which gradually evolved from the neopositivist doctrine, transcendental realism was set up independently as an alternative to the mainstream philosophy of science. Moreover, critical realism is normative in its ontological and epistemic considerations. The project proceeds from putting forth a priori a theory of social ontology and formulating research guidance on its ground. First, Roy Bhaskar’s views on the philosophy of science are discussed. Second, the critical-realist criticism of the mainstream economics formulated by Tony Lawson is reviewed. Third, the methodological advice of critical realism is operationalized in the context of economics, and the research methods promoted by the critical-realist philosophers of economics are summarized.

5.1. Roy Bhaskar’s philosophy of science Transcendental realism is a philosophy-of-science stance that (in the philosophy of economics, at least) rejects the epistemic dimension of the previously-discussed scientific realism and (therefore) is critically-flavored in its appraisal of the current scientific practices. As Lawson (1997, p. 261) put it, the [below-discussed] acceptance of ontological realism places the constraint of extra-discursive reality upon what can legitimately be maintained. A commitment to (ontological) realism combined with epistemological relativism sustains a judgmental rationality, and from this perspective the practices of contemporary economic modeling are found to be wanting. Despite rejecting the viewpoint according to which science is successful, critical realism is committed to the ontological dimension of scientific realism. In other words, it also accepts the independence thesis: the (economic) world exists discourseindependently. As Bhaskar put it (2008, p. 17), transcendental realism reject[s] the empiricist account of science, according to which its valid content is exhausted by atomistic facts and their conjunctions. (…) Transcendental realism argues that it is necessary to assume for the intelligibility of science that the order discovered in nature exists independently of men, i.e. human activity in general. (…) According to transcendental realism, if there were no science, there would still be a nature, and it

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is this nature which is investigated by science. The emphasis put on the mind-independent existence of the world that is investigated by science highlights that critical realism is committed to the ontological dimension of realism.

Economics without constant regularities Bhaskar’s philosophical position contradicts logical positivism (or, in general, empiricism) on the ground that there are not many constant regularities (empirical laws) outside of experimentally-controlled phenomena. In this aspect, the critical realist view is in line with Cartwright’s position (1983; 1996). Bhaskar (2008, p. 19) grounds his ontology in the distinction between open and closed systems and shows that these distinctions are presupposed (…) by the intelligibility of experimental activity. In short, a closed system is a phenomenon or a set of phenomena that are not interfered with by outside determinants. Such systems as the solar system or experimental setup of bodies falling in a vacuum produce observable empirical regularities. In contrary, ‘open systems’ is the term crucial for the Lawsonian project of criticizing economics. It labels phenomena liable to be influenced by outside determinants so that prediction or intervening is impossible because success in these activities would not only entail understanding how phenomena under consideration works but also ways in which it is disturbed by ‘outside’ influences. Bhaskar (2008, p. XVII) believed that the world is an open system consisting of things possessing causal powers or potentialities and liabilities in virtue of their intrinsic structures (essential natures), which may or may not be exercised, and then exercised may or may not be manifest in a particular outcome, hence may be exercised unactualized and/or unmanifest to people. Additionally, Bhaskar’s ontology emphasizes causal mechanisms and processes (cf. mechanistic approach to causality, ch. II) instead of entities, as is the case with scientific realism. Reality is stratified according to this philosophical position. Bhaskar (2008, p. 47) listed (1) the level of experiences, (2) the level of events and (3) the level of mechanisms. At the same time, Bhaskar argued (2008, p. 115) that the level of mechanisms is also stratified onto different layers of reality1. Each of them is depicted by another theory so that different levels (…) mesh together in the generation of an event (…) and will not normally be typologically locatable within the structures of a single theory. In general the normic statements of several distinct sciences, speaking perhaps of radically different kinds of generative mechanism, may be involved in the explanation of [one] event. Such ontology entails epistemic advice radically different from those delivered by the logical-positivist doctrine or the analytic philosophy of science in general. Bhaskar (2008, p. 115) broke the usual symmetry between explanation and prediction 1 The doctrine of critical realism states that reality is stratified. At each level of reality, there are different causal mechanism operating. For example, the microeconomic layer (decision-making consumers, maximizing companies etc.) supervene on a biological layer of reality.

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(e.g. Batemarco 1985) on the ground that [t]he idea that a complete explanation of an event entails a potential prediction of it depends upon the possibility of the reduction of the various sciences to a single level and a complete description of all the individuals at that level; i.e. it depends upon the idea of an antecedent closure. Accepting the Bhaskarian viewpoint according to which closure (experimental control) is impossible in the social sciences leads to the conclusion that prediction is impossible outside of science and the social scientists’ endeavor should be limited to explanation only.

Criticism It should be noted that the critical realist philosophy of social sciences got considerable attention among philosophers and practitioners but is also criticized for advising nonscientific and unsuitable methods. Baert (1996) accused the critical-realist philosophers of being overly prescriptive in attacking the mainstream paradigms of most successful social sciences (economics and sociology, namely) despite the descriptive roots of this doctrine. The Belgian sociologist noticed that [c]ompared with Popper, CR is far weaker on the normative front [...]. The realist notion of explanatory power seems to leave the door wide open for some non-falsifiable (or hardly refutable) theories to enter the realm of science – a highly undesirable move indeed. (Baert 1996, p. 518). Considering the existence of extensive literature2 on the criticalrealist project in the philosophy of science in general and economics in particular, the emphasis is put on the epistemic guidance. The discussion of the ontological presuppositions assumed by the critical-realist project is limited.

5.2. The Lawsonian critique of the mainstream economics Tony Lawson (1997) is the most notable critical realist in the philosophy of economics. His approach is explicitly normative. The first book published by the Cambridge philosopher aimed at criticizing the project of economics (Economics and Reality) established the critical realist school in the philosophy of economics. What are the ground on which Lawsons’s skepticism about the current practice of the mainstream economics developed? The emphasis is put on the most notable distinction between critical realism and other schools of the philosophy of economics, i.e., the ontological presupposition that economy is an open system what undermines the possibility of econometrics and other quantitative methods. On this ground Lawson criticizes the current practice of economists and advices employing ‘soft’ methods such as case studies and the method of triangulation. 2 A seminal example of an introductory textbook to the philosophy of Roy Bhaskar is Collier’s book (1994). There is a considerable and growing amount of literature on the critical-realist philosophy of economics (e.g. Lawson 2003 and Downward 2005).

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social and natural sciences Lawson (1999, p. 275) started his research aimed at developing the critical realist philosophy of economics from highlighting the epistemic fallacy, according to which (in line with above-mentioned Bhaskar’s viewpoint) the belief that questions of ontology can be reduced to questions of epistemology is mistaken. In contrary, Lawson and his followers believed that the ontological research should precede to formulate epistemic or methodological guidance. In the introduction to his notable work, Lawson voiced his opinion that contemporary economics neglects the considerations focused on ontological issues (1997, p. XII) and indicated the Popperian dominance in the mainstream as the main reason. Also, Lawson (1997, p. XIV) suggested that Popper only proclaims himself a realist, fallibilist, and anti-positivist (cf. chapter 4.). The anti-Popperian criticism is probably grounded in the viewpoint that the existence of constant regularities (or, to use the neopositivist term, empirical laws) is crucial for fallibilism to work. Opposing these two crucial assumptions of logical positivism (scientific monism and deductivism, namely) as inadequate to the ontology of the social sciences is the central tenet of critical realism. The critical realist methodology rejects the monistic viewpoint. Lawson repeated after Bhaskar that the social sciences are in worse epistemic position than the natural sciences because in addition to the openness of the world the former deal with human free choice. Accepting such presuppositions shows that the project is normative not only regarding research methods but also about ontology. Contrary to scientific realism that strives for delivering descriptions of ontology presupposed by modelbuilding economists, critical realists force their own ontological viewpoint onto economists. According to Lawson (1997, p. 10), the neopositivistic or falsificationist methodology advising constructing either theoretical models of phenomena or econometric models of data which both are deterministic in nature, are inadequate to the ontology of the social sciences (and economics) because it abandons the widely felt intuition that human choice is real. According to Lawson (1997, p. 29), the existence of free will creates a situation where any agent could always have done otherwise; each agent could always have acted differently than he or she in fact did. From the free-choice assumption follows the viewpoint according to which the world, social as well as natural, is open in the sense that events really could have been different3 (ibidem).

3 Criticizing the viewpoint voiced by Lawson exceeds the scope of this chapter, but it should be noted that his viewpoints are aprioristic and seems to contradict the current psychological knowledge that suggests the free choice being an illusion (e.g. Strawson 1980) or, at least, that there are constant regularities in human behavior (Tversky and Kahneman 1992). In addition, the Lawsonian project is prone to accusations of inconsistency. Assuming free will defined as Lawson (1997) did, i.e. as a possibility of acting otherwise in the same circumstances, undermines any explanation, even the one understood in line with critical realism.

