The thrust of this essay is to develop a manner of referring to economics as a positive science.  This simply means that economics will focus on rules which determine testable statements about the economic environment.  To be a positive statement, a thesis must be testable and it must withstand some level of scrutiny over time.  The end result of this exercise is to contribute to the body of knowledge know as economics.

As a method of contrast we are given normative economics which are concerned only with matters of policy.  These can be reduced to the form “should” or “ought to” as indicators that we are speaking only about people’s value judgments about what would be “good” for society.

The “art” of economics takes on a form which is more ambiguous.  We can refer to this instrument as tacit knowledge, or something that is known and not expressible in simple terms.  Positive economics remains in a sequence of flux when the data simply is not available to know for sure which hypothesis is the correct one.  Short of testing (in the absence of reliable data about people’s actions) we are left with the best guess as to the questions we should be asking.  Theoretically over the course of time, the residuals in economics should be reduced, just like they were in any other developing science before data measurement blossomed substantially.  The best example for a case like this is flux as seen in astronomy and other “hard” sciences which are similarly facing measurement problems not yet satisfactory dealt with. 

One advantage to continuing to develop a system of positive economics is to provide a uniform tautology.  This is akin to the algebra and calculus systems of mathematics.  In economics there is no complete formal body of consistent theories which form quite the same tautology, therefore positive economics will have its work cut out for itself. 

Friedman talks about problems of theory on page 8 of this essay:  Supply and Demand are useful concepts in describing the way a market works, however in day to day practice it is hard to see which blade of the scissors is doing the cutting.  With this in mind we know that economics theory is not always relevant, however useful it is in abstracting.  Friedman explains how even formal science uses “assumptions” which can be thought of as approximations.  (Gravity is thought of on page 16, but air pressure – friction and resistance on page 17 – is not introduced until the formal theory fails to work in the case of a feather).  

We have to ask ourselves what is the benefit of thinking in a “laboratory environment?”  No lab is completely controlled and no environment experiences the flux of all possible variables under consideration.  There have to be such a thing as crucial variables which are included.  On Page 32 Friedman offers an example of variables which are not relevant.  He talks about predicting the performance of agricultural factors.  An understanding of the soil content and the management of this factor is going to be important.  Other data which may be available is the color of the farmer’s eyes.  This data can be rejected as relevant because we expect it to have zero power in explaining the performance of the agricultural factors.   

There has to be a balance of assumptions vs. realism (p. 14).  This can be understood as the “art” of economics. 

One of the main thrusts:  “A hypothesis is important if it ‘explains’ much by

 little… it abstracts… and permits valid predictions on the basis of them alone.  To be important, therefore, a hypothesis must be descriptively false in its assumptions; it takes account of and accounts for, none of the many other attendant circumstances, since its very success shows them to be irrelevant for the phenomena to be explained.”

This gives us a full thesis of the parsimony aspect of art in economics.  We want to have the minimum explanatory variables doing the maximum job of accounting for the phenomena that we wish to explain.  All approximation is relative (p. 17) if we are able to get away with assuming something is “sufficiently close” to an ideal type, we can do so.  We are held to the criteria that the model be able to predict as well as to explain the actual events of the world.  On page 24, Friedman spends time showing how we cannot tell what small is in terms of the effect of air pressure on an object.  At some measurements, it makes no difference on a steel ball, but it makes a huge difference on a feather.

The tree example gives us a starting place for understanding how theory and reality are inseparable.  In theory, trees of the northern hemisphere are going to grow leaves on the south side predominately, as opposed to the north side of the tree.  There are various limitations on this basic theory (other trees, hills, etc.) but we do expect ceteris paribus that the lone tree will exhibit these properties.  Leaves on this theoretical tree will grow in places where they are most likely to get sunlight.  The actions of these leaves will seem to follow the same course of action as if the growth process was planned, even though we understand this to take place without coordination.  The leaves will grow where there is sunlight, and they will fulfill the same outcome as if they were acting according to theory.  As a basis for and analogy, the leaves act as if they were atomistic firms and they form a tree like they were a market, creating what many call “spontaneous order.”

We can take this insight further with an appeal to another analogy.  The billiards player is considered an “expert” when he or she does better than a majority of other folks which try to execute moves.  Billiards takes place on a fully determined playing surface.  The person striking the ball can be aware of all the possible outcomes of his or her actions.  To do so does not assume a highly formalized degree of geometric skills; however, the same sorts of skills are implicit in the intuition of any “expert” billiards player.  In order to be successful, the knowledge of this deterministic system has to be near complete, as well as the ability to create concordance of the balls and this tacit knowledge.  By way of analogy: bad businesses do not stay in business just like bad pool players do not win at pool.  Businessmen do not have to fully express their decisions in showy economic formulas; they simply have to act according to the principles which they implicitly understand.  If they behave out of concert with these principles for long, they will cease to “win” in the game of business. 

 On page 27 a logical fallacy is outlined which does not always get clear attention from the casual observer.  To put this in its simplest logical forms I will use letters, the actual example is available in the paper.  If A is true, then B (given assumptions is also true).  There is a C such that it functions much like B (without all the given assumptions) C is conclusively indicative of D which looks like A.   This initially seems to reverse causation between premise and conclusions, but with further effort we see that A sometimes is associated with D, however the leap between B and C is not always the case.  The logical fallacy comes when we assume that B and C are always alike.  Then we directly associate A and D without regard for the different environment implicit in the different description of B and C. 

On p. 31, we see that economic man is often seen as dismal.  Until we are given better models to predict what actually occurs in society we are left with this useful construct to explain the behavior of the economy.  Positive economics is indeed significantly robust in what it seeks to prove.  All aspects of firm and price theory contribute real insight into the way that the economy functions.  It is in this sense – “worthwhile” because it improves the body of knowledge.  We do not then suffer from a strict evidence problem because our findings do not occur in the strict “ideal type” environment of the lab, we cannot overstate that predictive power is coming from the real world.  Assumptions do not have to be strictly representative of all aspects in reality, but we wouldn’t expect this in any experiment.