Positive Economics

The is-ought Distinction in Economics

The two branches of economics closely parallel the isought (or descriptive-normative) distinction in ethics. This fact-value distinction is of long standing in economic literature. Positive economics came from a conscious decision to simplify the problem of economic analysis. The social and moral sciences deal with very complex considerations. To enable more rapid progress of knowledge, social scientists in the 19th century decided to divide the scope of political economy (as economics was then called) into two branches with different methodologies. A normative branch would focus on policy making for a moral society and public welfare. A separate, positive science would describe the workings of the economic system as it is.

Positive economics adopts a strongly consequentialist perspective in the spirit of utilitarianism. This orientation can be illustrated by examples at the microeconomic and macroeconomic levels of analysis. Microeconomics studies choices by individuals, households, firms, and governments. At the microeconomic level of analysis, positive economics describes and predicts, for example, how changes in specific prices or taxes will affect human choices. A regressive tax affects less wealthy households more than it affects wealthier households. A positive analysis might conclude that a regressive tax is relatively efficient or inefficient in acquiring private resources for public activities. Positive economics studies the causes and effects of horizontal mergers among producers in markets for goods and services. A positive analysis might conclude that a specific horizontal merger will reduce consumer welfare. A positive analysis might conclude that the global expansion of Wal-Mart increases the welfare of consumers and investors while decreasing the welfare of its employees, suppliers, and competitors.

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