It is my prediction that the title of this piece is going to offer the most clear insight into what it is about.  This piece does not exist without the critique it makes on Milton Friedman’s article (detailed yesterday).  Nagel offers the observation that in a strictly logical sense Friedman doesn’t create a system which offers acceptable results.  In difference to this observation we still see that Nagel agrees with the conclusion.  In light of this fact, he points out that in logic, the process is just as important as the result.

Nagel breaks down the terminology: First we have a theory, “A set of statements, organized in a characteristic way, and designed to serve as partial premises for explaining as well as predicting and indeterminately large (and usually varied) class of economic phenomena.”  This will serves as Nagel’s best approximation for how the term is used in Friedman’s outline of positive economics (this is contrasted with a looser version, not characteristic of a single meaning). 

The assumptions have to be broken down into three categories.

1.      basic hypothesis – a premise

2.      Logically deduced theorems – somehow more advanced premise with the benefit of previous deduction

3.      Theoretical terms – gene, group, instantaneous acceleration, perfectly divisible commodity

In this way Nagel outlines the preliminary arrangement in economics which would outline a test for validity of conclusion.  In logic the premise – deduction – conclusion offers the tautology of logic to certify that the conclusion is valid if the premise is true.  Nagel refers to this system as “rules which are instrumental for drawing inferences.” 

Nagel also takes on the concept that different sciences will approach questions with different standards, and with different tools for explanation and description.  If you are asking a economic question, you filter the data through an economic process, and as long as you apply the result to economics you are fine.  This acknowledges that there is a natural limit to the insights provided by a discipline, but rightly so.  As a result, we expect results to have the following characteristics: 

1.      Systems should be simple (parsimonious) – Things should be eliminated which do not contribute significantly to the explanatory power of the model.

2.      The system of Null Hypothesis is a worthwhile pursuit. – It is this procedure which allows us to reject alternatives with a certain degree of confidence and indirectly test our premises.

3.      No economics question can be totally sterilized – The lab conditions for economic questions are limited in the degree of “purified” conditions or “idealized” objects.  This lack of “ideal” conditions does not limit the insights and the taxonomy of the economic discipline.

Rather than view assumptions as unrealistic, Nagel offers a way of viewing these assumptions in a logical context.  This exercise contributes validity to Friedman’s statements. 

1.      Approximations are justified – there is no appreciable loss of meaning and function in approximated models.

2.      Actors behaving markedly different from economic theory do not do so for long.

There still remains a degree of intuition in the science, but a formal structure grants a degree of creditability to the conclusions which is cost beneficial.