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“Every system of scientific theory involves philosophical assumptions” (Talcott Parsons).
The Surprising Weberian Roots to Milton Friedman’s Methodology
Eric Schliesser
Introduction
The main point of this paper is to contribute to understanding Milton Friedman’s 1953
“The Methodology of Positive Economics” (hereafter F1953), one of the most influential
statements of economic methodology of the twentieth century, and, in doing so, help discern the
non trivial but complex role of philosophic ideas in the shaping of economic theorizing and
economists’ self-conception.
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It also aims to contribute to a better understanding of the
theoretical origins of the so-called ‘Chicago’ school of economics.
In this paper, I first present detailed textual evidence of the familiarity of George Stigler
with the early work of Talcott Parsons, the most important American translator and
disseminator of Max Weber’s ideas, who also helped create sociology as a distinct discipline in
the United States.
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The Chicago-Parsons link is no surprise because historians have known that
Frank Knight and Parsons corresponded, first about translating Weber and then about matters of
1
All my references to Friedman are by page-number from Milton Friedman Essays in Positive Economics. Chicago:
The University of Chicago Press, 1953. For recent scholarship see Uskali Mäki (ed.) The Methodology of Positive
Economics. Reflections on the Milton Friedman Legacy. Cambridge: Cambridge University Press, 2009.
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On Parsons’ theorizing Stephen Turner’s essays are useful in discerning the relevant philosophic commitments and
presuppositions: “The Strange Life and Hard Times of the Concept of a General Theory in Sociology: a short history
of hope,” in S. Seidman & D. Wagner, ed. Postmodernism in Social Science. Oxford: Basil Blackwell, 101-133:
(1992); “Defining a Discipline: Sociology and its Philosophical Problems, from its classics to 1945,” S. Turner & M.
Risjord, eds., Handbook of the Philosophy of Science. Philosophy of Anthropology and Sociology Elsevier 2007, pp.
3-69; on Parson’s attempts at discipline-building (comparable to the efforts by Stigler in Chicago’s business school),
see William Buxton and Stephen Turner, “From Education to Expertise: Sociology as “Profession,”” T. Halliday
and M. Janowitz, eds., Sociology and its Publics: the forms and fates of disciplinary organization, Chicago: The
University of Chicago Press,1992, pp. 373-40. On Parsons’ role in the history of economics, see Geoffrey M
Hodgson How Economics Forgot History: The Problem of Historical Specificity in Social Science London:
Routledge, 2001, chapter 13.
Met opmaak: Lettertype: Times New
Roman
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mutual interest.
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Knight, who was a doctoral advisor to Stigler and teacher of Milton Friedman,
was not merely the first American translator of Weber, but remained keenly and, perhaps,
increasingly interested in Weber throughout his life.
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I am unfamiliar with any investigation of
the Weberian influence on Knight’s students.
5
I show that Stigler praises Parsons’ treatment of Alfred Marshall, who plays an outsized
role in Friedman’s self-conception of economics and economic theory.
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I also show that Stigler
calls attention to the methodological similarity between Friedman and Parsons. Finally, I turn to
F1953, and I show, first, that some of its most distinctive and philosophically interesting claims
echo Parsons’ treatment of methodological matters; second that once alerted one can note
Weberian terminology in F1953.
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Three disclaimers about the argument of this paper: first my approach does not remove
all the confusions that people have discerned in Friedman’s arguments in F1953.
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Seeing
Friedman as echoing themes from Parsons sensitizes one to what elsewhere I (unhelpfully)
called Friedman’s “neo-Kantian” understanding of assumptions in theorizing.
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Second the
3
See Ross Emmett “Frank Knight, Max Weber, Chicago Economics and Institutionalism,” Max Weber Studies,
2006, pp. 101-119.
4
Ross Emmett tells me that Stigler was in Frank Knight’s 1936 seminar on Max Weber. For the importance of
Weber at The University of Chicago, see also Stephen P. Turner and Regis A. Factor Max Weber and the dispute
over reason and value: a study in philosophy, ethics, and politics, London: Routledge & Kegan Paul, 1984.
5
In so far as James Buchanan and his colleagues in the Virginia school (and public choice analysis generally)
became ever more open to so-called ‘Austrian’ economics, there are more Weber-Chicago connections. See L.M.
Lachmann The Legacy of Max Weber: Three Essays. Berkeley: The Glendessary Press, 1971, which (incidentally)
acknowledges the importance of Parson’s influence on the reception of Weber in the English speaking world. I treat
Milton Friedman and George Stigler as distinct and separate from Austrian economics.
