‘Facts’ and ‘Values’ in Economics: From ‘Is’ to ‘Ought’

0.1      The question of ‘is’ and ‘ought’, or what more popularly is known as distinction between ‘positive’ and ‘normative’ ideas and statements is an important issue which has significant bearing on how economics, its findings and its recommendations should be taken by policy makers, public representative and society. In fact, the very question of findings, descriptions and explanations offered by ‘economics’ as well as recommendations and policy lessons derived on the basis of these findings of economic methodology are positive and normative issues, or if I may say issues concerning  ‘facts’ and ‘values’.

The distinction between ‘fact’ and ‘value’ and the contention as to whether these are two separate categories, treated as water-tight compartment by many on the one hand, and as a continuum of phenomenon with these ideas/concepts lying at the end by other economists and social scientists has very important implication for any policy science and it can really help in understanding the nature, logic and methodological issues in economics in general and the applicability and usefulness of concepts, theories and findings of economics  in policy and governance in particular.

The larger issue of ‘fact’ and ‘value’ and the dichotomy between these two distinctions has occupied philosophers and other intellectuals for quite a long time. One of the 20th century most erudite philosopher Hilary Putnam’s (who died very recently in March 2016 at the age of 89) as well as Amartya Sen has made major contribution in bringing ethical and value based questions by bringing it to the forefront of economic analysis in general and in welfare economics in particular. They successfully disputed the claim that positive, fact based analysis in economic is superior to value question and have also claimed that the dichotomy between ‘fact’ and ‘value’ is largely artificial.

0.2       What I propose to do in the following paragraphs is to examine and elaborate the ‘Is’ and ‘Ought’ issue in reference to economics as a ‘policy science’ and would try to infer how these insights can be useful in governance and public policy. I would try to keep the language and style of the essay non-technical so that my readers without much advanced knowledge of economic theory and concepts are able to appreciate it, though it may not be possible to totally avoid referring to some technical economic concepts.

The essay has three main parts: the first one defines, elaborates and analyses the concepts of ‘facts’ and ‘value judgement’ including its historical roots. The second part then examines how judgments and policy prescription on the basis of ‘facts’ and ‘value’ differ and issues involved in evaluation of alternatives taking distinctive notions of facts and values as paradigm. The penultimate part then tries to elaborate and examine whether economics is really a value free policy-science, including some insights into how important theoretical concepts in economics fare on this question. I conclude with some final observations.

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1. Hume’s Guillotine

1.1        Let me first start by making the ideas and the meanings of these two concepts clearer. There are many words/phrases which have been used since long to make and claim the distinction between the two concepts of ‘fact’ and ‘value’, and these will be used by me also, often interchangeably in this essay. The table below makes the so called dichotomy clearer:

The Distinction and The Dichotomy
Fact	Value (judgement)
Positive	Normative
Is	Ought
Objective	Subjective
Engineering approach	Ethical approach
Science	Art
Descriptive	Prescriptive
True-False	Good-Bad
Means	Ends
Declarative statements	Prescriptive evaluations

 

Let me have the following statement using the phrases from the table above, to elucidate the meaning even further:

A ‘fact’ or ‘is’ statement is something which is materially true or false – it asserts something about the state of the world

A ‘value’ or ‘ought’ statement is something which approves or disapproves, often prescribes, and it is an expression about evaluation of the state of the world. 

1.2        It was David Hume, who almost 275 years ago, in his famous ‘Treatise on Human Nature’ made the distinction stating that “one cannot deduce ought from is”. This meant that we cannot infer norms, prescription and other ethical recommendations from factual, descriptive and objective statements. Such factual statements can only lead us to other factual and descriptive statements. Most people can readily distinguish questions concerning (non-moral) facts from questions concerning what is good or bad or what ought or ought not to be done. However, it is often difficult to make this notion precise (Hausman, 2006) and making a water tight distinction may not be very logical.

This water-tight and sharp logical distinction made by Hume between ‘fact’ and ‘value’ has often been called ‘Hume’s Guillotine’ reminding us of the sharp, scary edges of the guillotines so effectively and efficiently employed during French Revolution in separating human heads from their bodies!

