Positive Economics

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Definition

1) "A body of systematized knowledge discussing what is." [1]

Positive statements are objective, and concern themselves with matters of fact rather than matters of opinion. They can also question how things actually are. Doing so, they do not use value judements or emotion, but rather concentrate on empirical data to back claims.

Examples

Here are some examples of positive statements. They simply describe the world as it is, or as it may be in future:

• A decrease in interest rates will cause a decrease in the exchange rate and an decrease in the demand for imported products
• The creation of a national minimum wage would likely cause a decrease in the demand for low-skilled labour
• Employment is higher in the United Kingdom than it is in Germany
• After 9/11, the American stock market had a recession
• Lower taxes may stimulate an increase in the active labour supply

Graphs

This is the quintessential neoclassical graph. It shows the relationship between supply and demand, and the effects of an increase in either supply or demand. However, the graph does not assert that an increase in supply or demand would be an optimal policy route. Rather, it is simply a what-if situation, a generalized abstraction of reality through changes in price and quantity.

Famous Positive Economists

Milton Friedman

In his book, Essays in Positive Economics Friedman espouses the worth of positive over normative economics.

"...positive economics is, or can be, and 'objective' science, in precisely the same sense as any of the physical sciences." [9]

"Normative economics and the art of economics, on the other hand, cannot be independent of positive economics. Any policy conclusion necessarily rests on a prediction abou the consequences of doing one thing rather than another, a prediction that must be based-implicity or explicitly-on a positive economics." [9]

Friedaman suggests that most disagreemtent over policy decisions is not actually disagreement over the normative values which people hold, but rather disagreement over uncertainty about the positive results of various policies.

The Living Wage Example

The example Friedman gives is the debate over a living wage. The primary debate, says Friedman, is not over whether a living wage should be enacted, but what the results of such a policy would be. The proponents of such a system argue that the increase in minimum wages will increase the welfare of those working without any significant drop in the quantity or quality of employment. Those who oppose a living wage argue that such an increase will decrease the number of people employed such that the welfare loss caused will not be enough to make up for the small standard of living that those still employed will gain.

"If this judgement is valid, it means that a consensus on 'correct' economic policy depends much less on the progress of normative economics proper than on the progress of positive economics yielding conclusions that are, and deserve to be, widely accepted. It means also that a mojor reason for distinguishing positive economics sharply from normative economics is precisely the contribution that can thereby be made to agreement about policy."[9]

Goal of Positive Science

For Friedman, the goal of positive science is to develop meaningful and valid theories or hypotheses which can make prediction about phenomena which have not yet been observed. The choice between various hypothoses must ultimately be at least somewhat arbitrary, but Friedman suggest two criteria for doing so: simplicity and fruitfulness. Simplicity refers to the amount of initial knowledge neccessary, and fruitfulness refers to the precision of the predictions, the size of the area in which predictions are yielded, and the number of lines for further research which are suggested.

History

Vienna Circle

The Vienna Circle was a group of philosophical mathematicians and physicists who met to discuss the philosophy of science. Established in 1925 by Moritz Schlick, the group had a variety of members who formed the idea of logical positivism. They believed that their group had reached a "decisive turning point in philosophy"[4], but made sure to reference similarly-minded predecessors. Their influences basically consisted of all philosophers who disagreed with metaphysics or speculation, notably Ernst Mach, Bertrand Russell, and Ludwig Wittgenstein. By the 1930s, the movement expanded out of such a small circle. As more economists entered into the discourse, disagreement grew and the Circle eventually disintegrated.

Goal: Logical Positivism

The goal of the Vienna Circle was to discover the true aim of philosophy. Through discussion, members came to agree that the goal of philosophy is logical analysis. With logical positivism in mind, one could use logic to analyze the world and 'solve' empirical science, including economics.

"We have characterized the scientific world-conception essentially by two features. First it is empiricist and positivist: there is knowledge only for experience, which rests on what is immediately given. This sets the limits for the context of legitimate science. Second, the scientific world-conception is marked by the application of a certain method, namely logical analysis. The aim of scientific effort is to reach the goal, unified science, by applying logical analysis to the empirical material."

~ Hahn, Neurath, and Carnap [4]

Relationship to Metaphysics

The Vienna Circle believed that only 'meaningful statements' should be permitted during scientific examination. They defined meaningful statements as ones which are either "analytic (tautologies or self-contradictions) or synthetic (factual statements which may be verified or falsified by evidence)."[4] All other statements were labeled as meaningless.

The Vienna Circle used an objective criterion to determine whether a statement was analytic, synthetic, or meaningless. It was extremely conservative and dogmatic to do so, but it fell nicely into the 'empirical evidence' tradition. A statement was given meaning if it was able to be completely, utterly, and fully verified by observation.

Metaphysical statements fall into this last category because they can not be verified or denied. They describe deeply abstract thoughts and are concerned with first principles such as being, existence and truth.

Meaninglessness and Falsehood

"The empiricist does not say to the metaphysician 'what you say is false', but 'what you say asserts nothing at all!'" [4]

Having read this quote, it is important to understand that to the logical positivists, meaning is not equated with truth, nor is meaninglessness equated with falsehood. Rather, the meaningfullness of a statement is simply whether or not it is able to be evaluated. A meaningful statement can be processed by data, and determined whether it is true or false. However, a metaphysical statement, because it has no meaning, could not even be evaluated as true or false.

