Introduction

We are now ready to put our knowledge of methodology to practical use in the appraisal of economic theories. In so doing, we must always begin by stating what Popper calls the “problem-situation” to which the theory is supposed to be a solution. This obvious point is all too frequently neglected. Next, we must decide what it is that the theory actually predicts. This too is an obvious point and yet, as we shall see, it may be a very difficult question to answer. But since we have come so far, we must attempt to assess the evidence bearing upon the theory's predictions without, however, neglecting the nature of the “explanation” that underlies these predictions. Does the theory provide a causal mechanism that takes us systematically from the actions of economic agents and the operations of economic institutions to the outcomes predicted by the theory?

None of these questions can be fruitfully discussed if all that is available to us is a single theory. Scientific theories can only be meaningfully assessed in terms of competing hypotheses for the simple reason that methodology provides no absolute standards to which all theories must conform: what it does provide are criteria in terms of which theories may be ranked as more or less promising.