The ultimate goal of all positive sciences is correct prediction concerning phenomena not yet observed.
-Milton Friedman
Purpose
The subject of this analysis regards the theoretical progress of a discipline which has grabbed my attention for some time now: economics. What I will attempt to do is set forth a number of arguments and considerations for and against an exclusively positivist approach to the development of theoretical economics.
The Dichotomy
In order to gain maximal insight into a positivist approach to economics, one must first understand the positive-normative dichotomy. This separation hardly remains exclusive to economics – but rather branches through ethics, epistemology, and permeates several other social science and humanities disciplines. However, for the purposes of our analysis, we will limit its scope to economics.
But what exactly does each position advocate? Simply put, a normative approach considers what 'ought to be,' whereas a positive approach simply describes 'what is the case.' (Martin & McIntyre, 1994) Consequently, each serves its own purpose. As one can imagine, a purely normative approach may entail presuppositions which may or may not be true of the society to which the set of propositions are prescribed. On the other hand, a purely positive approach will supply facts with inexact direction. One can think of a positive approach, in itself, as a strong servant but a weak master.
And why on God's green Earth would we care about all this? Acceptance of what I will go on for the next few pages advocating would help account for current underlying inexactitudes in economic theory while giving predictive powers that merit the discipline credibility. Before setting out to complete this arduous task, let us clear some ground on which we may build the foundations of our argument.
The Relationship
The first issue we must address, which is a big one indeed, concerns the possible coexistence of normativity and positivity with respect to economics. Many would agree that a normative and a positive approach are conceivable as mutually exclusive elements. However, a number of arguments have been set forth to disprove this possibility. Let us visit and evaluate each of these considerations in light of our intended purpose.
Inconceivable Coexistence Argument 1
Many economists must cater to the needs of policy-makers and offer goal recommendations. Therefore, whether these economists like it or not, they must conform to conventions of normativity. (Machlup, 1969)
The suppressed premise in this argument is the link between offering goal recommendations and giving normative prescriptions which is indeed a connection we can make intuitively without much trouble. However, our concern in particular is not ridding the entirety of economics of possible prescription, but rather ridding theoretical economics of such actions. In other words, applied economics can make use of a value based prescriptive system as need be. Our concern, however, is directed towards theoretical economics, whose rate of development will be optimized (for reasons discussed shortly) by normative abstinence.
Inconceivable Coexistence Argument 2
Economic “science” is a human activity, and like all human activities it is governed by values. (Mongin, 2006)
What this argument entails, insofar as it tries to demerit the possibility of coexistence, is a clear instance of equivocation. Facts of values do not constitute as a prescriptive set of propositions based on values. I can truthfully claim 'My roommate loves eating chocolate' which makes a factual assertion of a person's value. However, saying 'My roommate loves eating chocolate' is in no way logically equivalent to saying 'My roommate should or should not eat chocolate.'
Inconceivable Coexistence Argument 3
People's views of what is right and wrong are, as a matter of fact, at least in part based on their beliefs of others' behaviors. (Marwell & Ames ,1981)
This probably is true of a great number of theories postulated at one point or another. However, it can hardly be said that this is true of most or all economic theories. Going through each potentially problematic axiom of economics would be too arduous of a task. However, let it be known that any value based economic theory (which will necessarily not hold as absolutely true) may easily be corrected in light of disconfirming observational data.
Examples
Up until now, we've been speaking in abstractions. But what problems particularly merit the defense that a purely positive approach can offer? A great deal indeed. For the purposes of our analysis, however, we will lay out two of the most fundamental tenets found at the heart of mainstream economic theory, which are attacked time and time again for their oversimplifications and impossible or improbable idealizations. The theories in question are rationality and utilitarian theory.
Indeed such theories have been demerited by critics for their gross oversimplifications. Rationality holds the position that all individuals in any given market seek to maximize their own best interest and will choose consumption bundles accordingly. What follows (at least in economists' models) is a trade-off pattern that assumes a consistent set of values for each and every consumer – adjusted for identical incomes. However, we know that in the real world this is not the case. Each individual may relate (and often does) a different set of values to the same set of goods, which will essentially factor in on their choice of the quantity of that given purchase. Therefore, notions of rationality may be based on a set of values making them inconsistent from one individual to the next.
