ARISTOTLE AND MISES VERSUS FRIEDMAN

REALISM AND ABSTRACTION IN ECONOMICS: ARISTOTLE AND MISES VERSUS FRIEDMAN
RODERICK T. LONG

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Austrians have frequently criticized neoclassical economics for the unrealistic character of its assumptions. Neoclassical models are typically “idealized”; that is, they leave out such features of the real-world economy as rivalry, imperfect information, nonmonetary incentives, and the passage of time. In his enormously influential 1953 article “The Methodology
of Positive Economics” (Friedman 1953, pp. 3–43)—a work which Friedrich Hayek once described as being “as dangerous” as Keynes’s General Theory (1994, p. 145)—Milton Friedman defended the use of unrealistic models against Austrian-style criticisms, on the grounds that any good explanatory
theory must be abstract, and abstractions by their very nature are unrealistic.

Friedman wrote:
A hypothesis is important if it “explains” much by little, that is, if it abstracts the common and crucial elements from the mass of complex and detailed circumstances surrounding the phenomena to be explained and permits valid predictions on the basis of them alone. To be important, therefore, a hypothesis must be descriptively false in its assumptions; it takes account of, and accounts for, none of the many other attendant circumstances, since its very success shows them to be irrelevant for the phe-
nomena to be explained. . . .

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