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The openness of the social world Nevertheless, Lawson later distinguished two kinds of openness of the natural and social world: the former is susceptible to closures so that, using experimental control, mechanisms operating on a particular layer of reality are isolated. In contrary, social world is inherently open due to the free choice of individuals: [i]f natural and social realms are similar in that both are characterised by structures underlying the course of events, they are of course dissimilar in that social structures in turn (in order to qualify for the designation of social) depend for their existence on human agency. Thus, although a language system is like gravity in that it facilitates human action it is unlike gravity in depending in turn on human action. (...) [G]iven the open nature of human action – the fact that each person could always have acted otherwise – it follows that social structure can only be present in an open system (Lawson 1997, p. 31). Considering the assumption that the social world is open and unsusceptible to closure, observing (or producing using experimental design) constant regularities defined in line with the logical-positivist doctrine is impossible. Therefore, the usual methods advised by the empiricist philosophy of science are, according to the critical realist theory, useless. To establish a critical realist methodology, Lawson proceeded in line with Bhaskar4. He asked the question what the world (of the economy) must be like for economics to be possible: (...) in questioning what economists can usefully aim at, why not start out from premises concerning social investigative practices and elaborate a realist metaphysics of social science directly? (Lawson 1997, p. 52). Employing this aprioristic approach, Lawson (1997, p. 198) acknowledged that social structures are said to be enduring but highlighted that they are highly spatiotemporally specific in contrary to the reality of the natural sciences whose pace of change is smaller. In other words, the openness of the social world makes it possible for social structures to generate causal mechanisms that evolve (Hartwig 2015, p. 231) what makes social-science laws not universal (Lawson 197, p. 218). This conclusion, in addition to the problem mentioned above of free will, makes empirical regularities in the social sciences impossible to observe because they change over time what uproots the project of econometrics. Fleetwood (2017, p. 42) summarized the open-closed system distinction as follows: [i]n some natural sciences, an experimental set-up (artificially) creates conditions wherein event regularities, often referred to as ‘laws,’ occur. Outside closed systems, where event regularities do not occur (i.e., in open systems) events are still causally governed by something, and this ‘something’ is generally believed to be laws [(...). CR is grounded in] rejecting the conception of laws as regularity laws and accepting laws as the powers or tendencies of causal mechanisms. The SCR conception of O&C systems, then, is the foundation stone upon which is built a rejection of 4 Bhaskar (2008, p. 209) acknowledged that it is a matter of fact that that our world is one in which science is possible and grounded his inquiry into the ontology of science on this assumption.

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positivism, and its replacement with a CR meta-theory rooted in laws as powers or tendencies and capable of dealing with irregularities in the flux of events. Rejecting the laws, the Lawsonian ontology contains social structures and causal mechanisms that are usually impossible to isolate (Lawson 1997, pp. 55-100).

The Lawsonian criticism The critical-realist project presents a critical approach to the current practices of economists (including both (1) econometrics and the (2) theoretical modeling). On the ground of the ontological stance described above, critical realism puts forth a heterodox approach to economics. Replacing the mainstream methodology, Lawson and his followers advise economists to focus on explaining which can be accused of storytelling. Lawson (1997, pp. 67 - 86) rejected the project of econometrics indicating that there are no empirical laws in economics (and other social sciences). Therefore it is impossible to obtain estimated ‘laws’ (i.e., models) because of the inherent openness of the social world that makes econometric models lack robustness. The theoretical branch of economics that deals with models of phenomena instead of models of data are (2) also criticized on a few grounds. First, Lawson (1997, p. 129) voiced his opinion according to which social world, in contrary to the natural one, is more complicated and its causal relations are impossible to be mechanically combined5. Second, theoretical modeling is said to instantiate the epistemic fallacy and accused of apriorism (Lawson 1997, p. 151). According to the Lawsonian viewpoint (1997, p. 227), making simplifying assumptions with the aim at building a model depicting a deeper layer of reality is doomed to failure because causal laws operating at that layer are unlikely to be uncovered just by adopting the a priori aim of seeking broad generalizations. Moreover, Lawson (1997, p. 146-150) criticized isolations (theoretical, mathematical models) because such models do not correspond to reality, however, the justification of such statement, or, in other words, the method of comparing the models with the reality was not discussed by the Cambridge-based philosopher of economics. Below, the methods of researching the social reality implied by the critical ontology are discussed.

5.3. The methodology of critical realism As I argued above, Lawson’s (1997, 238) appraisal of the hitherto practices of economists is very negative: the naive attempts of orthodox economists to extrapolate forced correlations and to ‘explain’ by the deductivist model, have contributed very little to understanding the world in which we live. However, not the complex and 5 The question whether ‘combined’ means adding different social phenomena or merging them in a multiplicative way (cf. Weingart et al. 2013, p. 12) is not, to my best knowledge, addressed by Tony Lawson.

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changeable social reality, but the inappropriate research methods should be blamed for the failure of economics. Lawson (1997, p. 240) acknowledged that he did not think that the failure of mainstream economics is a consequence of an unfathomable, overly complex and dynamic social reality, nor even of the infeasibility of meaningful experimental control. Rather, the continuing failure of the discipline must be explained by the use of often quite irrelevant, typically formalistic, methods and techniques which economists naively and unthinkingly wield in a forlorn hope of thereby gaining illumination of a social world that they do not ‘fit.’

Examples of the critical-realist economics In contrary to his criticism (i.e., the normative guidance on what economists should not do and how they fail), Lawson’s positive methodological guidance is slightly fuzzy and ambiguous. The Cambridge-based methodologist advised delivering explanations that are purpose-specific6 and focus upon empirically grounded explanations of social phenomena which are couched in terms of structure and mechanisms that are reproduced [i.e., constant] over time (Lawson 1997, p. 262). Lawson previously (1994) indicated that the post-Keynesian economics is grounded in the critical-realist methodology of economics. He later also listed Hayek’s theory of spontaneous order, Smith on the division of labour, Keynes’ explanation of investment volatility in terms of the rise of stock markets, liquidity, and [...] Marx’s analysis of capitalism, including the reproduction of structural conditions which give rise to various transfactual tendencies (such as for the rate of profit to fall. (Lawson 1997, p. 262). What these explanations (or, in some cases, models) have in common seems to be (1) the unspoken belief that they employ as explanans mechanistic theories that are believed to correspond to the real processes operating in the economy (in contrary to Friedman’s (1953) explanation-as-prediction approach) and (2) relatively unformalistic and involving relatively simple, in comparison to the neoclassical paradigm, mathematics. Additionally, the post-Keynesian economics is praised by Lawson due to its incorporation of uncertainty into analyses (Kregel 1976). The pieces of the critical-realist economics listed by Lawson are sometimes (Wilber and Harrison 1978; Rutheford 1989; Beart 1996) accused of ‘storytelling,’ i.e., fruitless ex posteriori explanations constructed from facts and theories that seem plausible but are impossible to be tested or used for practical purposes. Lawson (1997, p. 263) also advised focusing on the phenomena known as path-dependence and (p. 270) attempting at identifying ‘contrastive demi-reg’, i.e., the few empirical regularities existing in the social world that, according to the critical theory, can be detected by means of comparative analyses (e.g. by contrasting competitiveness of UK-based companies with other industrial6 Lawson (1997, p. 224) discussed two thought experiments in order to show that (1) emphasis put by a lay person and an experienced person explaining an x-ray highlights different aspects of the same phenomenon and, similarly, (2) explanations delivered by a first year economics undergraduate and an experienced econometricians differ vastly.

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ized economies). Finally, Lawson (1997, p. 290 et seq.) advised planning structural changes keeping in mind the free choice of humans instead of attempting at employing regressions estimated on past data.

Research guidance Luckily, other critical-realist philosophers of economics delivered a more specific methodological guidance. Sheila Dow (1999) developed Lawson’s previously mentioned viewpoint according to which post-Keynesian pluralistic methodology is grounded in critical realism by indicating that such Babylonian (p. 22), pluralistic approach to methods is grounded in the concept of open systems which justifies employing various research methods. Additionally, the post-Keynesian thought is grounded in the assumption opposing the then-mainstream neoclassical economics in searching for the realistic explanations: [p]ost Keynesians have always focused on “real” policy problems and criticized the assumptions of mainstream theory for being “unrealistic” in the sense of being fictions rather than abstractions (Dow 1999, p. 24). Finally, Dow cited Arestis (1992) and Lavoie (1992) who explicitly referred to Lawson in their methodological articles. Davidsen (2010), who attempted at constructing consistent and fruitful-for-practical purposes critical realist methodology of economics, disagreed with Dow (1999). According to his viewpoint, the hitherto critical-realist critique of the mainstream economics was unconvincing. Davidsen (2010, p. 75) believed that arguments made for establishing critical realism as a unifying basis for various heterodox positions have been questioned on the grounds that they seem to overrate the credibility of critical realist ontological theories as well as the degree of ontological agreement among adherents of different economic schools of thought (Davidsen 2010, p. 75). According to the reconstruction delivered by the Norwegian philosopher, critical realism rejects the empiricist distinction between facts and theory and rejects the possibility of valuefree knowledge. Therefore, knowledge is justified by ‘judgmental rationality,’ i.e., it is believed that scientists rationally assess all the evidence (i.e., socially-constructed experimental and observational data, thought experiments, theoretical models, etc.) aiming at describing the way the world is. Davidsen (2010, p. 85-86) highlighted that despite the emphasis put on abstract reasoning and theorizing, critical realism demands empirical evaluations and support [... to] be brought in whenever possible. However, critical realism rejects the usual statistical tests or econometric models and advises instead nonmechanical rational judgment upon data: the empirical side of research undertaken may in many instances most productively take the form of case studies [... which] are generally acknowledged as a methodological approach consistent with depth ontologies. In contrary to Davidsen’s (2010) appraisal of casestudy analyses, Downward and Mearman (2002; 2003), Bache (2003) and Ron (2002) argued that econometrics can be included into the set of methods promoted by criti-

