Season’s greetings

I wish all my students, colleagues and fellow researchers a merry christmas and a happy new year. Let the grace of our Lord Jesus Christ be with us all on this holy day.

… and don’t forget. Christmas spirit is not what you drink.

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Realism vs. instrumentalism along the Friedman-Lucas-RBC line

Providing methodological analyses is a possible (and required) contribution to the historiography of modern business-cycle theories. As far as the Friedman-Lucas-RBC line of evolution is considered, it seems to be clear that as we approach the end of this story there is instrumentalism and nothing else in the commentaries. Today the only question is Friedman’s instrumentalism: there have been some intellectual efforts devoted to arguing for Friedman’s realism. Uskali Mäki’s ‘Unrealistic assumptions and unnecessary confusions‘ and Kevin Hoover’s ‘Milton Friedman’s stance. The methodology of causal realism‘ published in ‘The methodology of positive economics‘ are perhaps the most powerful initiations towards this direction. However, it is still the instrumentalist approach that seems to be the standard interpretation (see Paul Hoyningen-Huene’s very recent draft). Whether one focuses only on F53 or scrutinizes the text within Friedman oeuvre makes the difference. In the former case, Friedman can more easily be regarded as instrumentalist, whilst in the latter case there is a tendency for Friedman to be considered as a realist. This generalization, however, is problematic for it is not that difficult for us to find some works of Friedman in which it is instrumentalism that provides the principle of theorizing. Elsewhere I pointed out that Friedman’s Phillips curves are the manifestations of pure instrumentalism. In these models all the assumptions are designed in order that Friedman could achieve the desired theoretical outcomes.

As for Lucas, his instrumentalism seems to be unquestionable. As far as I can consider, the arguments for his instrumentalism are built upon some statements made by Lucas. Here are some examples:

Insistence on the ‘realism’ of an economic model subverts its potential usefulness in thinking about reality. […] On this general view of the nature of economic theory then a ‘theory’ is not a collection of assertions about the behavior of the actual economy but rather an explicit set of instructions for building a parallel or analogue system – a mechanical, imitation economy. A ‘good’ model, from this point of view, will not be exactly more ‘real’ than a poor one, but will provide better imitations. (Lucas 1980: Methods and problems in business cycle theory)

Or:

One can ask, for example, whether expectations are rational in the Klein-Goldberger model of the United States economy; one cannot ask whether people in the United States have rational expectations. (the Lucas papers, Box 13, Robert Barro folder)

The message common in these quotations is simple: features of the agents or environment designed in the models should not be looked for in reality. These are features of the model but not that of reality.

When Uskali Mäki started arguing for the realism in economics, he placed his arguments on the fact that it is possible for us to seize some aspects of reality via highly unrealistic models (Realistic realism about unrealistic models). Isolation leads to models which are not like reality, however, in some important aspects they can still bear resemblance to the depicted part of reality. To be perfectly honest, I am a bit confused when reading some analyses about Friedman, Lucas and modern macro. The realist interpretation of F53 seems to be rather weird. When Friedman is talking about the leaves of a tree modelled as if they were rational utility-maximizers, it is very difficult for us to argue for his realism, in spite of the abundance of technical details in his F53 that can easily be reconciled with a realist stance. But the real question is how far we can go along the argumantation for the realism of unrealistic models…? What does Lucas’ instrumentalism stand in? I think emphasizing his insistance on unrealisticness will not do in this respect – or if it will, then Friedman must be an instrumentalist too. All in all, focusing on the unrealistic features of economic models is not decisive in terms of the realist-instrumentalist debate. As Elay Shech emphasizes it in his ‘Scientific Misrepresentation and Guides to Ontology: The Need for Representational Code and Contents‘, misrepresentation is an endeavour when the modeller tries to distort some elements of reality whilst insisting on conveying some reliable information about the modelled system. Shech’s example is the political caricature.

So, I think, it is not enough to underline the distinction between models and reality. Both realist and instrumentalist models in the highly abstract neoclassical mainstream are not like reality. The decisive features of models must be found somewhere else. Now I am inclined to think that it is the purposes of the modellers that we need to study first and foremost. We cannot reach decisions about the realism and instrumentalism of models on the sole basis of the models themselves. Whilst they are important in this respect, we need to consider the modellrs’ intentions.