Positive Economics
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
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.
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
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:
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." [13]
"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." [13]
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."[13]
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.
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