Marquette University e-Publications@Marquette

Economics Faculty Research and Publications Economics, Department of

1-1-1998 Normative and Positive Economics John B. Davis Marquette University, [email protected]

Published version. "Normative and Positive Economics," in Encyclopedia of Political Economy. Eds. Phillip Anthony O'Hara. London: Taylor & Francis (Routledge), 1998: 804-807. Publisher Link. © 1998 Taylor & Francis (Routledge). Used with permission. normative and positive economics the politicians compete are votes. Thus it is Populations of Organizations," American crucial for their success that they design the Journal of Sociology 90: 1262- 83 . content of party programs and election plat­ Chamberlin, E.R. (1933) The Theory of Mono­ forms as closely as possible to their voters' polistic Competition, 7th edn, Cambridge, preferences, and, simultaneously, as far away as MA: Harvard University Press. possible from competing parties. The observed Elton, Charles (1927) Animal Ecology, London: tendency toward "median voter" programs and Sidgwick & Jackson. increasing political competition can be ana­ Grinell, 1. (1917) "The Niche-Relationships of lyzed and explained by the niche approach. the California Thrasher," Auk 34 . Niches can be formed and created, especially Groenhaug, K. and Narapareddy, V. (1989) through advertising. Consumers and voters can "Niche Changes and Population Strategies: react and change their preferences, and a Foreign Competition Revisited," Scandina_ formerly well-adjusted fIrm will exit because vian Journal of Management 5(1): 49-61. of a vanishing niche. The exact identifIcation of Hutchinson, G.E. (1957) "Concluding Re­ the boundaries of the niche is one of the major marks," Cold Spring Harbor Symposium on problems, both in theory and reality. The niche Quantitative Biology 22: 415.,;-27. is not a crisp set, but rather a fuzzy set. Lambkin, M. and Day, G.S. (1989) "Evolu­ tionary Processes in Competitive Markets: Conclusion Beyond the Product Life Cycle," Journal of Marketing 53(July): 4-20. Comprehensive theoretical models of niches May, R.M. (1973) Stability and Complexity in are not yet well developed in economics. The Model Ecosystems. Princeton, NJ: Princeton existing approaches are often too close to University Press. biological terms and they lack distinct eco­ --(ed.) (1974) Theoretical Biology - Applica­ nomic content. They offer, however, a better tions, Oxford: Macmillan. instrument for explaining competitive behavior Milne, G.R. and Mason, C.H. (1994) "A Niche in segmented markets than do "orthodox" Share Approach for Assessing Brand Perfor­ economics. Market segmentation was formerly mance and Identifying Competitive Groups," descriptive, and the concept of niches allows Marketing Science Institute Report, 94-107. the identifIcation of strategies and the predic­ Robinson, 1. (1933) The Economics of Imperfect tion of future developments. Niche theory is a Competition, London: Macmillan. rather universal concept applying to marketing, Vickrey, William Spencer (1993) "Ecology," in product placement, spatial placement and even Collier's Encyclopedia, New York: P.F. Collier. ideological platforms of politics. It is a strong analytical tool for all situations where we have KARL-HEINZ WALDOW to explain competition, why it takes place or not, and how one can evade it. normative and positive See also: economics evolutionary economics: major contemporary themes; producer and consumer sovereignty Virtually every mainstream textbook in eco­ nomics begins with a brief discussion of the difference between positive and normative Selected references economics, made a dogma by those who Alderson, WE. (1957) Marketing Behaviour slavishly followed Lionel Robbins in his Essay and Executive Action, Homewood, IL: Irwin. on the Nature and Significance of Economic Carroll, G.R. (1990) "Concentration and Spe­ Science (1932). For example, Schotter's Micro­ zialisation: Dynamics of Niche Width in economics states that:

