Difference between positive and normative economics

The difference between positive and normative economics is based on the fact that positive economics tries to explain what the economy is, while normative economics tries to indicate how it should be.

Difference between positive and normative economics

Thus, the difference is in the approach of each one of them. While positive economics tries to describe reality, normative economics offers us recommendations on how it could improve according to subjective criteria.

Positive economy

As our economic dictionary indicates, positive economics attempts to explain to us how economics actually works. In this sense, by taking this approach into account, we are assuming that economists behave like scientists. For example, if they want to describe how a tax increase affects a certain sector, they will carry out a study on the effects of tax increases and their consequences.

Although it is not always possible, since reality is very complex and is made up of many variables, the fundamental idea is to describe economic processes and their relationships in an objective way.

Normative economics

For its part, normative economics proposes policies, recommendations or actions based on value judgments. That is, they propose what should be according to different preconceptions. To do this, it is based on available economic theory (not always empirically verified).

In this case, the considerations are based on ethics, responsibility, and the worldview of the economist trying to explain it. Unlike positive economics, the facts on which normative economics is based are not always proven.

Difference between positive and normative economics by economic thoughts

During the history of economic thought there has always been a debate about whether it was possible to make an economy without value judgments.

The later writers of the Classical School, such as William Nassau Senior or John Stuart Mill, were convinced that it was possible to clearly divide positive economics from normative economics. In this regard, John Neville Keynes, father of John Maynard Keynes, made a clear distinction between defining the ends to be followed (normative economics) and determining the best way to achieve those ends (positive economics). This is the orthodox position followed by Milton Friedman, Max Weber or Lionel Robbins.

But there are also authors like Myrdal or Pigou who are against the positive-normative distinction. These authors argue either that economics is irretrievably influenced by our political values ​​and considerations (Myrdal), or they establish a value judgment in advance to achieve objectivity in normative economics (Pigou).

So there are economic currents that affirm that there can be no other economy than the positive one (what it is), others that defend that there can be no other economy than the normative one (what it should be) and others that refuse to distinguish between them because they think that the economy is a whole in this sense.

However, the difference between positive and normative economics is that the latter is influenced by value judgments and ethical considerations.

Example of positive and normative economics

Imagine that there is an increase in the minimum wage in the country Babilandia. After increasing the minimum wage, a study is carried out that shows that the effects have been negative. The positive economy says: "The rise in the minimum wage has had negative effects on the labor market." Normative economics, for its part, says, ignores the analysis and says: "The minimum wage must be higher to ensure a decent standard of living for workers."