Saturday, December 17, 2011

The ultimate effect of unrealistic assumptions?

I read Arjo Kalmer's Conversations with Economists shortly after it came out in 1984. One of the most striking interviews was with Leonard Rapping, the orthodox economist turned dissident, who took refuge at the University of Massachusetts in his last years. (He died at only 57 in 1991.)

In the interview (pp.221-222), Rapping says of Milton Friedman's famous Essays in Positive Economics that Friedman "hit on an argument that was incredibly powerful. What seemed like an innocent point in logic and scientific methodology is, through the workings of the mind, transformed into a description of the world for his students." This comes about because
people, myself included, can't stand the idea that we can draw true conclusions from false premises. (Of course, a lot of people argue that you want to start with realistic assumptions.) Friedman's position is too extreme. The students, in the end, can't stand to live with that position, so they solve the problem by seeing the world as competitive, making the assumption 'true'.

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