Machlup’s essay clarifies what economists can reasonably mean by “verification.” He rejects both apriorism and a crude empiricism that would require every assumption to be directly observable. Economic theory must answer to experience, but it is usually tested as a structured system of assumptions, auxiliary conditions, and implications rather than as a set of isolated factual claims.
It will be well for us first to clear the ground lest we get lost in the rubble of past discussions. To clear the ground is, above all, to come to a decision as to what we mean by verification and what it can and cannot do for our research and analysis.
The first task is conceptual. “Verification” has been used to mean proof, checking, confirmation, empirical fit, and practical corroboration. Machlup lowers the epistemic stakes by treating verification not as access to final truth but as a disciplined comparison between what a theory implies and what inquiry discloses.
The function of words chosen—testing, checking, confirming—is precisely to enable us to leave the concepts of truth and reality in the background.
His key distinction is between particular historical propositions and general hypotheses. Claims about a specific event, place, or institutional circumstance may be checked directly. General economic theories are different: they yield conclusions only when combined with auxiliary assumptions about initial conditions, institutional settings, and relevant changes. Their confirmation is therefore indirect and provisional.
The hypothesis is confirmed if reasonable correspondence is found between the deduced and the observed, or more correctly, if no irreconcilable contradiction is found between the deduced and the observed.
This framework lets Machlup defend theoretical economics without exempting it from empirical criticism. Fundamental assumptions such as purposive conduct or preference ordering do not function like ordinary descriptive reports about prices, tariffs, or inventories. They are analytical postulates that make conduct intelligible and permit the construction of explanatory models. Their value is judged less by separate direct verification than by the coherence, fruitfulness, and empirical bearing of the theoretical systems they support.
Machlup’s model is hierarchical. At one level stand basic action assumptions; at another, assumed conditions and changes; at another, deduced consequences. The latter can often be compared with observations in applications of the theory. But the theory as a whole is not refuted simply because its assumptions are simplified or unrealistic in a literal descriptive sense. A model is an analytical apparatus, not a photographic reproduction of reality.
The same logic shapes his discussion of prediction and econometrics. Forecasts combine theory with diagnosis, institutional knowledge, judgment about policies, and expectations about group behavior. If a forecast fails, the error may lie in the diagnosis or auxiliary assumptions rather than in the core theory; if it succeeds, success may not amount to decisive confirmation. Economic testing is weakened by the absence of controlled repetition and by changing historical circumstances.
Nothing that I have said thus far would, I believe, be objected to by any modern logician, philosopher of science, or scientist.
Machlup also distinguishes theoretical laws from empirical statistical relations such as estimated demand curves or consumption functions. Numerical relations may be tested against later data, but changing coefficients can show that they are historically bounded rather than universal. Verification then concerns the applicability of a relation to a particular setting, not the timeless truth of a structural constant.
The essay’s lasting importance lies in its balanced account of economic method. Machlup insists that economics must remain empirically disciplined, but denies that this requires naïve realism about assumptions. Verification in economics is not mechanical proof; it is a graded practice of testing implications, scrutinizing auxiliary assumptions, and judging whether theoretical constructions provide intelligible and fruitful explanations of economic action.
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