Marginalist Defense
IMPLICIT MARGINALISM AND FRIEDMAN'S DEFENCE
In this section, I discuss the implicit understanding of marginalism that emerged in the course of the marginalist controversy and has, since then, prevailed in orthodox economic theory. The foundation of implicit marginalism was coherently summarized by the following statement by Langholm (1969, p.10):
The marginal theory of price was never intended to serve as a blueprint for entrepreneurial decision making or indeed to describe or explain in detail what actually takes place in the firm. It is of the nature of an explanatory device on a much higher level of abstraction, permitting only broadly generalized deductions about the aggregate effects of entrepreneurial behaviour. Its merit as such was never a fully settled question. But obviously, it takes more to disprove it than demonstrating that actual price makers do without marginal reasoning. The crucial question is whether the prices reached in a different way, reproduce aggregate effects which are predictable in the marginal system.
In the following section, we will focus on the question of whether we should rely on the validity of marginalist price theory to deliver viable predictions of industrial pricing. Being probably the most prominent figure in the instrumentalist view on marginalism that allowed its implicit understanding, we will concentrate with the methodological contributions of Milton Friedman, first and foremost on his 1953 article “The Methodology of Positive Economics”.
1.5.2.1 Neoclassical Economics, Marginalism and Instrumentalist
Reasoning
In order to correctly assess this question, we must first further clarify the exact aim and scope that underlies marginalist price theory. In the past, it seems that a major proportion of the anti-marginalist attacks were more or less easily refutable by marginalists since they aimed at a realistic interpretation of marginalist price theory. Such an attack could be easily deflected by a reformulation of
In this section, I discuss the implicit understanding of marginalism that emerged in the course of the marginalist controversy and has, since then, prevailed in orthodox economic theory. The foundation of implicit marginalism was coherently summarized by the following statement by Langholm (1969, p.10):
The marginal theory of price was never intended to serve as a blueprint for entrepreneurial decision making or indeed to describe or explain in detail what actually takes place in the firm. It is of the nature of an explanatory device on a much higher level of abstraction, permitting only broadly generalized deductions about the aggregate effects of entrepreneurial behaviour. Its merit as such was never a fully settled question. But obviously, it takes more to disprove it than demonstrating that actual price makers do without marginal reasoning. The crucial question is whether the prices reached in a different way, reproduce aggregate effects which are predictable in the marginal system.
In the following section, we will focus on the question of whether we should rely on the validity of marginalist price theory to deliver viable predictions of industrial pricing. Being probably the most prominent figure in the instrumentalist view on marginalism that allowed its implicit understanding, we will concentrate with the methodological contributions of Milton Friedman, first and foremost on his 1953 article “The Methodology of Positive Economics”.
1.5.2.1 Neoclassical Economics, Marginalism and Instrumentalist
Reasoning
In order to correctly assess this question, we must first further clarify the exact aim and scope that underlies marginalist price theory. In the past, it seems that a major proportion of the anti-marginalist attacks were more or less easily refutable by marginalists since they aimed at a realistic interpretation of marginalist price theory. Such an attack could be easily deflected by a reformulation of