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cal realism. According to their stance, the argument for the possibility of science is grounded in the assumption that regularities (‘demi-regularities’ in the critical-realist terminology) that exist in the social and economic world. In contrary to the disputable place of econometrics in the critical realist methodology of economics, the method of retroduction is widely agreed upon to be appropriate for the social ontology of economies. The method of retroduction, being divergent from both induction and deduction is a mode of indifference in which events are explained by postulating (and identifying) mechanisms which are capable of producing them (Sayer 1992, p. 107). The abductive reasoning entails the method of triangulation. Downward and Mearman (2002) listed four types thereof. First, data triangulation is defined as gathering data at different times and situations, from different subjects (p. 396). Second, investigator triangulation is a term coined as a referent to diversifying the risk of a biased field research by employing more of them. Third, theoretical triangulation [i]nvolves making explicit references to more than one theoretical tradition to analyze data. (ibid.). Finally, critical realists advise also methodological triangulation, i.e., employing various research methods and comparing their results. In summary, despite notable inconsistency among the critical-realist philosophers of economics, they deliver considerably explicit research advice. The critical-realist methodology advises: (1) discouraging the use of econometrics and mathematical modeling promoted by the neoclassical paradigm, (2) employing retroduction aimed at arriving at the description of real causes of phenomena, i.e. mechanisms and processes underlying the observable layer of reality, (3) discrediting instrumentalist (i.e. obviously unrealistic) and correlational analysis and (4) employing the contrastive explanation (cf. Lawson 2003).

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6. ThE CONsTRuCTIvIsT APPROACh As Boyd (1992, p. 131) indicated, the contemporary philosophy of science moved in three divergent directions: toward a more sophisticated versions of empiricism (…), toward scientific realism, and toward the constructivist philosophy of science, on which this section focuses. In contrary to the approaches discussed previously, the constructivist philosophy of science (1) focuses exclusively on epistemology and (2) emphasizes the process of creating ‘constructing’ knowledge. The constructivist approach to science is usually identified with Thomas Kuhn (e.g., 1981) and Paul Feyerabend. The former philosopher and historian of science introduced the term ‘incommensurability’ according to which various theories employ different languages and therefore the terms of different theories are untranslatable, incomparable. In addition to Kuhn’s historical reconstruction focused on paradigm shifts, Feyerabend argued that the chronological analysis of the methods of physicists show that the only methodological rule employed by physicists is ‘anything goes’. For this reason, the constructivist stance is usually identified with epistemological anarchism in the philosophy of science (cf. Section 6.1.). On the ground of the philosophy of economics, two meanings of constructivism can be distinguished. In a strict sense, this approach can be defined as a philosophical and sociological inquiry into the process of constructing our knowledge about the world (constructing the object of research). Constructivism sensu largo includes also the study of performativity of economic models, i.e., the turned-around relation where models shape the modeled reality (McKenzie 2006; 2004; McKenzie et al. 2007). The constructivist philosophers are underrepresented. Most widely-discussed stance is McCloskey’s (1998) criticism of the mainstream methodology. Her rhetoric of economics focuses on studying means of argumentation employed by economists. There are a few ‘sociology of science’ studies that focuses on analyzing the research practice of economists and considering the influence of institutional, nonscientific factors (cf. section 6.2.). Section 6.3. focuses on depicting how the ‘anything goes’ rule coined by Paul Feyerabend and supported by Deidre McCloskey can be practiced by economists.

6.1. The constructivist philosophy of science Apart from the received view position which transformed into the scientific-realist stance, there were philosophers of science who focused on the subjectivist and epistemic aspect of the creation of knowledge. These two stances differ in acknowledging

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or rejecting the ontological dimension of scientific realism. As Boyd (1992, p. 131) put it, [r]ealists and constructivists differ in that the former hold, while the latter deny, that the phenomena studied by scientists exist and have the properties they do independently of our adoption of theories, conceptual frameworks, or paradigms. (…) constructivism shares with later positivism a tendency largely absent from realism of treating large-scale theoretical claims in science as in some important sense conventional. This heterodox tradition is usually believed to be started in the late 1950s and 60s of the twentieth century by works of Thomas Kuhn and Paul Feyerabend. It should be noted that this viewpoint is, to some degree, misguided, because attempts at depicting the process of knowledge construction started earlier. For instance, Ludwik Fleck (2012 [1935]) aimed at showing how observations differ when different worldviews (called in his terminology ‘thought styles’) are employed. He reconstructed the history of medical research on syphilis aiming at showing how cultural presuppositions influenced academic results and how theories evolved and redefined what was observed. His work was cited by Kuhn who is sometimes accused of grounding his concept of paradigm on the philosophy of the Polish microbiologist (e.g. Babich 2003). Scheuer (2015) employed Fleck’s stance to the analysis of economic methodology.

Scientiic revolutions Thomas Kuhn is widely known for his 1962 (2012) book “The Structure of Scientific Revolutions” aimed at delivering a more realistic reconstruction of the history of physics. Before its publication known as the descriptive turn in the philosophy of science (Kindi and Arabatzis 2013, p. 5), the development of sciences was usually believed to be a rational process converging on truth. Furhtermore, the main concern of the philosophy of science was the normative approach. Thomas Kuhn challenged this situation. In his book, published originally as an article included into the “International Encyclopedia of Unified Science” authored by the Vienna-Circle philosophers, Kuhn argued that science does not evolve by means of a linear accumulation of knowledge. In contrary, newer and older theories are incomparable because they employ different languages. For this reason, Kuhn believed that the theory change is a revolutionary process: in the course of a revolution and a paradigm shift, the new ideas and assertions cannot be strictly compared to the old ones. Even if the same words are in use, their very meaning has changed. (Kuhn 2012, p. xi). In detail, Kuhn (2012) divided the history of science into two phases: (1) normal science and (2) paradigm shift. The normal or paradigm-based science (p. 22-25) can be described as puzzle-solving: an activity employing methods of research accepted by the scientific community and aimed at solving the paradigm-defined problems. The accumulation of problems that are impossible to be solved and failures (of a re-

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searcher, not of a research method) accumulate what makes a crisis happen in science. The revolutionary science (Kuhn 2012, p. 7) is characterized by a reformulation of both the accepted results and the anomalous ones into a single framework. Boyd (1992, p. 137) argued that the usual, rational reconstruction of the history of science is not descriptively adequate: [w]hat Hanson, (especially) Kuhn, and others have shown is that this picture cannot be sustained. When recognizably scientific methods emerge within a discipline, they emerge as part of a package that includes theoretical conceptions necessary to ratify them, rather than as initially theory-independent principles that ground the initial adoption of theoretical conceptions. Additionally, the incommensurability of terms used by two paradigms implies that (to use the Popperian term) the verisimilitude of them cannot be compared. Therefore, a change in theory is not a rational process based on evidence and, for instance, striving for unification and theoretical simplicity, but is caused by an irrational change in opinion: [t]hat in turn led to the idea that a new theory was not chosen to replace an old one, because it was true but more because of a change in world view. (Kuhn 2012, p. xi). The above-quoted passage indicates that Kuhn’s views can be read in a relativistic way: theory choice is not grounded in empirical or theoretical arguments, but, to some degree, is an irrational process governed by group sociology. Kuhn (1977) attempted at delivering epistemic guidance. According to his views, theory appraisal is based on comparing five virtues of theories: accuracy, consistency, scope, simplicity, and fruitfulness. In other words, for Kuhn, theories should be: (1) empirically adequate with observation records and experimental results, (2) consistent with other theories in the field and internally, (3) theories describing more phenomena should be preferred, (4) they should be simple regarding the number of unobservable entities, (5) and describe new phenomena hitherto left without an explanation.

