Positive economics
Encyclopedia
Positive economics is the branch of economics
that concerns the description and explanation of economic phenomena. It focuses on facts and cause-and-effect behavioral relationships and includes the development and testing of economics theories. Earlier terms were value-free economics and its German
counterpart wertfrei economics.
Positive economics as science
, concerns analysis of economic behavior
. A standard theoretical statement of positive economics as operationally meaningful
theorems is in Paul Samuelson
's Foundations of Economic Analysis
(1947). Positive economics as such avoids economic value
judgements. For example, a positive economic theory
might describe how money supply
growth affects inflation
, but it does not provide any instruction on what policy
ought to be followed.
Still, positive economics is commonly deemed necessary for the ranking of economic policies or outcomes as to acceptability, which is normative economics
. Positive economics is sometimes defined as the economics of "what is", whereas normative economics discusses "what ought to be". The distinction was exposited by John Neville Keynes
(1891) and elaborated by Milton Friedman
in an influential 1953 essay
.
The methodological basis for a positive/normative distinction has its roots in the fact-value distinction
in philosophy, the principal proponents of such distinctions being David Hume
and G. E. Moore. The logical basis of such a relation as a dichotomy
has been disputed in the philosophical literature. Such debates are reflected in discussion of positive science
and specifically in economics, where critics, such as Gunnar Myrdal
(1954) dispute the idea that economics can be completely neutral and agenda-free.
Positive economics usually answers the question "why". To illustrate, an example of a positive economic statement is as follows:
The price of milk has risen from $3 a gallon to $5 a gallon in the past five years.
This is a positive statement because it can be proven true or false by comparison against real-world data. In this case, the statement focuses on facts.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
that concerns the description and explanation of economic phenomena. It focuses on facts and cause-and-effect behavioral relationships and includes the development and testing of economics theories. Earlier terms were value-free economics and its German
German language
German is a West Germanic language, related to and classified alongside English and Dutch. With an estimated 90 – 98 million native speakers, German is one of the world's major languages and is the most widely-spoken first language in the European Union....
counterpart wertfrei economics.
Positive economics as science
Science
Science is a systematic enterprise that builds and organizes knowledge in the form of testable explanations and predictions about the universe...
, concerns analysis of economic behavior
Behavior
Behavior or behaviour refers to the actions and mannerisms made by organisms, systems, or artificial entities in conjunction with its environment, which includes the other systems or organisms around as well as the physical environment...
. A standard theoretical statement of positive economics as operationally meaningful
Falsifiability
Falsifiability or refutability of an assertion, hypothesis or theory is the logical possibility that it can be contradicted by an observation or the outcome of a physical experiment...
theorems is in Paul Samuelson
Paul Samuelson
Paul Anthony Samuelson was an American economist, and the first American to win the Nobel Memorial Prize in Economic Sciences. The Swedish Royal Academies stated, when awarding the prize, that he "has done more than any other contemporary economist to raise the level of scientific analysis in...
's Foundations of Economic Analysis
Foundations of Economic Analysis
Foundations of Economic Analysis is a book by Paul A. Samuelson published in 1947 by Harvard University Press. It sought to demonstrate a common mathematical structure underlying multiple branches of economics from two basic principles: maximizing behavior of agents and stability of equilibrium...
(1947). Positive economics as such avoids economic value
Value theory
Value theory encompasses a range of approaches to understanding how, why and to what degree people should value things; whether the thing is a person, idea, object, or anything else. This investigation began in ancient philosophy, where it is called axiology or ethics. Early philosophical...
judgements. For example, a positive economic theory
Theory
The English word theory was derived from a technical term in Ancient Greek philosophy. The word theoria, , meant "a looking at, viewing, beholding", and referring to contemplation or speculation, as opposed to action...
might describe how money supply
Money supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...
growth affects inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
, but it does not provide any instruction on what policy
Policy
A policy is typically described as a principle or rule to guide decisions and achieve rational outcome. The term is not normally used to denote what is actually done, this is normally referred to as either procedure or protocol...
ought to be followed.