6
Milton Friedman "The Marshallian Demand Curve," in Essays in Positive Economics, op cit. See also the epigraph
to Milton Friedman and Anna JacobsonSchwartz A Monetary History of the United States, National Bureau of
Economic Research, 1963), which is also quoted in note 1 on p. 10 of Parsons’ Structure of Social Action! See also
Roger E. Backhouse, Bradley W. Bateman and Steven G. Medema “The reception of Marshall in the United States,”
in T. Raffaelli, M. Dardi, G. Beccatini and K. Caldari (eds). The Diffusion of Alfred Marshall’s Thought,
Cheltenham: Edward Elgar.
7
Building on a 1979 remark by Friedman, W.J. Frazer and L.A. Boland “An Essay on the Foundations of
Friedman’s Methodology” American Economic Review, 73 (March 1983): 129-144, offer an influential and popular
account of Friedman’s Popperianism. Friedman and Popper met through the Mont Pelerin Society in 1947 and there
is no doubt that Friedman became familiar with Popper’s philosophy. The argument of mythis paper suggests,
however, that the methodological identification with Popper is a post facto construction.
8
See U. Mäki “Rhetoric at the expense of coherence: a reinterpretation of Milton Friedman’s methodology,”
Research in the history of economic thought and methodology, 4, Samuels, W. J. (ed.), Greenwich, CT: JAI Press:
1986, pp. 127-43.
9
Eric Schliesser (in press) “Friedman, Positive Economics, and the Chicago Boys,” in R. Emmett, ed., The Elgar
Companion to Chicago Economics, Edwin Elgar.
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writings of Parsons need not be the most important one for understanding F1953’s arguments.
More attention needs to be given to J. N. Keynes,
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whom Friedman cites in the opening lines of
F1953
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and who was much praised by Stigler in this period (see below). No doubt they enjoyed
the irony of praising the father while criticizing the more famous son. Third I use Parsons as a
proxy for a kind of innovative Weberian social science. Even though there surely are non-trivial
differences between Parsons and Weber, I see Parsons' The Structure of Social Action (first
edition 1937; hereafter Structure)
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as constructing a Weberian program that is supposed to
guide social science research. F1953 uses aspects of this program for its own ends.
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1. Stigler’s Interest in Parsons
In an important short piece from 1943, George Stigler criticizes what soon became the
dominant approach within professional economics; that approach combines sophisticated
mathematical technique, a focus on revealed preference, and an understanding of economics
(inspired by L. Robbins) as resource maximization under constraint. Near the end of his
discussion, Stigler writes:
“it is sufficient for present purposes merely to refer to such well-known presentations as
those of Durkheim in sociology and Gierke in politics. Talcott Parsons probably had
economists in mind when he wrote: "For it is a fact that social existence depends to a
large extent on a moral consensus of its members and that the penalty of its too radical
breakdown is social extinction. This fact is one which the type of liberal whose
theoretical background is essentially utilitarian is all too apt to ignore-with unfortunate
practical as well as theoretical consequences." At the level of economic policy, then, it is
totally misleading to talk of ends as individual and random; they are fundamentally
collective and organized. If this conclusion be accepted, and accept it we must, the
10
J.N. Keynes The Scope and Method of Political Economy, London, 1891.
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“In his admirable book on The Scope and Method of Political Economy John Neville Keynes distinguishes among
“[1] a positive science … a body of systematized knowledge concerning what is; [2] a normative or regulative
science…[,] a body of systematized knowledge discussing criteria of what ought to be…[, 3]an art… [,] a system of
rules for the attainment of a given end”; comments that “confusion between them is common and has been the
source of many mischievous errors”; and urges the importance of “recognizing a distinct positive science of political
economy,” (3).
12
All my references are to page-numbers of Talcott Parsons The Structure of Social Action, New York: Free Press;
2nd edition, 1967-68.
13
Weber’s methodology has been used to explain the continuity and discontinuities between neo-classical and
behavioral economics very much in the spirit of the present article, see Erik Angner and George Loewenstein
(manuscript) Foundations of Behavioral Economics.
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economist may properly exceed the narrow confines of economic analysis. He may
cultivate a second discipline, the determination of the ends of his society particularly
relevant to economic policy. This discipline might be called, following J. N. Keynes,
applied ethics.”
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The American Economic Review was already the most important journal within
economics. Stigler’s article opens with a long epigraph from Aristotle’s Ethics; Stigler then
targets the new techniques developed by Samuelson, Hotelling, Lerner, Kaldor, and Hicks
who are in the midst of launching a formal revolution within economics.
