The Positive and the Normative in Economic Thought

Sina Badiei, Agnès Grivaux, Sina Badiei, Agnès Grivaux

• Publisher: Routledge
• Year: 2022
• Print ISBN: 9781032161532
• eBook ISBN: 9781000604078
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

The book responds to the need for greater clarity regarding the relationship between descriptive, evaluative and prescriptive approaches within positive and normative economics. It also analyses the entanglement between evaluative and prescriptive perspectives within several theoretical frameworks in normative economics such as social choice theory, the capability approach, behavioural welfare economics and various theories of justice.

It provides a forum for discussion between various schools of economic thought and several theoretical frameworks on the relationship between the study of facts, norms and values, with particular emphasis on classical political economy, the Marxian school of economics, the Frankfurt School, the Austrian school, the Chicago school, rational choice theory, expected utility theory, behavioural economics, experimental economics, development economics, welfare economics, public economics, constitutional political economy, the capability approach and politico-economic theories of justice.

Given the scope of questions treated in this book, it will be of interest to economists, historians of economic thought, political philosophers and philosophers of science, especially those interested in the philosophy and epistemology of economics.

1 The Positive and the Normative in Economic Thought

A Historical-Analytic Appraisal

Sina Badiei and Agnès Grivaux

DOI: 10.4324/9781003247289-1

Introduction

The relationship between the positive and the normative is one of the most central methodological and theoretical problems in economics, as shown by numerous debates in the last two decades. Examples from the growing body of work on this subject include Davis (1990, 2003, 2014), Hausman (1992/2003, 2011, 2018), Hausman et al. (2016), Mongin (2002, 2006a, 2006b, 2018), Putnam (2002, 2003), Putnam and Walsh (2012), Caplin and Schotter (2008), Boylan and Gekker (2009), Hands (2012), Su (2012), Colander and Su (2013, 2015, 2019), and Marchetti and Marchetti (2017). Studying various and distinct approaches to the relationship between the positive and the normative is valuable for economics and philosophy, since it can allow us to lay bare the assumptions that are often implicitly presupposed in the works of economists. These assumptions tend to exert significant influence on the way economists describe social phenomena, evaluate them and propose a whole range of policies and proposals to reform public institutions.

These studies can moreover highlight or make explicit an important number of conceptual distinctions, for example, between norms, values and facts, or between description, evaluation and prescription. For example, Wade Hands (2012) insists on the necessity of distinguishing, on the one hand, between epistemic values that influence scientific work and social norms that regulate the behaviour of socio-economic agents in general (ibid., 220–221)¹ and, on the other hand, between ethical norms and other types of social norms. For Hands, it is a mistake to consider all norms as ethical since, for example, ‘rationality in the sense of rational choice theory does not imply moral choice; it may be a normative theory, but it is not an ethically normative theory’ (ibid., 231). Hilary Putnam, in contrast, tries to critically evaluate the presuppositions that underlie some of these distinctions such as those that underpin the distinction introduced by Jürgen Habermas between norms and values (Putnam and Walsh 2012, 121–128).

It is important to stress that conceptual clarity and clarification are not the only fruitful results of such studies. By examining different ways of theorising the relationship between the positive and the normative, for example, those that defend the primacy of positive studies, or those that insist on the radical separation between the positive and the normative, it becomes clear that schools of thought that are radically divergent may well be able to agree on certain positions. This is surprising and even more so when we consider that a specific interpretation of the relationship between the positive and the normative is shared by schools of thought that oppose each other on all other theoretical questions: the one that considers the development of the positive knowledge of economic facts as the only way to resolve disagreements on normative issues and questions related to the reform of public institutions.

For example, if we rely on the way John Neville Keynes (1891) theorises the relationship between the positive and the normative,² we can then identify important similarities between various members of the Marxist school, the Austrian school and the Chicago school, especially when we focus on Karl Marx, Ludwig von Mises and Milton Friedman. When we compare the economic thought of these economists, it becomes clear that they all subordinate, albeit in different manners, the normative evaluation of social situations and various politico-economic prescriptions to the positive and value-free analysis of the hitherto-existing social situation and its objective representation.