Still, positive economics is commonly deemed necessary for the ranking of economic policies or outcomes as to acceptability, which is normative economics
Normative economics
Normative economics is that part of economics that expresses value judgments about economic fairness or what the economy ought to be like or what goals of public policy ought to be....
. Positive economics is sometimes defined as the economics of "what is", whereas normative economics discusses "what ought to be". The distinction was exposited by John Neville Keynes
John Neville Keynes
John Neville Keynes was a British economist and father of John Maynard Keynes.-Biography:Born in Salisbury, he was the son of Dr John Keynes and his wife Anna Maynard Neville . He was educated at Amersham Hall School, University College London and Pembroke College, Cambridge, where he became a...
(1891) and elaborated by Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
in an influential 1953 essay
Essays in Positive Economics
Milton Friedman's book Essays in Positive Economics is a collection of earlier articles by the author with as its lead an original essay "The Methodology of Positive Economics," on which this article focuses.-The Methodology of Positive Economics:...
.
The methodological basis for a positive/normative distinction has its roots in the fact-value distinction
Fact-value distinction
The fact-value distinction is a concept used to distinguish between arguments which can be claimed through reason alone, and those where rationality is limited to describing a collective opinion. In another formulation, it is the distinction between what is and what ought to be...
in philosophy, the principal proponents of such distinctions being David Hume
David Hume
David Hume was a Scottish philosopher, historian, economist, and essayist, known especially for his philosophical empiricism and skepticism. He was one of the most important figures in the history of Western philosophy and the Scottish Enlightenment...
and G. E. Moore. The logical basis of such a relation as a dichotomy
Dichotomy
A dichotomy is any splitting of a whole into exactly two non-overlapping parts, meaning it is a procedure in which a whole is divided into two parts...
has been disputed in the philosophical literature. Such debates are reflected in discussion of positive science
Positive science
In the humanities and social sciences, the term positive is used in at least two ways.The most common usage refers to analysis or theories which only attempt to describe how things 'are', as opposed to how they 'should' be. Positive means also 'value free'. In this sense, the opposite of positive...
and specifically in economics, where critics, such as Gunnar Myrdal
Gunnar Myrdal
Karl Gunnar Myrdal was a Swedish Nobel Laureate economist, sociologist, and politician. In 1974, he received the Nobel Memorial Prize in Economic Sciences with Friedrich Hayek for "their pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of the...
(1954) dispute the idea that economics can be completely neutral and agenda-free.
Positive economics usually answers the question "why". To illustrate, an example of a positive economic statement is as follows:
The price of milk has risen from $3 a gallon to $5 a gallon in the past five years.
This is a positive statement because it can be proven true or false by comparison against real-world data. In this case, the statement focuses on facts.
See also
- Normative economicsNormative economicsNormative economics is that part of economics that expresses value judgments about economic fairness or what the economy ought to be like or what goals of public policy ought to be....
- Philosophy of economicsPhilosophy of economicsPhilosophy and economics may refer to the branch of philosophy that studies issues relating to economics or, alternatively, to the branch of economics that studies its own foundations and status as a moral science....
- Consumer theoryConsumer theoryConsumer choice is a theory of microeconomics that relates preferences for consumption goods and services to consumption expenditures and ultimately to consumer demand curves. The link between personal preferences, consumption, and the demand curve is one of the most closely studied relations in...
- Production possibilities frontier
- Supply and demandSupply and demandSupply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
- Distribution (economics)Distribution (economics)Distribution in economics refers to the way total output, income, or wealth is distributed among individuals or among the factors of production .. In general theory and the national income and product accounts, each unit of output corresponds to a unit of income...
- Economic methodologyEconomic methodologyEconomic methodology is the study of methods, especially the scientific method, in relation to economics, including principles underlying economic reasoning...
- Austrian SchoolAustrian SchoolThe Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...
- Economics terminology that differs from common usageEconomics terminology that differs from common usageIn any technical subject, words commonly used in everyday life acquire very specific technical meanings, and confusion can arise when someone is uncertain of the intended meaning of a word...
External links
- Essays in Positive Economics by Milton Friedman
- Milton Friedman ([1953] 1966). "The Methodology of Positive Economics," excerpts from Friedman's essay