The Philosophy of Economics
An Anthology
Third Edition
Edited by
DANIEL M. HAUSMAN
University ofWisconsin–Madison

Introduction page 1
PART ONE. CLASSIC DISCUSSIONS 39
1. On the Definition and Method of Political Economy 41
John Stuart Mill
2. Objectivity and Understanding in Economics 59
Max Weber
3. The Nature and Significance of Economic Science 73
Lionel Robbins
4. Economics and Human Action 100
Frank Knight
5. Selected Texts on Economics, History, and Social Science 108
Karl Marx
6. The Limitations of Marginal Utility 129
Thorstein Veblen

PART TWO. POSITIVIST AND POPPERIAN VIEWS 143
7. The Methodology of Positive Economics 145
Milton Friedman
8. Testability and Approximation 179
Herbert Simon
9. Why Look Under the Hood? 183
Daniel M. Hausman
10. Popper and Lakatos in Economic Methodology 188
D. Wade Hands

PART THREE. IDEOLOGY AND NORMATIVE ECONOMICS 205
11. Science and Ideology 207
Joseph Schumpeter
12. Welfare Propositions of Economics and Interpersonal
Comparisons of Utility 222
Nicholas Kaldor
13. The Philosophical Foundations of Mainstream
Normative Economics 226
Daniel M. Hausman and Michael S. McPherson
14. Why Is Cost-Benefit Analysis So Controversial? 251
Robert H. Frank
15. Capability andWell-Being 270
Amartya Sen

PART FOUR. BRANCHES AND SCHOOLS OF ECONOMICS AND THEIR
METHODOLOGICAL PROBLEMS 295
16. Econometrics as Observation: The Lucas Critique and
the Nature of Econometric Inference 297
Kevin D. Hoover
17. Does Macroeconomics Need Microfoundations? 315
Kevin D. Hoover
18. Economics in the Laboratory 334
Vernon Smith
19. Neuroeconomics: Using Neuroscience to Make
Economic Predictions 356
Colin F. Camerer
20. The Market as a Creative Process 378
James M. Buchanan and Viktor J. Vanberg
21. What Is the Essence of Institutional Economics? 399
Geoffrey M. Hodgson

PART FIVE. NEW DIRECTIONS IN ECONOMIC METHODOLOGY 413
22. The Rhetoric of This Economics 415
Deirdre N. McCloskey
23. Realism 431
Uskali M¨aki
Contents vii
24. What Has Realism Got to Do with It? 439
Tony Lawson
25. Feminism and Economics 454
Julie A. Nelson
26. CredibleWorlds: The Status of TheoreticalModels in Economics 476
Robert Sugden
Selected Bibliography of Books on Economic Methodology 511
Index 521