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Normative or welfare economics deals with Values permeate economics what ought to be rather than what is and The mainstream view, then, that there exists a involves prescriptive statements that may be clear dividing line between positive and nor­ based on value judgments. Positive econom­ mative economics, is mistaken. Some tradi­ ics deals with what is rather than what ought tional economists admit this when they allow to be and involves descriptive statements that an individual's value judgments influence that are objective and verifiable. the views they develop. But this view is not (Schotter 1994: 4) widely supported in the mainstream of eco­ Schotter's emphasis is not unusual. Since nomics. Even when it is, value judgments are positive economics is thought to be objective often understood as "individual motivation and verifiable, normative economics by impli­ may shape theory," rather than as "the world cation is subjective and not subject to rigorous views of economists in general influence the validation. This view is inherited from David very questions they ask, the significance they Hume, who argued that a gulf exists between attribute to some issues rather than others, and "is" and "ought"; and, more recently, from the the concepts they select." For example, neo­ 1930s logical positivists, who claimed both that classical economics focuses only upon instru­ scientific statements alone are rational and that mental rationality, and then characterizes scientific statements are those that are empiri­ decision making as rational when it is atomistic cally verifiable. Mainstream economists, ac­ and self-interested. But this selective character­ cordingly, claim that their work is scientific on ization of behavior has never been given any account of its being value-neutral. real scientific defense and, rather, represents a theoretical commitment one must have to be admitted to the ranks of neoclassical econo­ Facts are theory-laden mists. Economic methodologists, however, deny that Thus, while it cannot be said that a clear empirical evidence confirms a theory as scien­ dividing line exists between positive and nor­ tific, because disconfirming evidence may al­ mative economics, it is still unlikely that anyone ways turn up in the future, and because any would deny that there is a difference between given set of facts may give support to conflict­ positive and normative statements. This sug­ ing theories. They also deny that theories that gests that the important issue for heterodox stand up to empirical tests designed to falsify economists is to understand how positive and theories must be scientific, because theorists normative economics are related and influence can always add immunizing, auxiliary assump­ one another. Wilber (1996) puts this especially tions to protect core principles. Accordingly, it well by rejecting the notion that value neutrality has not been shown that theories are scientific makes sense, and by asking how our values in virtue of their relation to facts and evidence. come to permeate economic reasoning (see Indeed, philosophers of science since Norwood VALUE JUDGMENTS AND WORLD VIEWS). Russell Hanson (and later Thomas Kuhn) have argued that subjective factors are inevitably Characterizing and appraising value involved in the development of scientific ideas, judgments and that facts are theory-laden because they are identified from the perspective of PARA­ One proposal for how to do this, deriving from DIGMS. At the same time, many philosophers a reconsideration of the nature of values, is reject the notion that value judgments are discussed by Blaug (1992). He draws attention inevitably subjective, and, indeed, often argue to Nagel's (1961) distinction between two types that widely accepted value judgments may of value judgments: characterizing value judg­ possess as much or more "objectivity" as many ments and appraising value judgments. Char­ scientific propositions. acterizing value judgments concern the choice

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of subject matter, the mode of investigation to the posItive deals with our evaluating means be followed and the criteria for judging results. and the normative deals with evaluating ends. Characterizing value judgments involve the More importantly, however, what counts as a sort of methodological judgments that are means and what counts as an end is relative to indispensable to any science. Appraising value the situation at hand. Indeed, something can be judgments concern evaluative statements about a means on one occasion and an end on the world, and are the basis for our claims another. Thus, an evolutionary approach, about the relative desirability of different social which views the economy as being concerned outcomes. Appraising value judgments are with historical processes and PATH DEPEN­ usually considered to be normative economics, DENCY, must be prepared to understand the but it is obvious that characterizing value continual reconstitution of means and ends. judgments are also normative and that they This explains the value permeation of are essential to science. economic reasoning at a fundamental level, Hence, Blaug recognizes that the methodo­ and ushers in an alternative to normative logical judgments or ground rules employed by positive dualism in the form of Thorstein any theory, when it makes various characteriz­ Veblen's split between instrumental and cere­ ing value judgments, are not free of the monial knowledge. Instrumental knowledge is normative commitments and appraising value concerned with facts, getting things done and judgments the theory's practitioners hold. For solving problems. Ceremonial knowledge is example, the neoclassical treatment of agents opposed to instrumental knowledge, and is as rational maximizers can well be argued to concerned with prestige, getting credit for depend on the view that it is desirable or getting things done, and with exercising power morally praiseworthy that individuals pursue (see INSTRUMENTAL VALUE THEORY). Since, their own restricted well-being in market throughout human history, the ceremonial has contexts, and that doing so produces the tended to prevail over the instrumental, a greatest social good through an "invisible progressive economics aims at a critical appre­ hand" process. At the same time, this view of hension of the use of power in the economy to economic agents can easily be argued to rule gain position and prestige. Social problems - out the idea that individuals ought morally to not social theories - should be the focus of put justice in relations with others above economics. Since society will never be free of individual gain, and that failure to do so problems, the aims and ends of society are furthers an alienated life dominated by im­ always evolving, thus suggesting the idea of personal market relations. Thus, value judg­ "evotopia" (moving toward an evolving good ments of the appraising sort enter into society) rather than utopia as a guiding view of economists' selection of concepts and methods good economics (Hodgson 1995). at the most fundamental level, and we seem not to have improved our understanding of "posi­ Ideology and analysis tive" and " normative" economics using Nagel's distinction. Finally, Dobb's Marxist appraisal of the posi­ tive and normative deserves attention. Dobb also begins with a re-characterization of values, Reconstituting means and ends and reconstructs the traditional Humean dual­ A more promising approach, that also derives ism between "is" and "ought" in terms of a from a reconsideration of the nature of values, distinction between IDEOLOGY and analysis. In is to be found in institutionalist theory, which contrast to Hutchison's view of values and denies from the outset that positive and ideology as an individual's personal predilec­ normative economics are mutually exclusive tions and commitments, Dobb defines ideology domains or categories. Dugger and Waller as "a whole system of thought, or coordinated (1996), for example, accordingly argue that set of beliefs and ideas, which form a frame-