Feyerabend’s anarchism In contrary, Paul Feyerabend (1993 [1975]) refused to formulate a list of positive features a theory should have to be preferred. In contrary, he promoted the anarchistic stance. According to his reconstruction of the history of physics, there are no rules that always govern research practice: various methods are useful in different situations and serve various purposes. On this ground, Feyerabend (1993, p. 14) wrote that what is shown both by an examination of historical episodes and by an abstract analysis of the relation between idea and action [is that the (…)] only principle that does not inhibit progress is: anything goes. Since there is no method governing scientific practice, philosophers of science should restrain from formulating epistemic guidance and focus on delivering a historical and adequate reconstructions of how research was conducted. Contrary to Feyerabend who stuck to the traditional approach in the belief that scientific endeavor is primarily aimed at truth, the sociology of scientific knowledge strives for explaining scientific endeavor in terms of social practices,

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constraints, and norms. One of the most notable sociology-of-knowledge studies is Steve Woolgar and Bruno Latour’s (2013 [1979]) book entitled Laboratory life. The anthropologist and the philosopher of science analyzed the day-to-day research practice of biologists working in Roger Guillemin’s biological laboratory. Woolgar and Latour (2013) employed the anthropological method of observation to analyze the day-to-day practices of biology laboratory workers. On the ground of the study, they argued that biologists do not observe facts, but construct it. Their results are, to some extent, similar to the account delivered by Fleck (1979), but their method is grounded in the anthropological observation instead of historical reconstruction. Both studies of Woolgar and Latour (2013) and Fleck (1979) inspired research in the philosophy of economics. Below, the philosophy-of-economics constructivism is discussed.

6.2. The rhetorical approach (and other constructivists in the methodology of economics) On the ground of the philosophy of economics, the most notable anarchist-constructivist stance is the rhetorical approach popularized by Deidre McCloskey (1998 [1985]). This section focuses on discussing the purpose of studying the rhetoric of economics, McCloskey’s stance regarding the realism/antirealism debate, the rhetorical stance regarding truth and the problem of theory appraisal.

The rhetoric of economics The McCloskian approach (Klamer et al. 1988) focuses on describing methods of argumentation employed by economists (the rhetorical devices) and rejects the normative approach in the methodological discussions. McCloskey accepted the empirical (quantitative) methods and mathematics in the social sciences but opposed the practice of economists. According to the rhetorical approach, economics overemphasize mathematical modeling and statistical-significance fishing. The historian of economic thought criticized the neopositivist methodology of economics on the ground that the demands of objectivity and empirical verifiability are often impossible to meet in the research practice of economists. Therefore, economists pay lip-service to the epistemic guidance of logical positivism, but are unable to employ these methods in day-to-day research activity (McCloskey 1998, p. 228). One of the accusations formulated against ‘modernism’ (i.e., the logical-positivist methodology) by McCloskey is that it demands empirical verification that is often impossible in practice: [t]he problem comes, and the modernist shouting begins, with the words “empirical and “evidence.” Should it all be “objective,” “experimental,” “positive,” observable”? Can it be? I doubt it (McCloskey 1998, p. 158).

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Regarding the rhetorical viewpoint on truth, Mäki (1995) claimed that McCloskey supports only the coherence theory of truth (the small-t one), which states that an explanation or an idea is true if it is coherent (i.e., consistent) with other beliefs held. McCloskey (1995) rejected this interpretation and elaborated her position based on a refusal to choose between the correspondence and coherence definitions of truth. Her stance seems to be grounded in the awareness of the difficulty of judgment whether a hypothesis corresponds with reality and elaborates on her account of theory choice: a theory should be preferred to alternatives if it is more persuasive (McCloskey 1998). Furthermore, despite being a realist (regarding believing in the existence of external reality at least (Mäki 1995)), she supports a coherence theory of truth as epistemic guidance (McCloskey 1995). The difficulties in interpreting McCloskey’s (1995) views on truth can be solved by distinguishing between the ontological and epistemic dimensions, as Collier (1994) and Lawson (1997, p. 237) suggested. According to the critical realist tradition, truth corresponds (ontologically) with reality. However, since the relation of correspondence is epistemically inaccessible, other features (such as for instance, coherence) should be employed to the problem of theory appraisal. Despite a few attempts to fuse rhetoric with realist analysis (e. g. Hardt 2014, Mäki 1988), these two research programs are contradictory in several aspects. First, the economist’s goal is defined differently. As argued above, according to the realist point of view, economists should explain (e.g., Salmon 1998). In contrast, McCloskey acknowledged that the researcher’s aim is to persuade (McCloskey 1998) and delivered a characterization of a ‘good’ economist. The first factor that differentiates a good economist from a bad one is novelty of her/his research and contribution to a conversation (McCloskey 1998, p.162). Moreover, good economists appropriately use statistical significance tests, i.e., they differentiate between economic and statistical significance (McCloskey 1998, p.136, McCloskey 1985). According to McCloskey’s point of view, economic significance is a term coined to describe research on the relation that is important for academia or policy purposes. On the other hand, saying that an estimated coefficient is statistically significant means (only) that uncorrelated variables are unlikely to lead to an obtained estimate. In accordance with the rhetoric of economics, right theories (not to say true ones) are found to be more persuasive: the people speaking in a conversation of science are often worth listening to when a scientific assertion is at issue. (...) Small-t truth is about social agreement, not God’s mind (McCloskey 1995). Therefore, McCloskey (1998) expressed that a theory should be preferred to alternative ones if it is more persuasive. McCloskey identified a good economist with a good rhetor as s/he uses language and does it with self-awareness and attention to other minds present in a discussion (McCloskey 1998, p. XIX, 5). The so-called Sprachethik is based on the following rules, Don’t lie; pay attention; don’t sneer; cooperate; don’t shout; let other people talk; be open-minded; explain yourself when asked; don’t resort to violence or conspiracy in aid of your ideas (McCloskey 1998, p.160).

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In summary, the research methods advised by McCloskey resemble Feyerabend’s ‘anything goes’ maxim. Economists are not invited to relativism and dishonesty, but should employ various methods which will help in coining persuasive arguments. Because McCloskey (and other constructivist philosophers of economics, e.g., Scheuer 2015) refuse to accept the correspondence definition of truth, the only method by which truth of a theory can be established is internal consistency and acceptance among economists. Therefore, economists should strive for persuasiveness, i.e., reaching novel and economically significant conclusions, producing plausible theories and hypotheses, and paying attention to other minds present in the discussion. Deidre McCloskey’s and Stephen Ziliak’s (2008) later work focuses on the overuse of statistical significance. The phenomenon known as ‘significance fishing’ is used by economists to get significant results despite the lack of economic significance. In other words, McCloskey and Ziliak differentiate between statistically significant relations (that are supposedly nonrandom) and economic significance (i.e., being notable and relevant for economic policy making.

Other constructivists Despite the fact that the rhetoric of economics identified with McCloskey, Arjo Klamer, and Stephen Ziliak is the most notable position, other philosophers of economics can be included into this heterodox camp. One of the important studies of the construction of mainstream economic models is the case-study analysis conducted by Boldyrey and Ushakov (2016). The German-Russian team of methodologists attempted at showing that the normal relation between economic models and the reality they resemble is opposite. Contrary to the mainstream views, they argued that economists proceed from aprioristic models to ‘fitting’ them into the data (the world). In other words, it is a model that determines (constructs) reality. Harper (2009) aimed at depicting the process of constructing economic knowledge by observing the dayto-day practice of the International Monetary Fund staff. Despite his best efforts, the analysis focuses on the creation of documents and does not enlighten the process of model construction. Such studies are descriptive in nature: they study the process of constructing knowledge and the social and economic influences that bias it. Another example of the research that can be labeled ‘sociology of science’ or economics of scientific knowledge is the theoretical consideration of Zamora-Bonilla (2002a; 2002b; 2006). The Spanish economist and philosopher employed the tools of game theory and the demand-supply analysis with the aim to model the incentives of scientists (and economists). Economists who strive for maximizing profits can employ research methods that are not optimal from the perspective of truth. For instance, econometricians are accused of mining data to arrive at novel (not necessarily better) results (Goldfarb 1995; 1997) what creates a serious obstacle for grounding economic policy-making in recent econometric evidence (Maziarz 2017).

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6.3. Methodological anarchism Below, in line with, among others, Garnett (2005), Boylan and O’Gorman (2004, pp. 46-47), and Butos (1987), McCloskey’s stance is interpreted in line with methodological anarchism. As Daniel Hausman (2013) put it, Deidre McCloskey denies that there are any non-trivial methodological standards that economics must meet. Her resistance to (big M) Methodology made Garnett (2005, p. 239) write that while McCloskey is careful to distinguish her rhetoric from anything goes relativism, her vision of science bears a notable similarity to the methodological and epistemological anarchism of Paul Feyerabend. In a similar vein, Boylan and O’Gorman (2004, p. 46) acknowledged that there are intriguing parallels between economic rhetoric and epistemological anarchism. McCloskey (1998) argued herself that the rules of scientific research limit the researcher’s potential and creativity: Constraints, after all, constrain (McCloskey 1998, p. 159). However, contrary to the author of Against Method (1993) who strived for delivering an adequate description of research methods employed by physicists, McCloskey attempted to formulate a few standards of economic conversation which she labeled (small m) method and those economists who follow these advice “good”.

