Quarterly Journal of Austrian Economics

Volume 9, No. 3 (Fall 2006)

Austrians have frequently criticized neoclassical economics for the unrealistic character of its assumptions. Neoclassical models are typically “idealized”; that is, they leave out such features of the real-world economy as rivalry, imperfect information, nonmonetary incentives, and the passage of time. In his enormously influential 1953 article “The Methodology of Positive Economics” (Friedman 1953, pp. 3–43)—a work which Friedrich Hayek once described as being “as dangerous” as Keynes’s General Theory (1994, p. 145)—Milton Friedman defended the use of unrealistic models against Austrian-style criticisms, on the grounds that any good explanatory theory must be abstract, and abstractions by their very nature are unrealistic. The parallel between Mises’s criticism of a priori ethics and Friedman’s criticism of Mises’s own a priori economics is striking—and should lead us to suspect that Mises has here fallen into Friedman’s own confusion between the private  character of an “inner voice” and the public character of logic.