Lucas on Method

Mainstream economics more or less has always been methodology as well. It is not typical of any other school of the economic thought (as far as the main stream can be regarded as a homogenous set of thinkers at all) that theorizers have laid down strict methodological rules in order to complement their economic theorems and to help the community to achieve correct interpretations. It is not an overstatement to say that the history of mainstream economics is the history of methodology as well.

Interpreting the methodology of the main stream as a battle of realism and instrumentalism is a popular trend in contemporary philosophy of economics. In the last few decades, there have been some significant changes in this narrative as a direct consequence of some recent developments occurred in general philosophy of science. While the F-twist was traditionally interpreted as a consummation of instrumentalism, reflecting Ian Hacking’s Experimentation and Scientific Realism or Nancy Cartwright’s How the Laws of Physics Lie today modern macroeconomics is described as a mixture of realism and instrumentalism. A result of these efforts is Uskali Mäki’s realist Friedman-interpretation. However, according to other commentaries on the history of science (e.g. Ernan McMullin’s The Goals of Natural Science or Steven Weinberg’s To Explain the World) that regard science as a basically realist effort instrumentalist deviations emerging from time to time can be accepted as temporary compromises at best. This interpretation can help us a great deal to understand the case of the Klein–Goldberger-model for example, since here due to the exaggerated emphasis on empirical performance a model built up along realist purposes turned into being of instrumentalist character.

So it stands to reason that both realist and instrumentalist elements can be found in the methodology of mainstream economics. Mainstream economics is really a special mixture of realism and instrumentalism. However, one is not bound to regard mainstream economics and its subset, contemporary macroeconomics analysed in this lecture, as something that has contained realism and instrumentalism at quite a stabile ratio. Following this line of reasoning, we can get to a narrative that preserves the encounter between realism and instrumentalism well-known from the history of physics and that, however, does not force us to seek realist or instrumentalist efforts even where there have been no such endeavours. As Gabriele Contessa puts it in his Representation, Interpretation, and Surrogative Reasoning, models highlight certain aspects of the surrounding world, but this epistemological purpose does not involve either an inherently realist or instrumentalist stance. Moreover, Michel DeVroey in his A History of Macroeconomics from Keynes to Lucas and beyond unambiguously interprets the emergence of RBC-model as a victory of instrumentalism. This break can easily be conceived as a victory over realism, similarly to the victory of Niels Bohr’s instrumentalism over Einstein’s realism (c.f. Popper’s Three Views Concerning Human Knowledge).

In this analysis, with the aim of clarification, I give some hints on the role Lucas played in this long process. New classical macroeconomics led by Lucas is introduced as a consummation of economic realism and, as a consequence, the culmination of contemporary realist macroeconomics. Abundantly citing from the Lucas fragments that have remained mainly undiscovered by researches in methodology I argue for Lucas’ being realist through the methodological guidelines he laid down and followed. In his methodological papers, the explicit desire to understand socio-economic reality occurs from time to time, but this ambition of his could hardly be reconciled with the mere empirical focus of instrumentalism. I pay special attention to the role Lucas intended for empirical performance in judging his own models, since this is the aspect that is traditionally suggested as an argument for his instrumentalism. However, Lucas maintained a subtle balance according to which he really took notice of empirical performance, however, he has never abandoned his realist ambitions in favour of better econometric results. On this showing, RBC-theory with its models roughly fine-tuned in a Weinbergien sense is built up along a radically different set of ideas, and a portray of a realist Lucas will show up against this high-contrast background.

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