‘Anything goes’ in economics McCloskey (1998) criticized doing big-M Methodology in a normative way. However, studying the research and argumentative methods of economists can inform the discussion and help in discriminating between theories. Similarly to McCloskey, Weintraub (1989) argued that there is no outside position from which economics can be criticized. Therefore, in contrary to doing Methodology (i.e. advising economists how should they do their research), philosophers of economics should focus on doing history of economic thought, what would be more fruitful. McCloskey restrained from formulating excessive normative research guidance. Instead of the disapproved ‘modernist’ methodology, she advised economists to be good: What is good for science now (...) is good scientists, in most meanings of „good” (McCloskey 1998, p. 186).McCloskey enumerated a set of practical rules called method with a small m (McCloskey 1998, p. 159). What to do when the data are biased or when it is hard to think of a reason for the observed phenomenon, how to write scientific prose and how to avoid mistakes of statistical significance are only a few examples of the method (McCloskey 1998, p. 159). An economist who follows these rules arrives at novel and significant results, is persuasive and pays attention to other minds present in the discussion.

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7. CONCLuDING REMARKs Above, the six schools of the philosophy of economics are distinguished and characterized. What are similarities and differences between logical positivism, scientific realism, critical realism, instrumentalism, falsificationism, and constructivism? The two dimensions were coined with the aim of highlighting the differences and similarities between the six approaches. Each methodological stance can focus on (1) descriptive ontology, (2) normative ontology, (3) descriptive epistemology, and (4) normative epistemology. The philosophical schools grounded in pre-descriptive-turn philosophical approaches, i.e., logical positivism, instrumentalism, falsificationism, and (additionally) critical realism focuses on the former. The schools aiming (mainly) at an adequate description of how economists do their research are scientific realism and constructivism. The bullet-point summary can be found in Table 2. The final chapter is structured as follows. In section 7.1., the differences regarding normative ontology between critical realism and logical positivism are summarized. In section 7.2., the differences in epistemic guidance delivered by the six schools are considered. In section 7.3., the divergent viewpoints on descriptive ontology, i.e., the reconstructions of ontological commitments held by economists are discussed. In section 7.4., the reconstructions of epistemology grounded in analyzing the practice of economic research are considered. Finally, the main conclusions are voiced and the areas of further research indicated (section 7.5).

7.1. The normative approaches to ontology Two schools of the philosophy of economics focus on the normative approach to ontology. Logical positivism and critical realism voice contrary ontological advice. The former school advices excluding ontological considerations from science. The latter emphasizes the role of ontological research. Logical positivism argues that unverifiable statements are meaningless and, hence, the metaphysical commitments that do not have observable consequences should be excluded from science (Carnap 1950; Schlick 1959; Hutchison 1938). Furthermore, neopositivism is skeptical about our ability to know the truth defined in a classical way: science can only serve as an economic description. In contrary, critical realism states that ontological research should precede delivering epistemic guidance (Collier 1994; Lawson 1997) and put forth a fully-fledged ontology of social sciences. The CR stance is grounded in the distinction between open and closed systems: the realm of social sciences is believed to be open. Experimental control (closure of the system) is unattainable what makes economies indeterministic.

3. Instrumentalism

2. Falsiicationism

1. Logical positivism

• rejecting the ontological dimension of scientiic realism • rejecting the correspondence deinition of truth • economics as a closed system • the impossibility of experimentation in macroeconomics

• the three worlds • accepting the classical deinition of truth • theories converge on the truth deined in the classical way • literally false theories are verisimilar

descriptive ontology

Table 2 The idealizing summary of the six schools • rejecting metaphysical (unveriiable) statements • the Humean deinition of causality • the aim of science: delivering economic descriptions

normative ontology

descriptive epistemology

• rejecting metaphysical (unveriiable) statements • deining causality as constant conjunction • explanations valid only if allow for predicting • incommensurable theories appraised on the ground of pragmatist considerations • the theory-observation distinction • rejecting metaphysics as unfalsiiable statements • testing theories • the theory-ladeness of observations • falsiication is a decision • new theories theoretically and empirically progressive • comparing verisimilitude • situational analysis • the theory-observation distinction • positive economics • ontological considerations accepted if useful • “testable predictions” • induction useful despite the fallibility • unrealistic assumptions serve as economic descriptions

normative epistemology

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Source: as in table 1.

6. Constructivism

5. Critical realism

4. Scientiic realism

• the theoretical entities refer to existing objects • dualist ontology • most successful models approximately true • models are made true or false by how the world is

• the distinction between open and closed systems • the impossibility of closure of the economic system • the indeterministic world of economy

• the impossibility of prediction and econometrics • the mainstream theoretical models forbid human free will • criticizing the mainstream for the lack of realisticness • the method of triangulation • the use of retroduction with the aim of discovering causal relations • case studies • knowledge is constructed • striving for empirical adequacy, simplicity, and fruitfulness • accepting conventionalism • theory change caused by • persuasiveness a change in world-view • distinguishing between statistical and economic signiicance • the results are inluenced by social and economic • ‘anything goes’ factors

• theory choice based on explanatory power and uniication • the emphasis put on the project of theoretical modeling • axioms are unrealistic with the aim at isolation and/or idealization • successful models resemble causal mechanisms • economics is a fallible endeavor

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Logical positivism Logical positivism rejected metaphysics (statements without observable consequences) on the ground that they lack cognitive content: they are impossible to verify or – later – confirm (Carnap 1959, pp. 60-61). A similar stance on ontology (i.e., metaphysics that do not imply practical consequences should be rejected) is advised by pragmatist philosophers (Suarez 2013; Rorty 1991; Rosenbaum 2003). However, on the ground of economic methodology, this issue was not considered: the instrumentalist philosophers of economics focused exclusively on epistemology. The neopositivist pessimism regarding metaphysics can be exemplified with the viewpoint on (1) causality and (2) rejection of the ontological dimension of scientific realism. First, the logical-positivist interpretation of scientific laws is grounded in the Humean (1963) regularity approach to causality1 (Hempel 1965; Reiss 2013, p. 21). Serrano (2006) indicated that the neopositivist economists (Vilfredo Pareto, Henry Moore, and Henry Schultz) fulfilled the logical-positivist guidance and identified causality with constant conjunctions without the mechanistic, ontological claims. Second, logical positivism takes theories as an economic description of observable phenomena instead of a true model of reality (Smith 1989). Carnap (1950) distinguished between internal (within a theoretical system) and external (real, i.e., regardless of theoretical perspective) existence. Together with Schlick (1959), they argued that asking about the latter is meaningless because it cannot be conclusively verified: the Circle rejected the thesis of the reality of the external world and the thesis of its irreality as pseudo-statements (Carnap 1950, p. 34). In a similar vein, Hutchison (1938), in the book that introduced positivism to economic methodology (Hammond 1991; Hands 1992), advised freeing economics from normative values and metaphysics. Boland (1991) defined the logical-positivist stance as opposition against building metaphysical systems. For instance, Pareto, Moore, and Schultz advised restraining from the ‘external existence’ commitment on whether utility functions are real (Sarrano 2006). Such advice are clearly normative.

Critical realism Contrary to logical positivism forbidding metaphysical considerations, critical realism2 emphasizes their role in voicing appropriate research guidance. Critical realism criticizes the contemporary economics for neglecting ontology. This school is normative about ontology because it aprioristically formulates its worldview and de1 In contrary to the mainstream neopositivist viewpoint on causal relations, Carnap (1966) suggested the reading to some degree similar to Cartwright’s (1989) stance. 2 The terminology needs to be clarified here. The philosophy of science established by Bhaskar in his notable book A Realist Theory of Science (2008 [1975]) is called transcendental realism. In contrary to the views on natural sciences grounded in his doctoral dissertation, his philosophy of the social sciences was named by its author ‘critical naturalism’ (1998) but commentators merged these two terms into ‘critical realism’.

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livers research advice on this ground. Bhaskar (2008, p. 19) assumed that there are no constant regularities in the social sciences and distinguished between open and closed systems. The division between experimentally isolated worlds and the social world susceptible to external influence dooms the project of econometrics. Moreover, Lawson (1997, p. 31) argued that the social world not be susceptible to closure (i.e., experimentation in the social sciences is impossible). Therefore, the laws of the social sciences are not universal (Lawson 1997, p. 218) and change in time because the social structures that generate causal mechanisms evolve (Hartwig 2015, p. 231). The inherent openness of the social world results from the human free will. As Lawson put it, it is the widely felt intuition that human choice is real [and therefore] any agent could always have done otherwise (Lawson 1997, p. 29), what crashes the received-view symmetry between explanation and prediction (Bhaskar 2008, p. 17; Batemarco 1985). Additionally, the critical-realist ontology assumes stratification of social reality: various mechanisms, causes, and events operate/exist at different layers of reality (Bhaskar 2008, p. 47; p. 115) The ontological considerations are certainly impossible to disentangle using empirical results, especially considering the normative aim of the above-depicted views. However, the critical realist stance seems to be grounded in false premises. For instance, both philosophers and cognitive psychologists agree that free will is an illusion (e.g., Strawson 1980; Vohs and Schooler 2008; Heisenberg 2009) and there are a few constant regularities in human behavior (e.g., Tversky and Kahneman 1992; Hoover 2002). Although appraising each school exceeds the purpose of this book, critical realism faces severe criticism. Beart (1996, p. 518) accused this approach of nonfalsifiable (or hardly refutable) theories to enter the realm of science, Wilber and Harrison (1978) and Rutherford (1989) voiced their opinion that critical realism rules out any scientific method, and invites storytelling.

