Milton Friedman's famous methodological essay contains, along with much else, some strands that look as though they were taken from the “empirical-scientific” fabric described by Karl Popper (Popper, 1959, pp. 32, 37; see also Klant, 1984, pp. 33ff. for a very clear discussion). Think, for example, of Friedman's conviction that the way to test a (theoretically embedded) hypothesis is to compare its implications with experience (Friedman, 1953a in 1953b, pp. 9, 13, 14). Or of his more or less explicit espousal of the view that while no amount of facts can ever prove a hypothesis true, a single “fact” may refute it (ibid., p. 9). Or of his assertion that hypotheses are to be accepted only as provisionally true (ibid., p. 41), and then only after repeated efforts to refute them have failed (ibid., pp. 9, 22–23). The appearance of these Popperian ideas is not surprising.

In The Enterprise of Knowledge (Levi, 1980a), I proposed a general theory of rational choice which I intended as a characterization of a prescriptive theory of ideal rationality. A cardinal tenet of this theory is that assessments of expected value or expected utility in the Bayesian sense may not be representable by a numerical indicator or indeed induce an ordering of feasible options in a context of deliberation. My reasons for taking this position are related to my commitment to the inquiry-oriented approach to human knowledge and valuation favored by the American pragmatists, Charles Peirce and John Dewey. A feature of any acceptable view of inquiry ought to be that during an inquiry points under dispute ought to be kept in suspense pending resolution through inquiry.

One of the most common policy-related messages that economists present to non-economists is the superiority of cash over in-kind transfers as a policy tool. A good deal of government policy on behalf of the poor consists, of course, of various forms of in-kind assistance, such as medical care or food stamps. However, if we wish to help the poor, the argument goes, in-kind transfers are an inferior way to do so.

Discoverers of “market failures” as well as advocates of the general efficiency of a “true, unhampered market” sometimes seem to disregard the fundamental fact that there is no such thing as a “market as such.” What we call a market is always a system of social interaction characterized by a specific institutional framework, that is, by a set of rules defining certain restrictions on the behavior of the market participants, whether these rules are informal, enforced by private sanctions, or formal, enforced by a particular agency, the “protective state,” in J. M. Buchanan's (1975) terminology.

Many philosophers and some economists value economic equality on the ground that transfers from the relatively rich to the relatively poor increase the utility of the poor more than they reduce the utility of the rich. These philosophers and economists are assuming the ethical principle that a pattern of economic distribution is justified by maximizing aggregate utility. They are also assuming the truth of an empirical generalization proposed in the eighteenth century by Daniel Bernoulli–that successive equal increments of income produce ever-diminishing increments in an individual's level of utility. In the first part of this essay I will argue against Bernoulli's hypothesis, and suggest an alternative view of the relation between income and utility.

The F-twist is giving way to the methodology of scientific research programs. Milton Friedman's “Methodology for Economics” is being supplanted as the orthodox rationale for neoclassical economics by Imre Lakatos' account of scientific respectability. Friedman's instrumentalist thesis that theories are to be judged by the confirmation of their consequences and not the realism of their assumptions has long been widely endorsed by economists, under Paul Samuelson's catchy rubric “the F-twist.” It retains its popularity among economists who want no truck with methodology, but among the increasing number of able economists who are writing on methodology the F-twist has been surrendered, not so much because these writers have decided it is false, as because something better has finally come along.