Two Fields of Thought in Economics: Positive and Normative

In the field of economics, there exist two major schools of thought: Positive Economics and Normative Economics. Positive economics is objective and fact based and must be able to be tested and then proven or disproven. Normative economics is subjective and value based and consequently, cannot be proven or disproven. In other words, positive economics is "what is," while normative economics is focused on "what ought to be."

While this distinction may appear simple, it is not always easy to differentiate between the positive and the normative. In his book, "The Scope and Method of Political Economy," John Neville Keyes comments that, "confusion between them is common and has been the source of many mischievous errors." Many widely accepted statements that people hold as fact are actually value based.

For example, the statement, "governments should provide basic healthcare to all citizens" is a normative economic statement. There is no way to prove whether government "should" provide healthcare; this statement is based on opinions about the role of government in individuals' lives, the importance of healthcare and who should pay for it. However, the statement, "government-provided healthcare increases public expenditures" is a positive economic statement, because it can be proved or disproved by examining healthcare spending data in countries like Canada and Britain where the government provides healthcare.

There are countless arguments for each way of thinking and it is not possible within the scope of this essay to present and debate each one; therefore it will only focus upon two benefits of positive economics. First, one benefit to positive economical thinking is the invaluable role it plays in normative economics. While posi...

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...e 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” (Friedman, 3).

Friedman believed that although the doubts about the social and political consequences may still remain, by using positive thinking, there is hope for agreement on policy. Focusing on “what ought to be” will not change “what is.” Instead, what are needed are calculations and facts to help make smart economic decisions; a calculated decision cannot be made without calculations. Positive economics is exactly that, proven evidences, and therefore is vital in the economic-policy-planning process. Only through a concentrated focus upon provable facts can intelligent economic policies be formed, not by paying attention to debatable opinions.