Positive Vs. Normative Economics Essay

724 words - 3 pages

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 ...view middle of the document...

Positive economics is vital to any formation of economic policy and needs to be used, either in conjunction with normative thinking, or on its own. Before attempting to decide “what ought to be,” it is imperative to establish “what is.” The fact that normative economics requires such reliance upon facts and calculations would lead one to believe that positive economics is the superior, for without it, normative thinking is purely speculation.
A second benefit is based upon Milton Friedman, an American economist, statistician and writer, who believed that positive economics could help resolve arguments that arise when economic policy is based purely upon opinion. He stated, “currently in the Western world…differences about economic policy…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” (Friedman, 3).
Friedman then proceeds to give an example of how positive thinking can help create a resolution to the questions regarding minimum wage:
“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...

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