1.3        In modern times, the issue of fact versus value has engaged social scientists and philosophers alike. Hilary Putnam emphasize as to how the idea of an absolute dichotomy between fact and value was from the beginning dependent upon a second dichotomy of ‘analytic’ and ‘synthetic’ judgement and that these two dichotomies ‘facts versus value judgement’ and ‘facts versus analytic truth’ have corrupted our thinking about both ethical reasoning and description of the world, not least of all by preventing us from seeing how evaluation and description are interwoven and interdependent (Putnam, 2002).

1.4       Coming to the Economics, positive economics has been said to be concerned about ‘facts’ whereas normative economics has been about ‘values’ or about what ought to be done. However, this poses perhaps the most important question for a policy science like economics as to whether ‘ends’ or ‘values’ can or cannot be rationally discussed. In other words, whether the notion of rationality can be applicable to normative questions? And these issues have been hotly debated in economics for decades.

Interestingly and insightfully enough, Amartya Sen identifies two rather different origins of economics, both related to politics, concerned respectively with ‘ethics’ on the one hand and with what he has called  ‘engineering’ on the other (Sen, 1987). For Sen, the ethical question is broadly ‘How should one live’ that is, concerning with ultimate ‘ends’, whereas the engineering question mostly concerns with logistical issues, and finding appropriate ‘means’ to serve the ends.

In light of above, the next question I examine is the issues, ideas, relevancy and usefulness of policy analysis and judgement on the basis of maintaining such a distinction.

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2. Judgement and Policy Prescription on the Basis of ‘Facts’ and ‘Values’

2.1        As of now, the standard view maintains that questions of facts and questions of value are not only distinguishable, but are independent too. No question concerning value is supposed to be settled by the facts alone and similarly, no question concerning facts is supposed to be settled by value. Therefore, it is possible to have a value free inquiry in to questions of facts.

However, I argue that at a deeper philosophical level, the distinction of fact and value is largely misleading. To speak of a value free inquiry may be misleading, because it suggests that the conduct of the inquiry is value free, which possibly cannot be true. Inquiring involves actions and actions are driven by values. Value influences choices of what methods to employ and consequently of what hypotheses to discard or to pursue. And therefore, it does not make much sense to talk of value free inquiry. On the other hand, there are economists who argue that value free inquire is an inquiry into a question of fact or of logic in which the answers are not influenced by any value except those that are part of scientific activity itself (Hausman, 2006).

2.2       Investigations into matters of facts (positive investigations) are relevant to policy because these results may show the effectiveness or otherwise of the policies designed to attain certain objective. And we must be careful here in noting that the objectives are value criterion, set on the basis of some value judgment and normative considerations.

Many economist agree that part of economics (normative economics) is concerned with value and ethics, but that ethics is not relevant for another branch of economics – the positive economics of factual analysis and theorising which represent, explain and predict how economic system function. This is the same as making a distinction between fact and value aspects of social inquiry. On the other hand, it is also claimed that without reference and understanding of moral and value based questions, economists, especially those involved in policy advice, would not be able to formulate clear and relevant technical questions for positive investigation.

2.3      J.S. Mill also made a distinction between what he called ‘science’ and ‘art’ of political economy. He realized that in passing from science to the art, extra-scientific, ethical premises necessarily make their appearances, and that non-economic elements borrowed from other social sciences were required in addition to value judgement to give meaningful advice on practical problems (Marc Blaug, 1992).

2.4       To examine the issue still deeply and to further clarify, we may make a distinction between what is called Characterizing Value Judgement or Methodological decisions, which involves choosing more or less factual questions, like what to be investigated, mode of investigation and criteria for judging the validity of findings etc. Next comes the Apprising Value Judgement or Normative decisions which includes details and evaluative criteria for different state of the worlds and desirability or otherwise of certain social and economic outcomes, including certain types of human actions and behaviours. Thus, all desires and statements about an ideal or good society are Apprising or Normative value judgement, which plays a part even in positive analysis and investigation of policy issue.

This brings us to the issue of how these two types of judgements can be reconciled. It is generally accepted that there are long-established, well-tried methods for reconciling different methodological options, whereas, on the other hand, such methods for reconciling normative value judgement are not readily found. The only way, and now most widely accepted method for deciding and reconciling value judgments and normative questions is largely a field of inquiry considered separate from economics – politics and democratic political elections.