For Friedman, normative economics depends on positive economics because decisions concerning what economic policies to pursue rely on predicting the consequences of this or that fact and hence on positive economics (Friedman 1953). Only the progress of positive economics can thus settle disagreements about what new economic policies to implement. For Mises, it is the positive analysis of the a priori structure of human action that can contribute to the formulation of different – mostly negative – proposals about what can and should be done in the economic field (Mises 1949/2008), without which normative proposals to change existing situations risk being futile or having catastrophic consequences. As for Marx, he intends to develop an economic theory that is immanent, that is, non-normative, in order to avoid the pitfall encountered by other socialists and communists (Marx and Engels 1848/1998, 72). Marx is very sceptical of the projects for rectifying existing social injustices proposed by these thinkers (ibid., 75). Considering that only normative ideas whose germs are hidden in existing reality are to be taken seriously (Marx and Engels 1976, 92), Marx refuses to propose alternative normative ideas and instead studies positive reality in order to identify where these germs may reside.

The position adopted by Marx, Mises and Friedman regarding the relationship between positive and normative economics has exerted a considerable influence on the history of economic thought. It is, for example, shared by economists before Marx, such as Bernard Mandeville (Dumont 1977), and after Friedman, for example, Partha Dasgupta (2009, 584). However, we must emphasise that this position is far from being the only one that we can find throughout the history of economic thought, and it is not even shared by all the members of the schools of thought to which Marx, Mises and Friedman belong.³

The Positive and the Normative in Economics: A Historical Perspective

Historically speaking, it is fair to say that economists started to deal, systematically, with the relationship between the positive and the normative, between the description of social facts and the evaluation of these facts and prescriptions for political-economic reforms, in the nineteenth century. The most prominent economists who initiated such systematic analyses are Senior (1826/1852), Mill (1836/1967), Cairnes (1857), Walras (1874/2014), Sidgwick (1885) and Keynes (1891),⁴ as well as those who took part in the Methodenstreit (the dispute over methods) among German-speaking economists, notably various members of the German historical school of economics and Carl Menger (Campagnolo 2010).

This does not mean that prior to these systematic efforts, economists did not pay attention to the distinction between positive descriptions of social facts and normative evaluations of social facts and various proposals to modify these facts, but they often did so implicitly. The economic and philosophical thought of Adam Smith can be used to illustrate this point.

The Positive and the Normative in Adam Smith's Economic and Philosophical Thought

As noticed long ago by Mill (1836/1967, 312) and Walras (1874/2014, 4–7), Smith’s most explicit attempt at defining the nature and tasks of economics (Smith 1999, 5) portrays the latter as a purely normative discipline:

Political economy, considered as a branch of the science of a statesman or legislator, proposes two distinct objects: first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign.

Smith offers this definition in the fourth book of his An Inquiry Into the Nature and Causes of the Wealth of Nations, dedicated to a critical analysis of the so-called mercantilist thought. According to this definition, economics is mainly about facilitating the pursuit of certain objectives and these objectives should govern what economists do. However, if we focus on Smith’s moral and political philosophy, notably his The Theory of Moral Sentiments, we can find another – implicit – definition of economics which is far less normative. In The Theory of Moral Sentiments, Smith demarcates four cardinal virtues which, he argues, play an indispensable role in the way people behave: self-command, prudence, justice and benevolence (Smith 2009, 280, 308–309). He seems to consider economics as the discipline that should study the behaviour of individuals from the point of view of one of these cardinal virtues, that is, prudence (Haakonssen 2006, 7). Economics would thus be a science that studies the main characteristics of social life by assuming that the behaviour of individuals is mainly determined by only one virtue, prudence, which means that economics studies social life in the abstract, since in its studies, it does not take other virtues that govern individual behaviour, notably benevolence and justice, into account.

This more implicit definition of how Smith theorises the role of economics shows clearly that to understand his economic thought, we should start from The Theory of Moral Sentiments. Doing so allows us to see that Smith’s point of departure is, as emphasised by various scholars (Haakonssen 2006; Sen 2009; Putnam and Walsh 2012; Diatkine 2019), the analysis of the norms that regulate and structure human behaviour. We should nonetheless note that Smith does not aim, at least explicitly, to propose a normative, hence evaluative, theory of social and moral norms. He intends, as he repeatedly indicates, to offer a rather positive, hence descriptive, account of the role that moral and social norms play in individual behaviour and social life. As he puts it, ‘the present inquiry is not concerning a matter of right, if I may say so, but concerning a matter of fact’ (Smith 2009, 93). Still, he regularly moves beyond a purely positive account of norms and offers explicitly normative accounts of the role that ought to be attributed to different norms. This can be seen most clearly in the final part of the book, where he compares his moral thought to other systems of moral philosophy (ibid., 315–403). In this more normative and evaluative account of various virtues and norms, he largely agrees with Francis Hutcheson that benevolence is the noblest virtue (ibid., 354),⁵ but it is seen by him as too personal in its exercise (Haakonssen 2006, 17), which makes it difficult to use it to propose socially binding rules. This leads him to reject (Smith 2009, 401) any detailed and especially prescriptive accounts of benevolence as ‘casuistic’.

