15. Oktober 2012
The Normativity of Positive Economics*

Ulrich Thielemann
Kategorie: Orientierungen, Ökonomismus

Ethics, it is widely held, is of practical relevance when determining how pre-given norms can be applied to a practise. Ethics in the Kantian tradition, however, sees its practical relevance in argumentatively challenging the normative validity claims which constitute and justify a given practice – like the economy.

Mainstream economics claim that economics is a “positive” science. Though economists, as persons, might have “values”, what they, as scientists, claim as valid is just on “how things really are”, not on “how things should be”. The common sense is that economics, as a science, is “descriptive”, not “prescriptive”.

Meaningful descriptions are normative

The first misconception here is that any social science, and thus economics, needs to label its subject-matter specifically, giving it a meaning. And meanings are normative. Without such normative meanings economics would be literally meaningless. The subject matter of economists is markets and competition. Are these, for example, to be regarded as the fulfilment of general “freedom”, or is there some loss in freedom involved as well, given competitive pressures? Another example: Is homo economicus who, by definition, “can be seen to maximize almost anything at all” (James M. Buchanan), to be described as “rational”, or as “greedy”?

Economics is full of notions which are clearly normative, most prominently “efficiency” and “rationality”. The market economy’s outcomes should be “efficient”. And when markets are “free” to operate, these outcomes in fact are “efficient”. This, then, is called an “improvement”. And when economic actors strive for maximizing their utility, that is, treat their fellows “merely as a means to an end” (Kant), this is regarded as “rational” behaviour. Of course, actors should act “rationally”, not irrationally. The overall message of mainstream economics can be summarized as follows: If economic actors act “rationally”, market outcomes are “efficient”. Gregory Mankiw in his (in-) famous standard textbook “Principles of Economics”, which sold more than one million copies, concludes, slightly warily, these properties are the reason why “economists often advocate free markets as the best way to organize economic activity”. The “often” refers to frequent “market failures”, where “failure” is defined by any deviation from the market principle as the normative point of reference.

Economics as the ethics of the market principle

“Economists are the most vigorous advocates of the market”, as the German economist Friedrich Breyer puts it. This, of course, is purely normative. Mainstream economics is an ethics. It is the ethics of the market principle. There might be controversies within the discipline. But these are just controversies on the proper interpretation of the market principle. There is hardly any established economist who rejects the concept of “efficiency” as adequate to judge the interaction among people, not just market interaction in a narrow sense. The same holds for labelling utility maximization as “rational”, and any deviation from it as “irrational”, for example as an expression of “animal spirits”. The critique of “market triumphalism” and on the “commodification of everything” comes mostly from outside the economic discipline.

But then, why most economists claim that their assertions being purely “positive”, meaning “wertfrei”? The answer is: This is a strategy of immunisation against ethical objections. If what economists say, in its validity core, is ethically neutral, and does not touch any ethical (and political) controversies of the right course of action, it can never be ethically wrong. This validity core of economics, then, appears as ethically sacrosanct. From the viewpoint of a given pro-market preference, this is quite a clever strategy.

Positivist economics as a justification of homo economicus

But this strategy is clever in another respect as well. Let us, for the sake of the following argument, abstract from the necessity of any economic (or social) theory having some normative content (simply by qualifying the market as something, as somehow “good“ or, hardly ever, “bad”). Such a pure positive economics, void of any meaning given to its subject matter, comes down to employing, and implicitly justifying, the “rationality” of homo economicus. Here is why:

Homo economicus is just interested to succeed, according to his strictly individualistic, non-tuisticly determined preferences. Consequently, “he is done” (Hegel) with his fellow men, who are just of interest in their objective properties, as facticities, that is, as constraints or as opportunities for achieving profits, for example, not in their quality as moral subjects equipped with moral rights. Homo economicus has no sensorium for moral objections.