The same case is made with utilitarian theory, as relevant to economics. Utility refers to the capacity of a commodity to satisfy some human need. Conceptually, most would agree that utilitarian theory makes good sense. However, the theory has little to offer beyond this conceptualization. Economists speak of utility in arbitrary quantified units for purposes of their analysis. The fact remains that there is no reliable indicator of utility; in other words, utility cannot be quantified. This renders the theory as limited, since most explanations of utility attempt to suggest a comparative bundle as numerically greater. In the real world, however, no such comparisons can be made.
Logical Form
But what have we really said up until now? Rest assured, the point is to be made soon. We've identified two questionable and fundamental assumptions of mainstream economic theories. Using this analysis, we will come to show that denial of these assumptions will not necessarily lead one to conclude the denial of the conclusion. A key assumption, by definition is an unstated premise that is intended to link any premise disparate terms or ideas to disparate terms or ideas in the conclusion. For instance, we have the argument
All men are mortal.
Therefore, Socrates is mortal.
The key assumption in the simple argument above is that Socrates is a man.
Denying that Socrates is a man will not lead us to validly conclude that he is not a mortal. He can be an alien which by definition would also constitute as a mortal, insofar as mortal is defined as any being subject to death. However, one would necessarily commit themselves to a logical fallacy if he or she believed that the denial of what is sufficient to bring about an effect would result in the denial of the effect itself. Formally, this argumentative fallacy is called 'False Denial of the Antecedent.'
Let us suppose now, that instead of our Socrates-Mortal argument, we had an Economic Argument that encapsulated everything mainstream economics has to offer today. This would indeed be a gross oversimplification. Additionally, if it were possible to sum up all mainstream economic theories in one stand-alone argument, books beyond books would be needed for thorough articulation. For our purposes, however, let us suppose we can see this argument in the form of two premises and a conclusion. Imagine further that the premises would act as the collection of axioms up until the present, whereas the conclusion would be a prediction of what future economic trends will result based on the presupposed theorems and the current state. In such a case, what we would have is an argument similar to the following form:
Axioms (Laws & Theorems): If A then B.
Current state: A.
Conclusion (Prediction): Therefore, B.
Now this is where our positive approach can potentially work wonders. Economics by nature is not empirical much like most of the natural sciences, but is rather observational much like astronomy. Data is collected and interpreted, only to be reinterpreted in light of new evidence until a fully functional theoretical framework, which can account for all collected data, is reached. Critics of oversimplifying theorems, such as our two mentioned conjectures above, often make a good point. And let us assume that considerations set forth against Rational Theory or Utilitarianism, like those mentioned above, were completely true and the two theories were fully discredited. In such a case, our Economic Argument above would take a negation of the first Axiom Premise. So instead of 'If A then B,' we would have something more like 'If A then not necessarily B,' which is logically equivalent to 'Some A are followed by not B's.'
Indeed this does weaken the argument as a whole. And if economics were a purely rational study, much like philosophy, we would not be able to know definitively whether or not the conclusion still holds. However, we can still know if our conclusion still holds by merely presenting facts which either contradict or confirm the prediction (our conclusion). Doing so would, of course, require a positive approach.
What if the critics are wrong and we had simply been deceived by an extremely appealing argument and were falsely lead to believe that our perfectly sound argument was in fact false? Furthermore, suppose the conclusion of an argument posited by a critic is false. A positive approach would still help with any such possible instance. We can be certain that a premise or axiom of economics is proficient in its explanatory powers only if it makes consistently accurate predictions. In other words, if an economic tenet does not make accurate predictions, then we can deem it critically problematic for our theoretical purposes. Given this criteria, a basic economic tenet (such as Utilitarianism or Rationalism) need not be consistent with all facets of worldly truths as relevant to their domain. As long as they serve their theoretical role of offering correct predictions, we can make good use of them and ignore any objections offered by critics in applications. Nevertheless, confirmation of predictive ability heavily utilizes, and even requires, a positive approach.
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