His sceptical attitude towards detailed accounts of benevolence is equally related to his belief that ‘beneficence . . . is less essential to the existence of society than justice. Society may subsist, though not in the most comfortable state, without beneficence, but the prevalence of injustice must utterly destroy it’ (ibid., 104). Even if in his discussion of justice, he recognises (ibid., 321) that the latter has two different senses, that is, commutative justice and distributive justice, his efforts to propose the rules of justice are not very detailed when it comes to distributive justice. Apart from the study of prudence which is part of political economy, he thus recognises two other ‘useful parts of moral philosophy, . . . Ethics and Jurisprudence’ (ibid., 401). His analysis of jurisprudence is limited to commutative justice, and he considers ethics as a discipline ‘that does not admit of the most accurate precision’ (ibid., 388). Therefore, even if for Smith benevolence and distributive justice – which in his words ‘consists in proper beneficence’ (ibid., 321) – are indispensable to a happy and virtuous life, his refusal to propose a meticulous analysis of them differs sharply from the position of numerous leading theorists in contemporary normative political and economic thought, such as those who have been working on contemporary theories of justice (Rawls 1971/1999; Roemer 1993, 1996; Fleurbaey 1996, 2018) and feminist economics (Beneria et al. 2011), especially when the focus is on the ethics of care (Gilligan 1982; Noddings 1984/2013).

This analysis of Smith’s thought shows that while he often strives to adhere to purely positive analyses of social norms as matters of fact, his analyses are in fact permeated with explicitly normative – and thus evaluative and prescriptive – accounts of norms. The same observation pertains to his economic analyses where, for example, his appraisal of the conflicting interest of various social classes as regards economic progress and opulence (Smith 1986, 355–359) involves various descriptive and evaluative – as well as prescriptive – elements. We can therefore argue that even if he considers the distinction between positive and normative analyses to be important, he constantly moves back and forth between the two forms of study in his writings.

The Positive and the Normative in Nineteenth-Century Economic Thought

In contrast, and as already mentioned, nineteenth-century economists often dedicated at least parts of their writings to the explicit analysis of the relationship that should prevail between purely factual analyses of social facts and norms, and normative (evaluative and prescriptive) theories. While most of these economists advocate the necessity of separating the two forms of study, their approach does not often correspond to the one we have attributed to Marx, Mises and Friedman but to a position whose most mature form is found in the works of John Stuart Mill.

According to Mill, in order to fully grasp the peculiar character of political economy, it is important to distinguish between the ideas of science and art, since:

The one deals in facts, the other in precepts. Science is a collection of truths; art, a body of rules, or directions for conduct. The language of science is, This is, or, This is not; This does, or does not, happen. The language of art is, Do this; Avoid that. Science takes cognisance of a phenomenon, and endeavours to discover its law; art proposes to itself an end, and looks out for means to effect it.

(Mill 1836/1967, 312)

Therefore, for political economy to be a science, it must not be ‘a collection of practical rules’ (ibid.). The fact of prescribing rules to achieve desired objectives, as well as the choice of the objectives to be pursued, is thus, for Mill, not a science but an art. This does not mean that the evaluation of the objectives to pursue is totally subjective since ‘an art would not be an art, unless it were founded upon a scientific knowledge of the properties of the subject-matter’, and even if ‘rules . . . for making a nation increase in wealth, are not science’, to make sure that such rules can achieve their intended effects, they must be ‘the results of science’ (ibid., 312). Hence, even if economics as a scientific discipline is about studying social facts from a non-normative perspective and does not ‘instruct how to make a nation rich’, ‘those who want to pursue the goal of making nations rich must first be a political economist’ (ibid., 312).

We must nonetheless pay attention to the fact that political economy, understood as a positive science, ...

Table of contents

• Cover
• Half Title
• Series
• Title
• Copyright
• Dedication
• Table of Contents
• List of Contributors
• Preface
• 1 The Positive and the Normative in Economic Thought: A Historical-Analytic Appraisal
• SECTION I The Positive and the Normative in the History of Economic Thought
• SECTION II The Positive and the Normative in Contemporary Economic Thought
• SECTION III The Positive and the Normative in Economics: Philosophical Perspectives
• Index