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This is an exract from the Wikipedia entry
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Reviewer comment:
A brief description of the development of a theoritical basis for linking
economic action and a theory that justifies it to 'fairness' as a political
goal. As the entry notes -it is about 'what OUGHT to be in the mind of the
theoritician. Below the Wikipedia entry we have an even more explicit article
about 'normative economics' and it is interesting in that the author includes
Adam Smith as a major theoritician.
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Normative economics (as opposed to positive economics) is a part of
economics whose objective is fairness or what the outcome of the economy or
goals of public policy ought to be.[1] Economists commonly prefer to
distinguish normative economics ("what ought to be" in economic
matters) from positive economics ("what is"). Many normative (value)
judgments, however, are held conditionally, to be given up if facts or
knowledge of facts changes, so that a change of values may be purely
scientific.[2] On the other hand, welfare economist Amartya Sen distinguishes
basic (normative) judgements, which do not depend on such knowledge, from
nonbasic judgments, which do. He finds it interesting to note that "no
judgments are demonstrably basic" while some value judgments may be shown
to be nonbasic. This leaves open the possibility of fruitful scientific
discussion of value judgments.[3] Positive and normative economics are often
synthesized in the style of practical idealism. In this discipline, sometimes
called the "art of economics," positive economics is utilized as a
practical tool for achieving normative objectives. An example of a normative
economic statement is as follows: The price of milk should be $6 a gallon to
give dairy farmers a higher living standard and to save the family farm. This
is a normative statement, because it reflects value judgments. This specific
statement makes the judgment that farmers deserve a higher living standard and
that family farms ought to be saved.[1]
Subfields of normative economics include social choice theory, cooperative game
theory, and mechanism design. Over time, divergence in normative economics has
given rise to various economic schools of thought as various intellectuals and
economists have debated over the effectiveness and morality of various economic
systems. In the modern era, these have been broadly classified into
"left" and "right" leaning patterns. Simply put,
left-leaning economic thought tends to advocate for government intervention in
the economy; on the other hand, right-leaning economic thought tends to
advocate for minimal government intervention in the economy.
Capitalism, largely developed by the Dutch and British, is a right-leaning
economic ideology that calls for market factors to determine production and
consumption. Capitalist normative economic philosophy is attributed to Adam
Smith. Communism, which has spread to many corners of the globe, advocates for
state-controlled determination of production and consumption. Communist theory
is widely attributed to Karl Marx and Freidrich Engels. Much of modern politics
revolves around the normative economic debate over state involvement in the
economy and various other normative economic theories exist. Some earlier
technical problems posed in welfare economics and the theory of justice have
been sufficiently addressed as to leave room for consideration of proposals in
applied fields such as resource allocation, public policy, social indicators,
and inequality and poverty measurement.[4]
See also :
Distribution (economics) Economic ideology Is-ought problem Justice (economics)
Normative science Positive economics Social welfare function Social choice
theory Welfare economics Economic progressivism
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This another description of What is Normative Economics?
Normative economics is a school of thought which believes that economics as a
subject should pass value statements, judgments, and opinions on economic
policies, statements, and projects. It evaluates situations and outcomes of
economic behavior as morally good or bad. Normative economics, as opposed to
positive economics, tells us whether certain aspects of the economy are helpful
or harmful. These evaluations are subject to the opinions of the people making
the statements and are often without any basis or facts.
Examples of Normative Economics:
The regulation of oil prices by the government helps to keep inflation in
check.
The independence of the central bank from the government should be curtailed.
The development of Special Economic Zones is not working out.
Progressive taxation is better than regressive taxation.
Companies should be made to pay for the pollution they cause.
All of the above statements are subjective. They represent nothing more than an
individual’s opinion on an economic situation or policy. Economists are
often guided by their personal value systems while making such statements.
Welfare economist and Nobel laureate Amartya Sen distinguishes normative
statements into two parts. According to him, basic statements do not depend on
any knowledge of facts or theories, whereas non-basic statements depend on the
facts or knowledge of facts.
Origin of Normative Economics:
Normative economics first originated from “old-style welfare
economics,” which is a simplified version of Pigou’s Economics of
Welfare. “New welfare economics” came as the second form of normative
economics in the 1930s. It used the Pareto Principle and the Compensation
Principle to make normative statements about policies and state whether they
were improving welfare or not. The latest forms of normative economics are
social choice theory and public economics. Public economics studies the effects
of the public sector on society and the economy as a whole. The social choice
theory uses the method of voting to aggregate individual choices to indicate
social preferences.
Prominent Normative Economists:
1. Adam Smith Adam Smith was a Scottish economist, philosopher, and author in
the 18th century. He is well known for two of his publications – “The
Theory of Moral Sentiments” and “An Inquiry into the Nature and
Causes of the Wealth of Nations.” In “The Theory of Moral
Sentiments”, Smith states sympathy as the initiation of action in society.
His arguments about moral sentiments and sympathy as the foundation of rules
and justice paved the way for modern normative economics.
2. Amartya Sen Amartya Sen is a 20th-century Indian economist and a Nobel
laureate. Sen tried to discuss the distinction between positive and normative
economics in his book “Economic Behavior and Moral Sentiments.” He
emphasizes the fact that since welfare economics have a significant impact on
actual behavior, ethical considerations should have a greater role in welfare
economics, which, according to him, have been largely ignored. Normative
Economics vs. Positive Economics Positive economics, on the other hand,
concerns itself with only stating facts and figures. It does not pass any
judgment on any economic policy or economic behavior. The major difference
between positive economics and normative economics is that the statements made
by positive economics can be tested for their validity. They may either be true
or false, but can always be tested. Conversely, judgments passed by normative
statements cannot be tested for their validity because of their subjectivity.
For example, let us consider a positive statement, “The unemployment rate
prevailing in the economy currently is 8%.” We know that there are
measures to test whether this statement is true or not. Together with positive
statements, normative statements help policymakers and leaders to reach
opinion-based solutions to prevailing economic issues. Hence, both positive and
normative economics play a vital role in the functioning of an economy.
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