However, we may be making the distinction between methodological/factual and value judgement too sharp again, which has been so effectively emphasized by Hilary Putnam in his book (Putnam, 2002). Holding a view that normative issues are not amenable to rational discussion aiming for reconciling differences between people is not necessary. We should be able to note that ‘ises’ often influence the ‘ought’, as I have already pointed out above. In other words, what values we hold is almost always depends on and is derived from a large number of factual believes and experiences. Therefore, we indeed can have a rational debate on a normative value question. An example could be the normative question of how much inequality a society or a nation should tolerate and once a decision has been taken, a value judgement has been arrived at; the methodological or factual question of how to achieve that may well be tackled much easily. Nevertheless, the issue of whether such important question of acceptable level of inequality and distribution of wealth among citizen should be decided by the most widely accepted method for deciding value and ethical issues today being democratic political process (election) remains an open question.

2.5       I would like to point out that it was Paul Samuelson who in his famous ‘Foundations’ (1947) gave prominence to the idea that society, expressing itself through its political representatives, does in fact compare the utilities of different individuals, these comparisons are, so to speak, recorded in a social welfare function that aggregates the preferences of individual in a social ranking of states of the economy. However, I may again note that even the political process is no guarantee that we would be able to decide and implement a less skewed distribution program. Some of my readers may note that this desire of a less unequal society of mine is in itself a value judgement of mine! I would here like to bring Amartya Sen in my defence, who argued that economics, as it stands today, can be made more productive by paying greater and more explicit attention to the ethical considerations that shape human behaviour and judgement (Sen, 1987).

2.6       To help us move forward, I found a further distinction and guiding principle made by Amartya Sen very useful and insightful (Sen, 1970). He exhorts us to distinguish between ‘basic’ and ‘non-basic’ type of value judgments. Mark Blaug (1992) prefers to call them ‘pure’ and ‘impure’ value judgement. A basic value judgement is supposed to apply under all conceivable circumstances to a person, which non-basic value judgement is not. In case of non-basic value judgment, an appeal to the facts of the case, which are generally less divisive – may be made and a decision should be arrived at on that basis. Amartya Sen recommends that through this method, once we reach at a pure value judgement stage, only then it may be accepted that we have exhausted all the possibility of rational discussion and analysis. However, we also need to appreciate that this methodology of Sen may not be able to settle some value judgement issues in full, especially in the cases of social or macro normative issues, like the one on inequality mentioned in the aforementioned paragraph. Nevertheless, I am tempted to agree to Professor Sen to a large extent, as most value judgement on social questions are generally impure and therefore are amenable to the above approach.

However, even with the above ideas, the basic question of difference between ‘fact’ and ‘value’ or (pure value judgement and factual statements) remains, though it may be said that the difference is more of a degree than of a kind. But, even if of degree, we should not be content with it. This brings us to the perhaps the most important question: Is social science value free? Or for my purpose, Is Economics a value-free and objective field of inquiry?

2.7       There were attempts by economists and thinkers like John Cairnes and John Neville Keynes (please note, he is father of his famous son, John Maynard Keynes) to distinguish three types of inquiries, 1. Positive Science, 2. Normative or Regulative Science and 3. Arts. Art was meant to be a system of rules for attainment of given ends. However, these ideas of considering normative science as a bridge between positive science and arts did not gain currency. Most economists clung to the dichotomous distinction of positive and normative science. And we also move forward with the two fold distinction as our primary tool of further analysis.

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3. Is Economics “Wertfreiheit” (Value-free)

Wertfreiheit is a German word, pronounced “wet-pri-heit” (this is the closest I could get to the pronunciation with the help of my friend who is an expert in German). It was first used by Max Weber implying something like ‘freedom from value’ and Mark Blaug (1992) uses it in that sense in his book on methodology of economics.

3.1        To start with, the question of whether economics (or for that matter other social sciences) is value free or not, we need to recollect the assertion made in the previous paragraphs of the essay. Let me repeat that: Factual, descriptive, ‘is’-statement is different in kind from that of normative, prescriptive, ‘ought’ statement. Further, the methodological judgement required for ‘is’-statements are different from those required to reach a consensus on ‘ought’-statement being normative value judgement.