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His argument is
philosophical not mathematical. In particular, Stigler argues that economists presuppose a
moral and political consensus when they are doing policy science. Stigler -- who is echoing
his teacher Knight here
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-- takes for granted that the economic sphere is framed or
constrained by political or social ends. It is on this point that Stigler cites Parsons
approvingly.
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Thus, Stigler’s argument leads to a distinction between pure economic
analysis, in which ends are thought of as individual and random, and policy science (or
applied ethics), where ends are unified; it this distinction that drives him to accept Keynes’
distinction between positive and normative science.
Stigler’s point is not that economists should avoid policy science. Rather he insists that
its normative presuppositions ought to be different than in pure economics. In his criticism
of New Welfare economics Stigler argues for greater self-understanding on the part of
economists about the essentially political nature of welfare economics when applied to
societies. In context, Stigler’s point is meant to warn against two tendencies: first, the
tendency to import the representative agent into the pure part of economic analysis; second,
14
George J. Stigler “The New Welfare Economics,” The American Economic Review, Vol. 33, No. 2 (Jun., 1943),
pp. 355-359, emphasis added.
15
R.E. Backhouse “The Transformation of US Economics, 1920-1960, viewed through a survey of journal articles,”
in M.S. Morgan and M. Rutherford, Eds. From Interwar Pluralism to Postwar Neoclassicism, Durham, NC: Duke
University Press (Annual Supplement to History of Political Economy, 30), 1998, pp. 85-107.
16
David M. Levy, and Sandra J. Peart "Stigler, George Joseph (1911–1991)," in S. Durlauf, ed., The New Palgrave
Dictionary of Economics, 2nd Edition, 2008.
17
Stephen Stigler informs me that his father owned a copy of the first 1937 edition of Parsons’ Structure. Stigler
writes, “He read it but with few notes. Inside the back cover he marked 3 page numbers: 392, 395, 248. (in that
order). In addition there are marginal dashes on pages 232, 256, and 566,” (personal communication, March 31,
2010). All six pages concern the common moral values/ends of a political community; they provide the
background to the claim with which Stigler ends the 1943 American Economic Review article.
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the tendency to forget the contentious nature of assuming that that society’s ends are
unified.
18
Stigler’s argument presupposes, of course, that there is a self-sufficient a-political
domain of pure economics: Friedman’s “positive” economics. The reference to Parsons
reminds us that at the theoretical origins of ‘Chicago,’ the division of labor within
economics is justified on social theoretical grounds.
It is not the only important reference to Parsons in Stigler during the 1940s. In 1949
Stigler gave five lectures at the LSE that were published as a separate booklet.
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Near the
end of the second lecture Stigler remarks, “I wish to close by offering an estimate of the net
contribution of the attempt to construct a theory of monopolistic competition. Before
undertaking this appraisal, however, it is necessary to set forth certain methodological
principles,” (23). Stigler then writes:
“The purpose of the study of economics to permit us to make predictions about the
behavior of economic phenomena under specified conditions. The sole test of the
usefulness of an economic theory is the concordance between its predictions and the
observable course of events. Often a theory is criticized or rejected because its assumptions
are “unrealistic.” Granting for a moment that this charge has meaning, it burdens theory
with an additional function, that of description. This is a most unreasonable burden to place
upon theory: the role of description is to particularize, while the role of theory is to
generalize—to disregard an infinite number of differences and capture the important
common element in different phenomena.” (Five Lectures, 23).
Stigler adds the following footnote: “The present interpretation of these principles is due to
Professor Milton Friedman; see Talcott Parsons, The Structure of Social Action.” I am
unaware of any attention to this footnote in the enormous literature on F1953. It is no
surprise that Stigler would mention Friedman here. Compare him on “positive economics”:
18
In F1953 Friedman assumes that in advanced societies values have converged. For the significant afterlife of the
issue, see Schliesser “Friedman, Positive Economics, and the Chicago Boys,” loc cit., and Ross Emmett "Realism
and Relevance in the Economics of a Free Society." Journal of Economic Methodology 16.3 (June 2009), pp. 341-
50.
19
George J. Stigler, Five Lectures on Economics Problems, London: Longmans, Green, and Co, 1949. It had non-
trivial policy impact on debates over monopoly. Eric Schliesser (under review) “Inventing Paradigms, Monopoly,
Methodology, and Mythology at 'Chicago': Nutter and Stigler.”