A fatal ambiguity surrounds the expression “the methodology of …” The term methodology is sometimes taken to mean the technical procedures of a discipline, being simply a more impressive-sounding synonym for methods. More frequently, however, it denotes an investigation of the concepts, theories, and basic principles of reasoning of a subject, and it is with this wider sense of the term that we are concerned in this book. To avoid misunderstanding, I have added the subtitle, How Economists Explain, suggesting that “the methodology of economics” is to be understood simply as philosophy of science applied to economics.

To ask how economists explain the phenomena with which they are concerned is in fact to ask in what sense economics is a science. In the words of one prominent modern philosopher of science: “It is the desire for explanations that are at once systematic and controlled by factual evidence that generates science; and it is the organization and classification of knowledge on the basis of explanatory principles that is the distinctive goal of the sciences” (Nagel, 1961, p. 4). There can be no doubt that economics provides plenty of examples of “explanations that are at once systematic and controlled by factual evidence,” and hence no time will be wasted defending the assertion that economics is a science.