3.2       One of the most interesting and relevant attack on wertfreiheit is by Robert Heilbroner (1973), who emphasize that the most important difference between social and physical sciences sprout due to the fact that human actions are subject to ‘latent wilfulness’ and ‘conscious purposiveness’. These characteristics which are thus part of social sciences make them subjective unless meaningful assumptions are made about them. Further, economists, as well as other social scientists cannot help being emotionally involved with the society of which they are members. He further argues that due to this extreme vulnerability to value judgement, economist cannot be impartial or disinterested. Thus, value judgement, partly of a sociological kind, partly with respect to behaviour; have infused economics from its earliest statements to its latest and most sophisticated representation (Heilbroner, 1973). In the end, he declares that he did not believe that economist should aim at value-free analysis. Since economist perform very few experiments that can be rerun in a laboratory, their results cannot be so easily falsified as those of the natural scientists, but they can be equally subject to scrutiny and criticism in the forum of expert opinion like natural sciences.

3.3       We should further analyse the term ‘value judgment’ here to place the ideas in perspective, and compare it with ideas and theories generated by such visions, as well as un-testable statement of facts. For example, let me talk about the concept of utility theory in its most modern form, including its ordinality and preference ordering, wherein the impossibility of interpersonal comparison of utility has long been taken as a value judgement. And therefore, it has been held that such interpersonal comparisons cannot play any meaningful role in welfare economics (which is considered scientific with its framework of Pareto Optimality and related concepts). As such, the belief that an individual’s preferences and ordering can be considered and analysed only for that individual, without any interpersonal comparison, aggregation or social application, has taken economics further away from the important question of analysing and making judgement and categorical policy recommendations on income and wealth inequality and resulting loss of social welfare as aggregation of individual welfare. But is it really the case that utility concepts are ‘value judgement’? Or is it only an untestable statement of ‘facts’. If so, interpersonal comparison may either be true or false – a facet of factual realm and not of value judgement, where the real problem is that we do not have any method of knowing that. So taking interpersonal comparison of utility as a value judgement is not convincing. It is ironic to note that so much of economics has been built on this assertion that interpersonal comparisons of utility are not possible! The eschewing of distributional question in welfare economics and starting the welfare analysis from the premise of a ‘given’ endowment of wealth is again a result of this unfortunate dichotomy between ‘fact’ and ‘value judgement’.

3.4       Lionel Robbins has been credited with persuading economics profession that interpersonal comparisons of utility are meaningless. He strongly held that rational discussion (argument) is impossible in ethics (value judgement) and therefore such questions must be kept out of economics (Robbins, 1935). With one stroke,  the idea that the economist could and should be concerned  with the welfare of the society in an evaluative sense was rejected, and in its place was inserted the positivist idea that such a concern was meaningless at least from the scientific point of view (Putnam, 2002)

So, can we claim that it is possible to put normative questions to rational discussion, reconciliation and resolution? I would say, yes. As I have pointed out above in case of inequality, social welfare and utility maximization, such concepts and questions can be addressed with rational arguments. In these cases, experiments are not possible, and for positive economics also, as we have already noted, (laboratory type) experiments are rarely possible. (I may note the latest trend in development economics of what is called Randomized Control Trials (RCT)- a new evaluation and monitoring techniques – which claims to be a laboratory type experiment in the actual field of economic policy and program implementation, employing sophisticated statistical and regression techniques. It was one of the important aspect of my studies of International Development degree program at Harvard University, and the professors who actually developed this, were too passionate (and too adamant and inflexible!) about this technique. Anyway, this is not a place to discuss RCT further).

3.5       Let me finish this section with two more observations.

We often loosely identify ideology with value judgement. However, there is a basic distinction between them. Bergman (1968) definition is quite useful here: Ideological statements may be usefully defined as value judgement parading as statements of facts. In this sense, value judgments are not ideological statements, although all ideological statements are disguised value judgments.

Gunnar Myrdal (1970) makes another interesting and relevant point. Instead of ducking the issue of value judgement in economic analysis, he recommends its bold declaration at the outset of the analysis. Thus, there is nothing wrong with the value loaded concepts if they are clearly enumerated and declared as value-premises. Perhaps, for Myrdal, everything that is not statistics is a value judgement. Many would argue that he goes even further and denies existence of any ethically neutral, factual assertion in economics. For him, everything in economics is value impregnated. Thus, he asserts that there cannot be a distinction between a positive and normative economics and to pretend to do so only involves self-deception. This, to me, appears to be too farfetched an idea.