7.2. The normative approaches to epistemology Delivering epistemic guidance seems to be the main purpose of the philosophy of economics: five out of six schools are (partly, at least) normative. The list includes (1) logical positivism, (2) instrumentalism, (3) falsificationism, (4) critical realism, and (5) constructivism. In fact, each school delivers a different answer to the question how economics should be done. The former two schools emphasize empirical methods and acknowledge the theory-observation distinction. The Popperian methodology (3) highlights fallibility of the endeavor of science and develops its solution to the problem of theory appraisal. Critical realism (4) opposes these stances and highlights the role of ‘soft’ methods and the limiting nature of social phenomena. Finally, the constructivist approach identified here with the rhetoric of economics put forth by McCloskey (1998 [1985]) promotes methodological anarchism (Garnett 2005;

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Boylan and O’Gorman (2004, pp. 46-47; Butos 1987) and the role of proper argumentation. The normative approach to epistemology is the field where the economicmethodology schools differ vastly. However, such a differentiation is not necessarily a drawback. Economics is a pluralist science. Different schools within economics are grounded in (supported by) different schools of the philosophy of economics.

Logical positivism Logical positivism (both as a philosophy of science and a school of economic methodology) is a normative stance: contrary to the Friedmanian instrumentalism, due to rejecting the synthetic a priori statements on the ground that examples of such reasoning (e.g., the Euclidean geometry of space and the Newtonian physics) were proved to be wrong (Parrini 1995), the neopositivist methodology advises the use of empirical methods and is skeptical of theoretical modeling which cannot be anything more than a preliminary thought-clearing exercise (Hutchison 1938, p. 38). Axioms should either be grounded in observations (Hutchison 1938) or, if they are the synthetic a priori statements (here: statements about reality delivered without prior empirical research), be subsequently tested (Hill 1968). The logical-positivist economic methodologists oppose the mainstream neoclassical tradition of modeling based on ‘unrealistic’ assumptions. The neopositivists offered the verificationist- (Schlick 1936; 1959) and later confirmationist criterion of meaning (Carnap 1936; 1966). Hence, the scientific theories should be tested using confirmation: theories and hypotheses (e.g., the ceteris paribus laws) should be given a clear meaning (using operationalization (Hausman 1989; Hutchison 2000; Boumans and Davis 2015; Hands 2004)) to be confirmable by protocol sentences. The demand for confirmability is variously understood by economic methodologists: from potential refutability to delivering empirical, econometric evidence in favor of a hypothesis (Boland 1991). For instance, Sarrano (2006) defined confirmation as a process of comparing theoretical predictions with empirical observation of aggregate data using econometrics. In contrary, Schinckus (2010) acknowledged that the ideal of empiricist approach promoted by logical positivism is fulfilled when econometrics is employed to describe empirical generalizations instead of verifying theoretical propositions (the data-driven approach). Logical positivism accepts the distinction between theory and observation: despite acknowledging that observations are never certain […]; but, in respect to laws, there is still greater uncertainty (Carnap 1966, p. 16). The belief in a greater certitude of protocol/singular statements can be traced back to the Humean distinction between ‘matters of fact’ and ‘truth of reason’ (Norris 2006). It should be highlighted that the neopositivist tradition makes explanation and prediction equal: to explain a phenomenon, one should deliver facts () and covering laws () sufficient for making predic-

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tions (Carnap 1966; Hempel 1965). The fully-developed neopositivist doctrine is, to some degree, similar to the stance of Karl Popper. For instance, Carnap (1966, p. 21) advised choosing diversified examples in order to test theories and highlighted that scientific laws that describe a potentially infinite number of instances can never be conclusively confirmed.

Instrumentalism On the ground of economic methodology, the most notable pragmatist3 position was coined by Friedman (F53)4. Comparing to the pragmatist philosophy of science, Friedman’s stance is normative. At the beginning of his essay, Friedman distinguished between normative and positive5 science and advised focusing on the latter (F53, p. 146). This advice is similar to the neopositivist approach, but differ regarding motivation: Friedman believed that differences about economic policy […] derive predominantly from different predictions (F53, p. 147; cf. Boland 1991). F53 states that consistency of theoretical propositions should be checked using logic, but only factual evidence can deliver evidence that a theory is useful. As Friedman (F53, p. 148) put it, theory is to be judged by its predictive power for the class of phenomena which it is intended to ‘explain.’ Frazer and Boland (1983) read the above passage in line with the fallibilist methodology. Another interpretation is plausible: F53 possibly accepted the pragmatist solution to the problem of induction based on accepting the uncertainty, but stating that assuming the results of inductive (e.g., statistical) reasoning for granted is useful (Ketner and Putnam 1992; Cochran 2010 Peirce 1868; Dewey 2008). As James (2016) acknowledged, there is a trade-off between certainty and scope/adequacy of predictions. Comparing to the pragmatist tradition treating theories as tools aimed at serving their purposes (being useful) (Dicker 1971; Suarez 2013), Friedman (F53, p. 148) limited the purpose of theories to producing appropriate (i.e. valid and meaningful, i.e., not truistic) predictions6 (cf. Boland 1979). Moreover, if two alternative hypotheses have the same predictive power, F53 (p. 149) advised considering their simplicity 3 On the ground of the philosophy of science this stance is usually referred to as ‘pragmatism’, the term ‘instrumentalism’ was introduced by Dewey (1910) and popularized by Popper (1956). It is usually identified with the viewpoint voiced by Milton Friedman (1953) (Mariyani-Squire 2017; Reiss 2012). 4 It should be highlighted that the famous essay was „perhaps the (…) most influential and most widely and hotly debated papers on economic methodology” (Reiss 2010, p. 103) and read as a piece of scientific realism (Mäki 2009; 1989); constructive empiricism (Lageux 1994); scientific constructivism (Scheuer 2015) and several other philosophy-of-science positions. Hirsch and de Marchi (1990, p. 1) summarized the numerous divergent interpretations indicating that economists lack professional training in philosophy of science: “every eminent economist who has been foolish enough to say anything about economic methodology is terribly inconsistent if not downright silly” what made F53 eligible for the divergent interpretations. 5 Despite little relevance to economics (Reiss 2017), the revision of Keynes’ (2017 [1936]) distinction between (1) descriptive knowledge, (2) rules of behavior, and (3) an art of fulfilling one’s goal shaped the methodological discussions for the next half century. 6 Here (F53, p. 148), Friedman seems to be aware of the fact that predicted phenomena can be influenced by factors excluded from model and advised repeating this process in order to average out the external ‘forces’.

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and scope. The emphasis on theory testing indicates that Friedman, in line with logical positivism, assumed that protocol sentences are describing what theory predicts possess a greater degree of certitude (i.e., instrumentalism accepts the theory-observation distinction). As Dewey (2008, p. 11) put it, [t]he verification of a theory, or of a concept, is carried on by the observation of particular facts. F53 accepts theoretical modeling and the process of aprioristic axiomatization: axioms are allowed to be false (‘as-if’ statements) if it is useful (e.g., serves the purpose of economic description or produces better predictions). Additionally, F53 argued that the realisticness of axioms not be important (Caldwell (1980) labeled his stance ‘agnosticism’), because (1) there is no meaningful way in which [comparing axioms with reality (…)] can be done (p. 172) and (2) an answer to the question whether a set of assumptions is realistic depends on situation (F53, pp. 167-168) what highlights the pragmatist flavor of his stance. Moreover, F53 advised fictionalism regarding mechanisms postulated by theories: even if we know that the leaves do not maximize the surface of sun exposure using mathematics, such an assumption can be accepted from the instrumentalist stance if theory serves its purpose7. The instrumentalist school justifies the mainstream neoclassical tradition of highly abstract models. The virtue of such models is to economically describe observations.