806 North-South trade models work, or higher-level group of related concepts, Selected references for more specific and particular notions, Blaug, M. (1992) The Methodology of Econom­ analyses, applications and conclusions" (1973 : ics, 2nd edn, Cambridge: Cambridge Uni­ 1). As such, individuals are often unconscious versity Press. of their ideological views, and tend to take Dobb, M. (1973) Theories of Value and many of their elements as having been estab­ Distribution since Adam Smith, Cambridge: lished as "true" rather than "believed propo­ Cambridge University Press. sitions." For example, Dobb takes the Dugger, Wand Waller, W (1996) "Radical traditional fact- value distinction itself as being Institutionalism: From Technological to De­ ideological in that most economists take it to be mocratic Instrumentalism," Review of Social rooted in incontrovertible truths rather than an unexamined belief. Economy 54(2). A view related to Dobb's needs to be Hodgson, G. (1995) "The Poltical Economy of distinguished. Schumpeter (1954) wrote of the Utopia," Review of Social Economy 53(2). difference between economic analysis and an Nagel, E. (1961) The Structure of Science: economist's vision of the nature of reality and Problems in the Logic of Scientific Explana­ the problems at hand. The latter is ideological, tion, London: Routledge & Kegan Paul. and involves "a preanalytical cognitive act" Robbins, L. (1932) An Essay on the Nature and which must precede "analytic effort in any Significance of Economic Science 2nd edn London: Macmillan. ' , field " and which may also "re-enter the history of every established science each time some­ Schotter, A. (1994) Microeconomics, New body teaches us to see things in a light of which York: HarperColiins. the source is not to be found in the facts Schumpeter, 1. (1954) History of Economic methods, and results of the pre-existing state of Analysis, New York: Oxford University Press. the science" (Schumpeter 1954: 41). Yet, Wilber, C. (1996) "Ethics and Economics," in Schumpeter also claims that economic analysis Charles 1. Whalen (ed.), Political Economy can still be thought to be objective and for the 21st Century: Contemporary Views on independent of ideological views, indeed as a the Trend of Economics, Armonk, NY: M.E. "box of tools" of a purely instrumental nature Sharpe. upon which scientific progress depends. Dobb rightly challenges this conception, arguing that JOHN B. DAVIS this formal view of concepts as tools overlooks the way in which tools are developed for theoretical and ideological purposes. North-South trade models Thus, if we are to employ a distinction between positive and normative economics, it Models of North- South trade examine the must be with great caution and an awareness of interaction of two regions: the rich North (also the ways in which values inevitably permeate called the metropolis, core or center) compris­ theories. It is true that descriptive and prescrip­ ing "developed" economies, and the poor tive language differ and that there are important South (also called the periphery) comprising differences between facts and values. However, "less-developed" economies. Special reference economics is highly value-laden and, thus, is placed on international trade, factor move­ understanding the role of values in economics ments, technology transfer and related factors. is necessary to doing good economics. They consider the links between the two regions, and usually highlight the dynamic interaction between, and the structural differ­ See also: ences between, the two regions. They can be ethics and morality; modernism and seen as a reaction to the dominant micro­ postmodernism; natural rights; rhetoric theoretic Heckscher- Ohlin- Samuelson (HOS)

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