3.6       This essay does not have space to analyse the contribution of Amartya Sen in this ethics and economics arena, which in itself is huge. Sufficient is to say that he very strongly argues for an ethical (and value laden) approach for economics and has sought to challenge the standard economic picture of what economic rationality requires, what the motivations of economic actors can realistically be assumed to be, and what criteria of economic performance and social wellbeing welfare economics can legitimately use (Sen, 1987) (Putnam, 2002). Similarly, I am also not venturing into the ideas of ‘justice’ and ‘minimax’ criteria for defining a social welfare function in terms of John Rawls which are again extension of theoretical constructs of classical economics to ethical and value judgement spheres (Rawls, 1999).

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4. Concluding Thoughts

Nothing gets settled regarding the questions of ‘value’ and ‘facts’ when we insist that they are very different and distinct. If we take them to be completely different and independent of one another, then all that we can infer is that the truths about ‘values’ are different kind of truths from the truths about ‘facts’. Concomitantly, it would also follow that the methods for searching and arriving at those truths may then be totally different too. This, however, would in no way imply that there are no truths about value questions -good or bad, about right or wrong etc.

Many economists now agree that there may not be a watertight distinction between positive and normative economics, and similarly there cannot be a watertight distinction between means and ends. Therefore, to declare that everything in economics is value judgement, without examining how and at what stage they enter a piece of economic reasoning is like declaring that economic opinions are simply a matter of personal choice. It is now also accepted that the doubts among many economists and philosophers about the ‘is-ought’ dichotomy is genuine. Moral judgements are not simply expression of feelings or imperative commanding someone to act in a particular fashion, but in most cases, special kinds of descriptive statements about the world.

Although it sounds paradoxical, it is possible to regard normative economics as a positive enquiry into the logical presuppositions and practical means to satisfy preferences efficiently (Hausman, 2006). I would also like to state that economists cannot avoid ethical (or value judgement) questions if they want to understand the terms of policy debate, to select relevant and important issues to analyse, and to help decide the policy direction. Normative economics, if at all we want to name it so, plays an important role in apprising policies and evaluative things, is in practice unavoidable in order to formulate well-defined questions for positive inquiry.

I would like to end with what Mark Blaug (1992) says: There are no empirical, descriptive ‘is’-statements regarded as true that do not rely on a definite social consensus that we ‘ought’ to accept that ‘is’-statement.

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References

• Bergman G. (1968): Readings in Philosophy of Social Sciences, M. Brodeck (ed.) New York, Macmillan, 1968. pg 123-38
• Blaug Mark (1992): The Methodology of Economics: Or How Economists Explain,2^nd ed, Cambridge University Press, Cambridge, UK; ch 5, various pages
• Hausman Daniel M. & McPherson Michael S. (2006): Economic Analysis, Moral Philosophy, and Public Policy(2^nd) Cambridge University Press, New York, pg 291-296
• Heilbroner Robert L. (1973): Economics as a Value Free Science, Social Research 40, Reprinted in Marr and Raj – 1983, pg 337-74
• Myrdal Gunnar (1970): Objectivities in Social Research; Gerald Duckworth, London
• Putnam Hilary (2002): The Collapse of Fact/Value Dichotomy and Other Essays; Harvard University Press, Cambridge, Massachusetts, USA. pg 1-3, 49-50, 54-55
• Rawls John (1999): A Theory of Justice (Revised Ed.); Harvard University Press, Cambridge, Massachusetts, USA
• Robbins Lionel (1935): An Essay on the Nature and Significance of Economic Sciences. Macmillan, London. pg 134, quoted by Amartya Sen On Ethics and Economics
• Samuelson Paul (1983): Foundations of Economic Analysis; (Enlarged ed); Harvard University Press, Cambridge, Massachusetts, USA
• Sen Amartya (1970): Collective Choices and Social Welfare;Oliver & Boyd, Edinberg
• Sen Amartya (1987): On Ethics and Economics; Oxford University Press, New Delhi, pg 3-4, 11-12