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 and positive "economics

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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normative and positive economics

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) Th eories 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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