Thursday, February 7, 2013

Milton Friedman on the critical distinction between positive and normative economics

From the beginning of Essays in Positive Economics, emphasis is mine - footnotes removed:

"Positive economics is in principle independent of any particular ethical position or normative judgments. As Keynes says, it deals with “what is,” not with “what ought to be.” Its task is to provide a system of generalizations that can be used to make correct predictions about the consequences of any change in circumstances. Its performance is to be judged by the precision. scope, and conformity with experience of the predictions it yields. In short, positive economics is, or can be, an “objective” science, in precisely the same sense as any of the physical sciences. Of course, the fact that economics deals with the interrelations of human beings, and that the investigator is himself part of the subject matter being investigated in a more intimate sense than in the physical sciences, raises special difficulties in achieving objectivity at the same time that it provides the social scientist with a class of data not available to the physical scientist. But neither the one nor the other is, in my view, a fundamental distinction between the two groups of sciences.

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 about the consequences of doing one thing rather than another, a prediction that must be based - implicitly or explicitly - on positive economics. There is not, of course, a one-to-one relation between policy conclusions and the conclusions of positive economics; if there were, there would be no separate normative science. Two individuals may agree on the consequences of a particular piece of legislation. One may regard them as desirable on balance and so favor the legislation; the other, as undesirable and so oppose the legislation.

I venture the judgment, however, that currently in the Western world, and especially in the United States, differences about economic policy among disinterested citizens derive predominant from different predictions about the economic consequences of taking action - differences that in principle can be eliminated by the progress of positive economics - rather than from fundamental differences in basic values, differences about which men can ultimately only fight. An obvious and not unimportant example is minimum-wage legislation. Underneath the welter of arguments offered for and against such legislation there is an underlying consensus on the objective of achieving a “living wage” for all, to use the ambiguous phrase so common in such discussions. The difference of opinion is largely grounded on an implicit or explicit difference in predictions about the efficacy of this particular means in furthering the agreed-on end. Proponents believe (predict) that legal minimum wages diminish poverty by raising the wages of those receiving less than the minimum wage as well as of some receiving more than the minimum wage without any counterbalancing increase in the number of people entirely unemployed or employed less advantageously than they otherwise would be. Opponents believe (predict) that legal minimum wages increase poverty by increasing the number of people who are unemployed or employed less advantageously and that this more than offsets any favorable effect on the wages of those who remain employed. Agreement about the economic consequences of the legislation might not produce complete agreement about its desirability, for differences might still remain about its political or social consequences but, given agreement on objectives, it would certainly go a long way toward producing consensus.

Closely related differences in positive analysis underlie divergent views about the appropriate role and place of trade-unions and the desirability of direct price and wage controls and of tariffs. Different predictions about the importance of so-called “economies of scale” account very largely for divergent views about the desirability or necessity of detailed government regulation of industry and even of socialism rather than private enterprise. And this list could be extended indefinitely. Of course, my judgment that the major differences about economic policy in the Western world are of this kind is itself a “positive” statement to be accepted or rejected on the basis of empirical evidence.

If this judgment is valid, it means that a consensus on “corrrect” economic policy depends much less on the progress of normative economics proper than on the progress of a positive economics yielding conclusions that are, and deserve to be, widely accepted. It means also that a major reason for disinguishing positive economics sharply from normative economics is precisely the contribution that can thereby be made to agreement about policy."


  1. Daniel Kuehn, just for clarity's sake, you should note that in Essays in Positive Economics, Milton Friedman cites the *father* of John Maynard Keynes - John *Neville* Keynes.

    Also Daniel, have you heard of the philosopher Imre Lakatos? He and Milton Friedman apparently clashed over Friedman's methodology. Wikipedia has a brief summary of the matter below.

    While I don't consider myself heterodox (in fact, there are things about Milton Friedman that I do respect, like his accomplishment with Anna Schwartz: A Monetary History of the United States: 1867 to 1960), Friedman's positive versus normative distinction has been criticised by philosophers. (I can't find a good source ATM however.)

    On another note, Milton Friedman's own track record for prediction - apart from the breakdown of the Phillips Curve trade-off between inflation and unemployment in the long run - has come under criticism. Please see the following September 1986 article in the Journal of Economic Issues.

    1. I think it's critical to keep Friedman's views on positive claims separate from his claims about positivist method. Of course for him they're related but you need not embrace both. I obviously have big problems with Friedman's positivism - I think I've written on that before and anyway I talk a lot about my Kuhnian views of science, and Lakatos mixes very well with that (although I haven't personally read as much Lakatos). But he is exactly on target with positive and normative claims.

      When you say the distinction has been criticized by philosophers do you just mean the criticism of positivism? I'd have to know more.

      There's a Rortyian line of argument that tries to talk about literature, philosophy, morality, science as all being comparable. On a certain level I agree with this. He says, and I agree, that our explanations of the world are ultimately going to be ungrounded in reality because they are based on our perceptions and mediate through our minds, and (very critically for Rorty) our language. In this broader sense we are just making arguments that we are using to try to convince other people.

      I disagree with taking that insight and saying that the normative/positive distinction isn't a useful one to apply to the sorts of claims we make. In other words, I agree that we are all doing persuasion and therefore any answer we give to any question (positive or normative) is going to be an attempt at persuasion rather than proof (what we call "proofs" are just attempts at persuasion). But just because all arguments are persuasive does not mean that we can't usefully classify some claims as normative and some as positive. It also does not mean that the sorts of persuasion we utilize to defend each of those claims are the same. They're not. They're different.

  2. Hilary Putnam has argued that the fact/value distinction cannot be maintained, including in economics.
    -- Robert


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