POSITIVE AND NORMATIVE ECONOMICS

positive economics with an Islamic dimension and conventional explanation: special emphasis to J.N.Keynes
Introductions:
When Keynes made the following famous statements, “while the ultimate goal may be to guide human conduct, the immediate object to be kept in view is knowledge of positive facts”.
The key terms in the above statements are ultimate goal, human conduct and positive facts. Since the question is ask from an Islamic economics point of view, a contrast have to be made in understanding the intentions of conventional great economist like Keynes, Schumpeter, Ricardo, smith etc. What was their key ideology and motivation about their understanding of positive and normative economics?
Keynes made it clear that economist are not moral jurist and cannot prescribe what people should do or abstain from. His words “economics as positive, abstract and deductive, while the other describes it as ethical, realistic and inductive”. The statement is incomplete but in essence what Keynes was making clear is that, no economist of the past divides economics as positive or normative. The rise of positive and normative is recent. That is why he stated above that the “ultimate goal is guide human conduct...” which means economics is not to be use as tools to preach moralistic dogmas but explain to consumers the choices available to them and how they can make best use of scarce resources.
Islamic economics on the other hand is base on the fundamental principles of the Qu-ranic teachings and the prophetic traditions. This implies that the well-being of man is safe-guarded from both materialistic and spiritual dimension.
Positive Economics with an Islamic economics aspects.
Islamic economics is geared towards the restoration of moral values to economics which will operate on clear shariah based principles. Economics justice is another hallmark of Islamic economics. Conventional economist don’t bother themselves with justice since the principles that guide moral conduct are religious and they the conventional economist try to distance from religious ethics, they cannot explicitly promote economic justice.
Keynes went further to state that, the function of economics is to investigate facts and discover truths about them, not to prescribe rules of life. Economics law are theorems of facts, not practical precept. Economics in another word is a science, not an art or a department of ethical enquiry. It is describe as standing neutral between competing social schemes. It furnishes information as to the probable consequences of given lines of action, but does not itself pass moral judgement or pronounce what ought or what ought not to. (Keynes,J,N 1896)
The line of demarcations is made very clear by Keynes from his above key note statements. Keynes postulated that economics is not to prescribe to people “what ought or what not to”. In short economics as a science shouldn’t interfere with people choices in life. Whatever is available in the free market is open to people’s private economic decisions. The moral dimension is not an issue for economist and economics as a subject matter. Islamic economics encompasses both as guide to mankind in his mundane materialistic choices and also by making available clear scriptural text of the Quran on what ought to be consume and ought not to be consume. “The what ought to be” are command to engage into an activity and the what ought not to is also a command not to take part in certain activities.
Islamic economics mix both positive and normative economics. The two has no distinction as such. Critics of Islamic economics may say, modern people are not interested in ancient scriptures dictating their role in economic activity, but the simple answer to that query is that, every sincere Muslim wish to live his life according to the laws of God.
Dr Umer Chapra cited Mark Blaugh with the quote that “there are growing numbers who suspect that all is not well in the house economics has built” and also he cited Nigel Lawson with the following quote “man is a moral animal and no political or economic order can long survive except on moral base”. (Chapra, U. 2000)
The two quotes highlighted the problems with conventional economics that is causing clear drawbacks in the world global economic environment. The absence of moral principles in conventional economics results in unethical practices which causes long term problems. Islamic economic offered a different solution to the problems of conventional economics.
According to Chapra positive economics means “efficiency and equity can be determine without value judgement, whilst normative reflect to a great extent, society’s vision of ‘what ought to be’”. The economics goals cannot be achieve without both positive and normative sets of principles. The discussions as to whether a society can be deem value free will continue for the foreseeable future. ( Chapra, U. 2000)
Zubair Hasan defined economics as a science, for it is a body of knowledge that systematically deals with causes and effect relationships in the ordinary business of life and searches for uniformities in human behaviour for establishing hypotheses, theories, and laws wherever scarcity of resources makes choice making the basis for action. (Hasan,Z. 2006)
That definition is very comprehensive. It encompasses all that individuals, businesses and society at large requires for their every day functioning. The aspect on uniform choices entails the concept of economies of scale, when many people want similar things, it production is economise through standardisation. Zubair went further to introduce the two key concepts that Keynes talked about earlier. The positive and normative aspects of economics. Zubair moreover added that “positive science deals with ‘what is’ of the economy and with the forces that govern factual situations”. Positivism in short deals also with evident matters in economics enquiry not ethical or moralistic questions. That is the significant failing of positivist since, as stated earlier no economy can operate effective on only value free basis. “Positive economics observes and state but does not suggest”. What is testable and apparent is what concern is with, not what ought to be. (Hasan, Z. 2006)
On the subject of normative economics, Zubair stated that it means, “economics discusses questions like ‘what should be’ produced, and how should it be distributed”. These complete the missing link in economic dogmas. Positive economics on its own will proof unproductive in a modern society. The observation of zubiar is significant in that, the current trend in environmental matters, global warming worries and concern for the general level of pollution by multinational makes normative economics necessary and unavoidable.
“if ‘what is’ is not what should be, the normative aspect of economics instantly raises the question of policy: what policy should correct the situation?”. (Hasna, Z. 2006). That questioning part of normative economics makes it similar in principle with Islamic economics. Islamic economics put forward arguments that are beneficial to human beings even if the cost is high but the social benefits are of significance. Conventional economics also adopts research and technology, and what is of acceptable methods in research are also of key interest to government and other organisations.
In conclusion:
What John Neville Keynes advocates as the central importance of economics goals in misplaced. Even though common people may not be interested with asking ‘the what ought to be’, the overall progress of economics as a science will be hindered if only positivism is promoted.
Both Chapra and Zubair postulated the connectivity between positive and normative economics. Moral guidance is required in all aspect of human endeavours. The concept of value free is losing momentum, as men as by nature are concerned mainly with self-interest. Moral and ethical guidance is much needed as well as scientific enquiry. A clear balance is necessary to make the world a better place and economics a subject whose interest will continue to fascinate people across every age.
Even Adam smith call for some form of moral principles in pursuing self-interest. Zubair cited Smith in the following words “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our necessities but of their advantage”. (Hasan, Z.2006) This statement enforces the believe that self-interest alone cannot regularise human well-being. It must be guided by moral ethics; this is why we have all kinds of professional ethical bodies. The global financial crisis is a testament to that. The loosening of the control mechanism causes bankers and financial intermediaries to take part in malpractices and fraudulent conducts.
Islamic economics is guided by both religious and mechanical principles. The problem of positive versus normative economics will have no place in it, the moral, ethical, financial and social are all equally implemented in economic activities.
Refrences
Chapra, U (2000). The future of economics: conventional economics. Leicester U.K, Islamic foundation. Pp 17-29
Hasan, Z (2006). Introduction to microeconomics: An Islamic perspective. Selangor, Malaysia: Prentice Hall, PP 3-9
Keynes, J,N (1890). Scope and method of political economy. Cambridge U.K, Botoche Books 1999. Available online at: http://socserv2.mcmaster.ca/~econ/ugcm/3ll3/keynesjn/Scope.pdf. accessed on the 3rd of November 2008.