Falsiicationism Falsificationism is a normative doctrine (Blaug 1992; Hands 1991): [t]he fact that Popper’s position is not falsifiable implies that it cannot be refuted by the history of science. Popper’s methodology is prescriptiv” (Caldwell 1991, p. 4). Otherwise, it would have been contradicted by the history of science (Lakatos and Feyerabend 1999; Fernandes 2013)8. Contrary to acknowledging its prescriptive role, economic methodologists differ in interpreting falsificationism (Caldwell 1991; Mäki 2014, p. 89). Blaug’s (1992) [1980]) reading, which is probably the most-widespread doctrine in the methodology of economics, is internally inconsistent9: he adequately reconstructed Popper’s thought but stuck to the naïve-falsificationist interpretation when discussed case studies. Blaug’s (1992) emphasis on theory testing seems peculiar considering Hands’ (1985) opinion that employing the strong/naïve interpretation would lead to rejecting all economic theories. Despite certain similarities to logical positivism (e.g., aiming at addressing the problem of demarcation (Popper 7

What is peculiar, Mäki (2009) admitted that his realist rereading of F53 will ignore this passage. Lakatos (1980) aimed at a greater level of descriptive adequacy, but his methodology of scientific research programs influenced philosophy-of-economics literature to a minor degree. A notable exception is the dispute between Hands (1985; 1990), Ahonen (1989), and Blaug 1987) on whether the Keynesian research program is progressive. 9 On one hand, Blaug acknowledged the Duhem-Quine thesis and the theory-ladenness of observation and rejected ‘Popper-as-a-naïve-falsificationist’ (1992, e.g. p. 110) and advised that statements (not theories) should be falsifiable (p. 19). On the other hand, when discussing the case studies from the second part of his notable book, Blaug (1992) employed the neopositivist presupposition that ‘facts’ are less prone to falsifications than theories (e.g. p. 19-24). 8

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1953, p. 1)), Popper (2002) accepted Hume’s skepticism and exchanged the verificationist criterion of meaning with falsificationism (Keuth 2005, p. 45) excluding inductive reasoning from the endeavor of science. Additionally, The LSE-based philosopher opposed the neutrality of observation language (Sheamur and Stokes 2016; Harding 2012; Fuller 2004). Therefore, falsifications cannot be conducted automatically (Caldwell 1991), but are a decision aimed at indicating what (theories, observational statements, background knowledge, etc.) should be improved (Popper 2005, p. 92; Folina 2014)10. These decisions should be rational, i.e., restrain from ad-hoc theory adjustments (Blaug 1992; Caldwell 1991; Boland 2003). Moreover, ‘falsified’ theories can be employed if there are no alternatives or they are useful (e.g., serve as approximations) (Popper 1979, p. 22). As Boland (2016, p. 22) summarized: Popper says we learn by criticizing and then correcting our knowledge errors. Thus, for Popper, Science as a process of learning is devoted to criticism. Interestingly, Popper (1967) took part in the economic-methodology debate and advised the method of ‘situational analysis’ that, to some degree, resemble Mill’s method of difference (Koertge 1975; 1979) what, according to Hands (1992, p. 36) is what economists do.

Critical realism A very different school of economic methodology that also explicitly formulated epistemic guidance is critical realism (Baert 1996). As Lawson (1997) argued, the critical-realist epistemic guidance is implied by the social ontology. This stance is critical to the hitherto methods of economics. On the one hand, Lawson (1997, p. 67-86) argued that the project of econometrics should be abandoned because the changing economic mechanisms (cf. Fleetwood 2017) make econometric regularities unstable in time. Hoover (2002), Downward and Mearman (2002; 2003), Bache (2003), and Ron (2002) disagreed: according to their argument, econometric models depict demi-regs (spatiotemporally stable social regularities). On the other hand, the Cambridge-based philosopher accused mainstream theoretical modeling of apriorism: causal laws are unlikely to be uncovered just by adopting the a priori aim of seeking broad generalizations (Lawson 1997, p. 227) and indicated that such models do not correspond to reality (ibid., pp. 146-150). Dow (1999, p. 24) argued that economic models are “’unrealistic’ in the sense of being fictions rather than abstractions. 10

Sawyer, Beed and Sankey (1997) discussed a few case studies drawn from the history of economics and showed that negative test results are susceptible to various interpretations: either a theory can be rejected, or one of numerous background assumptions can be modified (cf. Popper 2013, p. 118 et seq.). Interestingly, Popper (2014, p. 319) himself disagreed with the interpretation according to which ‘falsified’ theories of the social sciences should be automatically rejected: [u]ltimately, the idea of verisimilitude is the most important in cases where we know that we have to work with theories which are at best approximations – that is to say, theories of which we actually know that they cannot be true. (This is often the case in the social sciences.) In these cases we can still speak of better or worse approximations to the truth..

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Instead of the traditional methods, critical realism advises focusing the research upon delivering empirically grounded explanations of social phenomena which are couched in terms of structure and mechanisms that are reproduced [i.e., constant] over time (Lawson 1997, p. 262). Contrary to other methodological schools, the critical-realist guidance is strict. The economy should be investigated by analyzing ‘contrastive demi-regs’ detected using comparative analysis (Lawson 1997, p. 290; Lawson 2003) and case studies (Davidsen 2010). Contrary to the hitherto theoretical models accused of fictionalism, the critical-realist methodology advises focusing on describing social mechanisms. The method of triangulation guarantees the appropriateness of the results (Downward and Mearman 2002), i.e., diversification of data, investigators, theories, methods, and ‘judgmental rationality’ of economists (Davidsen 2010). It should be highlighted that the critical-realist school faced considerable criticism: Wilber and Harrison (1978), Rutheford (1989), and Baert (1996) accused it of promoting storytelling, i.e., constructing ex posteriori explanations that seem plausible but are impossible to verify in any way and lack practical purpose.

Constructivism Similarly to critical realism, a few constructivist philosophers oppose the neopositivist methodology. The constructivist methodology focuses on epistemology on the ground that, as McCloskey (1998, p. 158) put it, [t]here is no epistemic ground on which you can talk about reality other than by discussing models. Kuhn (2012 [1962]) and Feyerabend (1993) aimed at delivering descriptively-adequate methodology of physics and are ‘fathers’ of the descriptive turn (Kindi and Arabatzis 2013, p. 5). In the philosophy of economics, the most notable anarchist position is McCloskey’s (1998) rhetoric of economics (Garnett 2005; Boylan and O’Gorman 2004, pp. 46-47; Butos 1987). Contrary to Feyerabend (1993), who acknowledged that the only methodological rule that should be obeyed is ‘anything goes’ (Preston et al. 2000), the rhetorical school is more prescriptive11. In detail, the rhetorical approach opposes neopositivist (‘modernist’) emphasis on often unnecessary quantification, objectivity, and the big-M Methodology. According to McCloskey (1998) and Weintraub (1989), there is no outside position from which economics can be criticized. In other words, the rhetorical school states that there is no philosophical, metaeconomic stance from which the research methods employed by economists can be criticized. Therefore, McCloskey (1998) formulated a vague concept of ‘good’ science: What is good for science now (...) is good scientists, in most meanings of ‘good’ (McCloskey 1998, p. 186). In detail, ‘good’ economics is 11

Here, I oppose Hausman’s (2013) opinion that McCloskey „denies that there are any non-trivial methodological standards that economics must meet”. Opposing the empiricist approach promoted by logical positivism (‘modernism’) and statistical-significance fishing (Ziliak and McCloskey 2008; McCloskey 1992) exceeds the descriptive aim of methodological anarchism summarized by the ‘anything goes’ slogan.

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grounded in proper argumentation and internal consistency. Additionally, McCloskey distinguished between statistical and economic significance and argued that the latter not imply the former: statistically-significant results (usually obtained by increasing number of instances) are not always crucial for practical or academic purposes (the economic significance).

7.3. The descriptive approaches to ontology Scientific realism, falsificationism, and instrumentalism deliver descriptions of ontological commitments implicitly present in economic theories. The project of scientific realism focuses on inquiring the relation between economic models and reality. In contrary, the fallibilist and instrumentalist schools do not deliver explicit descriptions of the ontological commitments of economists, but such presuppositions can be reconstructed from their epistemic guidance. Contrary to the previously-discussed dimensions, The schools that aim at reconstructing ontological commitments of economists are complementary rather than inconsistent.

Scientiic realism However, considering the complexity of the economic world, models do not correspond to it but are isolations and idealizations (Mäki 1992; Grüne-Yanoff 2011). As Toulmin (1953) put it, theories are about reality as maps to the depictured reality. To isolate and idealize causally relevant factors, unrealistic (false) assumptions are introduced (Mäki 2008; Thünen, Tribe and Sundum 2009). For instance, in von Thünen model of agricultural land, the cost of transportation can be assumed to be proportional to distance what simplify the exact price of transportation services. Similarly, the model of economic rationality is an idealization (Morgan 2006), diverging from observable human behavior (Tversky and Kahneman 1975). Regarding the relation between economic models and reality, Uskali Mäki’s views evolved and departed from the usual reading of models as representations (Reiss 2013). Mäki (2009; 2017) employed and reformulated Giere’s (2006) account, arguing that the relation between model M and reality R also engage agent A, purpose P, audience E, descriptions D, commentary C and context X. Due to the criticism of economics voiced after the 2007-2008 financial crisis, Mäki (2011) revised his position and coined minimal scientific realism that rejects the epistemic commitment of scientific realism: [m]inimal realism does not require models to be (justifiably believed to be) true, but rather that they have a chance of being true (p. 10). Recently, responding to the vast criticism of the mainstream economics caused by the financial crisis (e.g. Colander et al. 2009; Krugman 2009; Krugman 2011) , Mäki (2017) acknowledged that each of the aspects

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of modeling depicted by his model [ModRep] could have been done wrong and is responsible for the failure of economic modeling. Most notably, Cartwright (1999; 1983; 1994) focused on the project of econometrics and argued that the models of data be aimed at measuring capacities (causal tendencies) of phenomena under consideration. Cartwright’s account prioritizes causes (capacities) over unobservable entities (cf. Psillos 2009). Her appraisal of the empirical methods acknowledges the existence of robust regularities (Cartwright 1994, Hoover 1997) in the world of economics.