There is nothing wrong with tax evasion, it’s a fact

By conveying economics as a purely “positive” endeavour, the actions which make up the economy are conceptualized as facts, thereby legitimizing the logic of homo economicus. Here is an example: During a hearing of the Budget Committee of the German Bundestag, Lars P. Feld, a German economist who also is a member of the prestigious “German Council of Economic Experts”, had been asked, whether it is right or wrong to “consolidate” the national budgets of the European countries in trouble just by cuts in expenditure. Austerity, right or wrong, this was the question, though the term “austerity” had not been used during the hearing.

Feld’s answer was standard positive economics: He took the reduction of the national deficit, i.e. “consolidation”, as a given preference. (By coincidence, it is also his.) And the only question then remaining is: How can this objective effectively being brought about? This, then, is only a matter of what constraints their empirically are, as facts. And, “according to the [empirical] studies” Lars Feld knows – adding that he knows “quite many” –, “consolidations on the spending side [of the budget] turned out to be the ones which proved most successful”. Among others, the reason why, according to Feld, higher taxes do not “effectively” reduce the deficit – and what is in question here, above all, are higher taxes on high incomes, which mostly are capital income, and on financial assets –, is that there will be “reactions of evasion” on the side of taxpayers.

Obviously, Feld takes, among others, the denial of an adequate exchange of information on tax matters by other legislations, i.e. “banking secrecy”, as a “fact”. Also, he takes the willingness und ruthlessness of tax (non-)payers to evade their civic duties as given. Of course, the actual power of these actors can be questioned, especially today. But this would not refute the (bad) ethics of the positivist approach. This approach comes down to always accepting the power of an actor, never disapproving the legitimacy of his or her course of action. This comes down to an (anti-) ethics of the right of the powerful. So, purely positive, i.e., positivist economics is possible. But this is not neutral. It is bad ethics.

Towards an ethically reflected and critical economics

Positivist economics conveys the world-view of homo economicus to students, “shaping the intellectual and normative order within which all day-to-day decisions were made” and “propagating ideologically inspired amoral theories”, as Sumantra Ghoshal put it. Some call this “brain washing”. The alternative would be an ethically reflected and truly critical economics. And the point of reference would neither be the “free market”, nor no markets, which would be fully absurd, but a morally and politically embedded, and shaped, market economy.


* The Story Behind

I was invited by a member of the scientific staff of the project “Impact of Social Sciences” of the prestigious London School of Economics (LSE) to write an article on "The Normativity of Positivism" for their blog. Quite interestingly, the hint came from Rüdiger Bachmann, and my article on him was mentioned as a text of reference. “A critical contribution” of mine, it was added, “surely would lead to a fruitful discussion’”, especially as “status-quo-economics here in London is still uphold”.

So I wrote the article and submitted it. There was not response for quite some time. I enquired. And I got the response by the editor of the blog that my article was not tailored well enough to the “impact” issue. Indeed I did not do that. Probably it would be impossible to unfold the argument (that positivism is normative in a specific and highly questionable way) and to relate that to the “impact” issue. Maybe the whole thing was a misunderstanding of mine.

I thought the people behind this LSE-project would be simply interested in my argument, and the readers with diverse backgrounds could make their own conclusions with regard to the "impact" issue. One would be: A strictly “positive” economics, allegedly devoid of any “value”, and thus “neutral”, would have no “impact” on practice. But of course, the “impact” of economics is huge. (Remember Samuelson? “I don't care who writes a nation's laws—or crafts its advanced treaties—if I can write its economics textbooks.”) But this impact on practice is ethically highly questionable.

What strikes me most is that a project launched by an academic institution, the LSE, which is in fact on the relationship of “Theory and Practice” (cf. the classical text by Jürgen Habermas) does not approach this issue in terms of a reflection of this relationship (for example: How about the validity claims of a social science when the “objects” of investigation, and of possible “application”, are not part of academia?) Rather, the issue is approached instrumentally in terms of “maximizing the impact of academic research" – irrespective the questionability of such "academic research". This might be regarded as an expression of the general tendency of the, sometimes thoughtless, economization (or instrumentalization) of everything.