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Milton Friedman on How economics should be done

Consider the problem of predicting the shots made by an expert billiard player. It seems not at all unreasonable that excellent predictions would be yielded by the hypothesis that the billiard player made his shots as if he knew the complicated mathematical formulas that would give the optimum directions of travel … Our confidence in this hypothesis is not based on the belief that billiard players, even expert ones, can or do go through the process described; it derives rather from the belief that, unless in some way or other they were capable of reaching essentially the same result, they would not in fact be expert billiard players.

Context. From his essay on economic method, arguing that a hypothesis should be judged by how well it predicts, not by whether its assumptions describe what people actually do. He goes on to apply the same reasoning to business firms that behave as if they were seeking to maximize their returns.

The Methodology of Positive Economics
Journal article, 1953, Essays in Positive Economics (University of Chicago Press, 1953), p. 21
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Milton Friedman, “The Methodology of Positive Economics” (Essays in Positive Economics (University of Chicago Press, 1953), 1953), p. 21. https://miltonfriedman.org/quotes/largely-parallel-example-involving-human-behavior-used-1953

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He also said

  1. But, if we are to use effectively these abstract models and this descriptive material, we must have a comparable exploration of the criteria for determining what abstract model it is best to use for particular kinds of problems, what entities in the abstract model are to be identified with what observable entities, and what features of the problem or of the circumstances have the greatest effect on the accuracy of the predictions yielded by a particular model or theory.
    The Methodology of Positive Economics
    Journal article, 1953, Essays in Positive Economics (University of Chicago Press, 1953), p. 42
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  2. The situation today is different. Scattered studies have been brought together, additional studies made and some earlier studies re-evaluated. The evidence is now overwhelming that the unemployment predicted by economic analysis is confirmed by economic experience.

    Context. From a Newsweek column on the 1972 minimum-wage bill. The preceding paragraph says that in 1938, and even in 1966, the empirical studies of the minimum wage’s effect on employment “were scattered and appeared inconclusive.” In the Record the last sentence carries the article’s only footnote, citing Peterson and Stewart, “Employment Effects of Minimum-Wage Rates” (American Enterprise Institute, 1969), which he calls “excellent, though not fully up-to-date”.

    Legislating Unemployment
    Column, 1972, Newsweek (1972; the Record gives no issue date, only “the current issue”); reprinted in the Congressional Record, Extensions of Remarks, June 28, 1972, p. 23100, introduced by Representative Sherman P. Lloyd of Utah under the heading “Observations on the Compulsory Minimum Wage”, Congressional Record, June 28, 1972, p. 23100
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  3. Keynes was a great economist. In every discipline, progress comes from people who make hypotheses, most of which turn out to be wrong, but all of which ultimately point to the right answer. Now Keynes, in The General Theory of Employment, Interest and Money, set forth a hypothesis that was a beautiful one, and it really altered the shape of economics. But it turned out that it was a wrong hypothesis. That doesn’t mean that he wasn’t a great man!

    Context. Answering whether Keynes was a “natural economist,” after naming Adam Smith, Alfred Marshall, Keynes and George Stigler as the economists he would invite to dinner.

    The Romance of Economics
    Interview, 2006, Interview by Tunku Varadarajan, The Wall Street Journal; reprinted in Hoover Digest 2006 No. 4
    Checked against the sourceRead the transcript

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