Problems

Although the verifiability principle worked well to eliminate normative metaphysical statements about the 'best' way to run a country, live life, and more, it created problems regarding theoretical claims. The insistance on the primacy of physical data basically eliminated the opportunity for scientists to make statements what they could not see. For example, since no scientist had ever seen a proton, neutron, or electron, the Vienna Circle's verifiability principle asserted that statements about these things were nonsensical! Ernst Mach, for example, wrote that

"The atom must remain a tool for representing phenomena, like the functions of mathematics. Gradually, however, as the intellect, by contact with its subject matter, flows in discipline, physical science will give up its mosaic play with stones and will seek out the boundaries and forms of the bed in which the living stream of phenomena flows." [4]

What he is referring to by stones and the riverbed itself are abstractions and actual verifiable data. What he means is that eventually scientists will stop thinking in terms of abstractions and theory, and only talk about what they can empirically justify.

It is important to realize that there was no unified answer to the possibility of nonsense in theoritical, physical claims. Although Mach's answer is evident of more recent positivist thought, it was disagreement over this type of issue that caused a breakdown in the Vienna School.

Others

Although the Vienna Circle was a textbook case of early positivist thought in the early twentieth century, it is important to realize that its members were not alone. Other similar groups existed, such as:

• The Lwow-Warsaw group in Poland (with the influential Alfred Tarski)
• The Munster group in Germany
• The Uppsala School in Sweeden
• The operationalists and pragmatists in America

Operationalism

Operationalism was a position developed by Percy W. Bridgman. Operationalists believed that science is only a set of measurements, an idea that is quite similar to the Vienna Circle's dogmatic verifiability claim. If any concept is no more than the measurements able to be performed on it, no metaphysical claim could be categorized as useful or meaningful because it would be impossible to measure it in units. Operationalists, just like the Logical Positivists of the Vienna Circle, thought that economic thought, and in fact all scientific thought in general, would be transformed into a much clearer system by narrowly defining meaningfulness:

"I believe that many of the questions asked about social and philosophical subjects will be found to be meaningless when examined from the point of view of operations. It would doubtless conduce greatly to clarity of thought if the operational mode of thinking were adopted in all fields of inquiry as well as in the physical." [4]

Logical Empiricism

Without a doubt, the logical positivists of the 1920s and early 1930s explored completely new territory of thought in the philosophy of science. However, their extreme views and narrow manner of thinking not only caused them to disagree and split apart but also declare some hypotheses that "in retrospect seem indicative of, at best, a sublime naivete, and at worst, a dogmatic fanaticism".[4] However, after the demise of the logical positivist school, a new manner of thinking was born, one which was less radical yet nonetheless empiricist. The Logical Empiricist tradition existed from the 1930s to the 1950s. It focused on a variety of points, but concerned itself mostly with the following three problems:

• The search for a criterion of cognitive significance
• The status, structure, and function of theories and theoretical terms
• The nature of scientific explanation

While the second and third problem are relevant to historians of economic thought, and can be read about further in Caldwell's book[4], we feel that the criterion for the meaningfulness of a statement was of most importance, and shows the largest difference between the logical empiricists and their predecessors.

Various Criteria of Significance

By the end of the Vienna Circle, it was clear that requiring all philosophical claims regarding science to be verifiable was much too restrictive. Universal claims, although possibly true, were to automatically be ruled meaningless. For example, it would have no meaning to say that all mice have tails, because it would be physically impossible to actually go and check every single mouse on the planet. What the previous statement lacks is cognitive significance. If there were a single case that disproves the claim, such as a single mouse without a tail, the statement would be false. As such, it becomes necessary to go and check every instance of mice, which is completely unrealistic to do, and cognitively insignificant.

While the logical positivists had a unified manner of thinking (verifiability), the logical empiricists had a variety of ways to determine whether or not a statement had meaning[4]

• Falsifiability
• Weak Verifiability
• Translatability
• Confirmation

Falsifiability

Falsifiability is basically the opposite of verifiability. Instead of needing to find every instance where the case is true, an empirical statement would be proven false if there were at least one case where its falsehood is determined. While this manner of thinking had a broader scope than verifiability because it enabled statement of universal form, such as all ravens are black, to be true.[4] However, it still does not enable affirmative existential statements to be true, such as the affirmative statement that there are abominable snowmen.

Claim 1: There are no abominable snowmen.

This statement has meaning. If a person were to find an abominable snowman, the statement would be falsified.

Claim 2: There are abominable snowmen.

This statement has no meaning. We know that there aren't any out there. Just because we technically have not found one yet, and falsified the statement, does not mean that they are there.

Weak Verifiability

A statement with weak verifiability is one that makes deductions in tandem with another statement that the second statement would not have been able to deduce on its own. While verifiability and falsifiability were criticized as being too strict, this was said to be too loose. In fact, it could technically be possible for weak verifiability to make any statement significant.[4]

Translatability

Rudolf Carnap believed that by constructing an empiricist language, logical empiricits hoped to demarcate a line in which some statements could be translated and some could not. The translatability of a statement would be the determinant of its meaningfulness. However, it became impossible to actually make such a language.[4]

Confirmation

The idea of confirmation as determinant of significance was the second of the two proposed by Rudolf Carnap. He felt that it was important to distinguish between truth and confirmation. With truth is absolute and independent of time, confirmation is relative and occurs with the development of time. Each time a statement was tested, it would either confirm or disprove a theory. The more times a theory was confirmed, the higher it would arrive on the scale of confirmation. This method was similar to verification but did not require every single instance to be tested. Rather, hypotheses were significant if there were testable, a test might confirm the statement, and all statements would be ranked on a hierarchy of confirmation. [4]

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