The Necessity of Positive and Normative Economics

The Necessity of Positive and Normative Economics

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The Necessity of Positive and Normative Economics

Keynes once wrote: “The object of a positive science is the establishment of uniformities, of a normative science the determination of ideals.” (Blaug, 122) This is the dichotomy that economists recognize when approaching their field of study. The social scientist must recognize both positive and normative distinctions, means and ends, as important factors of fruitful research. Secondly, they must clearly express the conditions and assumption which theories holds in order for economics to be useful for society.

Positive science is that which is a fact of nature or a fact by definition. In mathematics this is the difference between the knowledge that the angles of a triangle sum to 180 degrees, and the definition of a triangle as a two dimensional polygon with 3 sides. In economics, such facts of knowledge include that money is a store of value, or facts of definition that the UN’s Human Development Index ranks Canada above Mexico. These are all positive facts. Whether they rely or are associated with values does not reduce their factualness to a normative realm. One cannot refute positive statements by claiming they are arrived at due to values. It is up to normative science to judge the value of the HDI, a positive fact, and not mistake this action as denying the existence of the HDI.

This is probably better stated with a topic from macroeconomics. Suppose that some economists agree that inflation produces the social cost of having to adjust prices to new levels. This is a completely positive statement. As long as every term has been clearly defined, one can understand the relation between inflation (as defined) and cost (as defined). Yes, the definitions have been chosen based on specific values, but this does not disaffirm the statement as a true reflection of reality. Suppose we make a true statement which denies that inflation produces this social cost, by defining inflation or the cost differently. The old positive fact of reality that the first statement asserted has not changed. By changing definitions, we have merely created a new positive statement. A statement is a true positive fact, according to Weston, when it “is consistent with definitions and axioms that define the system. We are not necessarily saying anything about what is true outside of that system.

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” (Weston, 4) The values we have based each statement on does not induce them into the sphere of normative science. Neither makes any statement concerning the values of inflation or costs, nor that one statement is preferable over the other.

Here lies the duty of the economist: to make a normative decision on which positive statements are most applicable to the needs of society. Do we want to evaluate policy based on inflation definition number one or two? Do we care about social cost one more than social cost two? These are in the scope of normative science. Effectual positive facts are the means in reality to achieve ends. In this manner, economics is not value-free, and for good reason. There must be some utility gained from knowledge for research to be beneficial to mankind. Positive facts are not study for the sake of learning positive facts, but as a possible means to an end.

Normative economics are those value statements which guide our use and development of positive science. Positive facts are not limited by our values, but we can use our values to determine which positive statements are of most interest to society. Positive statements are the basis for any science, but do little good for mankind if we do not evaluate and distinguish some statements as more useful than others. Thus positive science is made fruitful through normative values, and reciprocally, normative judgments are based on objective positive science.

It is best to demonstrate this with an example from a less controversial science, physics. If a physicist decides that we need to further study thermodynamics in a specific way because of the needs of applications in space, his approach is a normative decision based on the normative desires of some group of people. However, the results which he arrives at will remain true for the conditions and viewpoint specified, despite the value to the space industry, which may actually need some other way of understanding thermodynamics after all.

This demonstrates that the influence of values does not alter our perception of reality, but allows us to discover increasingly more of it. If one positive fact is found fruitless, this prompts more study which may be of use as a means to our end. Additionally, most scientist will agree that once a positive fact is delineated, this does not hinder further research into the area, for the sake of bettering understanding and bettering the means already acheieved. Scientific tradition is a self-regulating system, where unfounded biases are eliminated by intercourse with the rest of the scientific community. Heilbroner admits that “economists perform few experiments that can be rerun in a laboratory, their results cannot be so easily falsified as those of the natural scientists, but they can be equally subject to scrutiny and criticism in the forum of expert opinion.” (Blaug, 120)

The point here is that the physicist does not claim that his new facts of thermodynamics are all encompassing, representing all the knowledge necessary for human use of thermodynamics. There may be other more beneficial aspects of thermodynamic theory which are outside of the framework he has developed.

This is the problem with unclarified value-laden economics. If we implicitly use a definition of inflation or unemployment to make a positive statement, it can mislead people to believe the statement applies to other (typically common use) definitions. One positive statement about a specific type of unemployment will not be sufficient to make all normative decisions. Thus some normative decisions reached would be based on misinformation.

When one makes the claim, without any clarification, that unemployment increases wages, this is a positive statement. It is true for some framework, but not necessarily for the conditions that exist in reality at the time which we would like to make a normative decision based on this “fact”. It is at this point which the positive statement, because not clearly articulated, becomes value-loaded. We cannot tell what assumptions the economist made. This creates a statement most likely in support of his or her view of what ought to be, trying to pass it off as less than such. If he or she left out wage stickiness, it may be completely useless in our application to reality, despite the truth of the statement in the right conditions. Accepting the statement as the only means of making a policy decision would be allowing normative biases to pass as positive facts.Thus the reason for c
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