Friedman starts their article because of the determining within the a conventional method between positive and you will normative business economics and you can conjecturing that policy problems are typically very conflicts in regards to the outcomes out-of possibilities 
and will ergo be resolved of the progress into the self-confident economics. Looking at confident business economics, Friedman claims (instead of conflict) one to correct prediction in regards to the phenomena not yet observed ‘s the biggest purpose of all the positive sciences.
Because it is tough and sometimes impossible to manage experiments and since the fresh uncontrolled phenomena economists to see are difficult in order to understand (courtesy a comparable causal difficulty you to annoyed Factory), it is hard to evaluate if a specific principle are a good a reason behind predictions or perhaps not. Inclinations aren’t universal legislation. not on these conditions, Friedman objects to criticisms out-of tendencies one in place complain you to he could be simply tendencies, in place of universal laws and regulations. When the their issue averted here, it would be practical, though it manage steer clear of the trouble regarding skills and you will appraising claims regarding the tendencies.
A claim such as for example “businesses try to maximize payouts” would-be “unrealistic” in the same way it is perhaps not a real universal generalization
However, Friedman pulls a far more significant achievement. In the terms, the fresh new mistake economists make which criticize states such as for instance “providers make an effort to optimize payouts” is based on this new try to try theories because of the “realism” of the “assumptions” in lieu of by the reliability of their predictions. The guy maintains the realism from a great theorys assumptions is irrelevant so you can its predictive well worth. No matter whether or not the expectation you to providers maximize earnings try practical. Ideas would be appraised solely in terms of the accuracy out of the predictions. What truly matters try entirely whether or not the principle of organization can make right and you may tall forecasts.
What counts is if monetary ideas try successful at forecasting new phenomena you to economists have an interest in
While the critics enjoys talked about (and most commentators was indeed critical), Friedman refers to a number of something because “assumptions” off an idea and you can function a number of something by talking about presumptions because the “unrealistic” (Brunner 1969). Since Friedman tries their grievance to people exactly who take a look at the empirically if companies in fact you will need to optimize winnings, the guy must take “assumptions” to incorporate main monetary generalizations, such “Organizations make an effort to maximize profits,” and by “unrealistic,” the guy need to imply, on top of other things, “incorrect.” When you look at the arguing that it’s a mistake so you can appraise ideas into the terms of the reality out of assumptions, Friedman try arguing no less than it is a blunder so you can appraise ideas from the investigating whether or not its main generalizations try true otherwise not true.
It might see that the interpretation carry out render Friedmans viewpoints contradictory, since the inside evaluation whether or not companies attempt to maximize winnings, a person is checking whether predictions out-of principle regarding the decisions out of agencies try genuine or false. An “assumption” eg “organizations maximize profits” are in itself a forecast. But there’s a further wrinkle. Friedman is not worried about all of the anticipate off economic concepts. In the Friedmans consider, “theory will be evaluated by its predictive stamina simply for the category regarding phenomena which it is meant to describe” (1953, p. 8 [italics additional]). Economists are interested in just a few of one’s ramifications of financial ideas. Almost every other predictions, like those in regards to the outcome of studies out-of executives, is actually irrelevant so you can plan. This means that, Friedman thinks that economic theories would be appraised when it comes to their predictions concerning costs and you will quantity exchanged towards locations. Inside the have a look at, what matters is “slim predictive achievement” (Hausman 2008a), not overall predictive adequacy.