Falsiicationism The ontological commitment of the falsificationist philosophy is, to some degree, analogous to scientific realism. The distinction is aimed at highlighting that the economic methodologists who employ the Popperian stance refuse to take sides in the ontological debate. In contrary, Popper (1953, p. 15) apparently assumed that theories are aimed at delivering the true account of the world (i.e., being an adequate description): “We thus obtain the fittest theory within our reach by the elimination of those which are less fit. (By ‘fitness’ I do not mean merely ‘usefulness’ but truth [defined in the correspondence manner]). Popper (1979) described the three-world ontology. Studying the history of science (mainly physics), made Popper coin the concept of quantifiable verisimilitude (Popper 2014, pp. 312-313, cf. Popper 1979, p. 59) and support convergent realism, i.e., the viewpoint according to which subsequent theories are closer to the truth. It should be noted that the concept of verisimilitude defined quantitatively is believed to be false (cf. Miller 1974; Tichy 1976), Popper’s fallibilism accepts the ontological commitments of scientific realism: theories are about the world. In contrary to Popper, economic methodologists (e.g., Blaug 1992; Caldwell 1991; Boland 2003) have never explicitly considered metaphysics and focus on delivering epistemic guidance.

Instrumentalism The pragmatist philosophy rarely engages in the ontological considerations. Instrumentalism treats theories as tools and therefore rejects the epistemic dimension of scientific realism: they cannot be true or false but only useful, i.e., serve their purpose. Therefore, in contrary to the neopositivist stance, pragmatists accept ontological considerations only if they have beneficial consequences (Suarez 2013). Otherwise, metaphysics that do not imply practical consequences should be rejected (Rorty 1991; Rosenbaum 2003). This approach to ontology is visible in the pragmatist definition of

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‘truth’ regarding utility12. As James (1907, p. 33) put it, no theory is absolutely a transcript of reality, but that any of them may from some point of view be [a] useful (…) instrument: it is designed to achieve a purpose – to facilitate action or increase understanding. Similarly, Friedman (F53, p. 166) highlighted that the (un-)realisticness of hypotheses should be judged by their purpose, rejecting the correspondence definition of truth as both epistemic guidance and ontological commitment. The instrumentalist methodologists are not explicit about their ontological commitments due to (1) their focus on methodology and (2) skepticism about the possibility of acquiring true knowledge about reality: the choice between two models equally consistent with the available evidence must to some extent be arbitrary (F53, p. 149). However, a few ontological commitments can be reconstructed from the instrumentalist epistemic guidance13. First, by appraising theory testing by comparing predictions with observations, Friedman rejects the critical-realist stance according to which the economic world is inherently open and acknowledges that the influence of external forces averages out in the long run (i.e., after checking many predictions) (F53, pp. 148-152)14. Second, instrumentalists accept the interventionist theories of causality (Knight 1935, p. 109; Hammond 1991): economic relations are believed to be of causal nature only if they are stable under intervention (cf. LeRoy 2016; Woodward 2005).

7.4. The descriptive approaches to epistemology Scientific realism and constructivism aim at studying the research practice of economists and reconstruct presuppositions underlying it. Interestingly, despite employing the same method, i.e., studying the research practice of economists, constructivists reconstruct a different picture of this science. A possible explanation why the pictures of economic-research practice delivered by the scientific-realist and constructivist schools differ is the different area of their interest. On the one hand, scientific realism focuses on the most successful models and, mostly, models of phenomena instead of models of data, cf. e.g. (Bueno et al. 2002). On the other hand, the constructivist school instantiates the post-descriptive-turn tradition (cf. Kindi and Arabatzis 2013) in the philosophy of science (Kuhn 2012 [1962]; Fleck 2012 [1935]; Feyerabend 1993; Woolgar and Latour 2013 [1979]) what makes this tradition interested in the ‘crude’ picture of economics.

12

There certainly are many different pragmatist traditions in the philosophy of science, but Friedman’s views are most likely inspired by the American pragmatist tradition. 13 Instrumentalism is located in the ‘descriptive ontology’ part of Table 1 because, arguably, instrumentalists voice their epistemic guidance implicitly accepting certain ontological presuppositions as true about economy and economic theories. 14 This viewpoint seems to be unjustified considering contemporary statistical knowledge: variables missing from models can be the reason for poor quality of predictions (cf. Black et al 2017).

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Scientiic realism As Mäki (2011) indicated, scientific realism limits itself in delivering epistemic guidance: [n]ormatively, […] the global perspective encourages all of science to acquire true information about the world (p. 11). A few years earlier, the Finnish philosopher defined the purpose of the methodology-of-economics school he set up as follows: [the] project has been more neutral: the normative implications are expected to be more indirect and to require lots of factual premises that go beyond realism as a philosophical doctrine Mäki (2005, p. 348). This school usually proceeds by studying most successful economic models (e.g., Mäki 2001; 2005; Verreault-Julien 2017; Mäki 2017 is a counterexample). Therefore, what is called by Mäki (2005) ‘indirect normative implications’ can, in fact, be labeled the reconstruction of the most successful share of economics. As pictured by the scientific-realist philosophers, economic modeling is a process aimed at arriving at true knowledge about the world (Mäki 2005; Mäki 2011). A vast part of the literature focuses on the role of explanation in economics. As Mäki (2011) acknowledged, economists should focus on analyzing causally relevant determinants because the most successful models instantiate such a practice (cf. Cartwright’s (1983) account of ‘inference to the most likely cause’). Despite economic models are usually believed to be false (Reiss 2012), they are usually said to explain nevertheless (e.g., Grüne-Yanoff 2013; Mäki 2011; Mäki 2009). Building a model resembles isolating a limited number of forces in a physical experiment (Mäki 2005): chosen causal relations are isolated and idealized (Mäki 2008; 2009; Hands 2011a).

Constructivism Contrary to the scientific-realist reconstruction, constructivism delivers a less optimistic reconstruction of the project of economics and highlights the sociological and subjective aspect of science. The McCloskian approach to the philosophy of economics focuses on studying the methods of argumentation employed by economists (Klamer et al. 1988). According to McCloskey’s reconstruction (1998), economics is based on two different pillars. On the one hand, economists construct mathematical, deductive models similar to models produced by theoretical physicists. On the other hand, they use statistics to calculate econometric models aimed at finding statistical relations between models and data. The constructivist school highlights that economists pay lip service to the logical-positivist methodology and striving for objectivity, but do not practice it (Tacconi 1998; McCloskey’s 1998, p. 228 et seq.; Tamborini 1997). In contrary, they take part in a ‘publication game’ (cf. Broad 1981), aiming at new results convincing for other economists, e.g., producing statistically-significant results by data-mining tricks such as raising the number of instances (Ziliak and McCloskey 2008; cf. Goldfarb 1997; Maziarz 2017a). Constructivists often analyze the influence of institutional factors on

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scientific knowledge (e.g., Zamora-Bonilla 2002). Due to emphasizing the sociological aspect of knowledge, the rhetorical approach is often read as a stance that rejects the progress of economics (e.g., Blaug 1994, p. 130). A handful of methodologists belonging to the constructivist school (Weintraub 1989; McCloskey 1998) highlighted the fact that there are no methodological positions from which economics can be criticized. Other constructivist philosophers oppose (Backhouse 1992). The constructivist school is heterodox regarding their research methods. In addition to literature reviews employed by the methodologists mentioned above, there are also studies employing sociologists’ and anthropologists’ methods. For instance, Harper (2009a; 2009b) studied the daily research practice of the IMF staff.

7.5. The unended inquiry The philosophical considerations about economics became increasingly popular within last two decades. The lack of understanding of the 2007-2008 financial crisis showed that economics did not succeed in a degree comparable to the natural sciences and highlighted the necessity of analyzing economics from the philosophy-of-science perspective. The introduction of the two-dimensional topology proves useful in disentangling a few debates among the philosophers of economics. Contrary to the widelyheld opinion (e.g., Hodge 2007; Nash 2005; Niiniluoto 1999), scientific realism and critical realism are only seemingly contradictory: the purpose of these two schools is divergent. The critical-realist methodologists aim at reforming the research practice of economists and develop new methods of analysis. In contrary, the scientific-realist philosophers aim at delivering a descriptive reconstruction of (usually) most successful economic models. Furthermore, the analysis sheds light on a few issues that await to be resolved. The majority of differences among the methodological schools regards the epistemic guidance delivered by philosophers of economics. The philosophers of economics who support various schools of economics put forth differentiated research guidance. Economics is a pluralist science. Different approaches within economic research are grounded in or inspired by various philosophy-of-science stances. For instance, the neopositivist epistemic guidance is fulfilled by the mainstream econometric research. The soft methods used by management theoreticians such as case studies resemble the guidance voiced by critical realists. Instrumentalism appraises the mainstream tradition of constructing simplifying models based on unrealistic assumptions, cf. Figure 1. Further research is needed to elaborate on a description of the connection between the philosophy-of-economics schools and approaches within economics. Additionally, a different approach to distinguishing between the schools of economic methodology would result in differing results. For instance, the heterodox approaches to the philosophy of economics labeled constructivism could be further disentangled onto the rhetoric of economics and the sociology of economics.

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Figure 1 The schools delivering normative epistemic guidance and the examples of inspired research methods

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