Showing posts with label Max Weber; Milton Friedman; Talcott Parsons; Chicago Economics; George Stigler; methodology. Show all posts
Showing posts with label Max Weber; Milton Friedman; Talcott Parsons; Chicago Economics; George Stigler; methodology. Show all posts

Tuesday, March 30, 2010

Max Weber in Friedman's Methodology of Positive Economics

I am working on a paper showing the Weberian influence on methodological developments in (early) "Chicago" economics.
The link between Chicago and Weber is not as far-fetched as it sounds because Frank Knight (a fascinating character), the supervisor of Milton Friedman and George Stigler, was Weber's early English translator and popularizer and remained interested in Weber throughout his life. (This has been ably demonstrated by Ross Emmett.)

In 1949 Stigler gave five lectures at the LSE. At one point 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,” (GJS, Five Lectures, 23) He then adds the following footnote: “The present interpretation of these principles is due to Professor Milton Friedman; see Talcott Parsons, *The Structure of Social Action*.” This footnote is the basis of the paper I am writing. (Turns out Parsons' Structure is fascinating -- it anticipates Kuhn's Structure in various ways -- and it had non trivial impact on early Stigler.)

Once sensitized, I re-read Friedman's famous "Methodology of Positive Economics" (F1953) in light of Parsons' Structure. I found a lot of similarities, including Friedman's treatment of Galileo's Law of Fall, and found evidence for an earlier speculation that Friedman's scare quotes (used with remarkable frequency in F1953) betray a kind of neo-Kantianism. But I was absolutely delighted to note the following passage:

“The abstract model corresponding to this hypothesis contains two “ideal” types of firms: atomistically competitive firms, grouped into industries, and monopolistic firms. A firm is competitive if the demand curve for its output is infinitely elastic with respect to its own price for some price and all outputs, given the prices charged by all other firms; it belongs to an “industry” defined as a group of firms producing a single “product.” ... A firm is monopolistic if the demand curve for its output is not infinitely elastic at some price for all outputs.29 … As always, the hypothesis as a whole consists not only of this abstract model and its ideal types but also of a set of rules, mostly implicit and suggested by example, for identifying actual firms with one or the other ideal type and for classifying firms into industries. The ideal types are not intended to be descriptive; they are designed to isolate the features that are crucial for a particular problem,”

It is accompanied by the following footnote:
“29. This ideal type can be divided into two types: the oligopolistic firm, if the demand curve for its output is infinitely elastic at some price for some but not all outputs; the monopolistic firm proper, if the demand curve is nowhere infinitely elastic….”

Here one can see Friedman casually employing the very Weberian language of “ideal types” and explaining their function in Weberian terms.