ECONOMICS AS A SOCIAL SCIENCE

Normative and positive statements

It may be useful to begin this section on the scientific approach by distinguishing between positive and normative statements. An understanding of the difference between these two types of statement will help us to appreciate the scope and limitations of economics.

Positive statements are those which deal only with facts. 'Britain is an island', 'British Coal employs x thou­sand workers', 'Jane Smith obtained a grade A in Economies', are all positive statements. If a disagreement arises over a positive statement it can be settled by looking to the facts and seeing whether or not they support the statement. Positive statements must be either true or false, where the word 'true' is taken to mean 'consistent with the facts'.

Normative statements usually include or imply the words 'ought' or 'should'. They reflect people's moral attitudes and are expressions of what some individual or group thinks ought to be dome. 'Britain should leave the Common Market', 'We ought to give more aid to underdeveloped countries',' Income should be distributed more equally', are all normative statements. These statements are based on value judgements and express views of what is 'good' or 'bad', 'right' and 'wrong'. Unlike positive statements, nor­mative statements cannot be verified by looking at the facts. Disagreements about such statements are usually settled by voting on them.

Scientific method

Scientific enquiry, as the term is generally understood, is confined to positive questions. It deals with those ques­tions which can be verified or falsified by actual observations of the real world (i.e. by checking the facts).

One major objective of science is to develop theories. These are general statements or unifying principles which describe and explain the relationships between things we observe in the world around us. Theories are developed in an attempt to answer the question 'Why?'. Tides rise and fall at regular intervals of time, a city is afflicted by smog at certain times of the year, the price of strawberries falls sharply dur­ing the summer months. When some definite regular pattern is observed in the relationships between two or more things, and someone asks why this should be so, the search for a theory has begun.

In trying to produce an explanation of observed phe­nomena, scientific enquiry makes use of procedures which are common to all sciences. These procedures are called sci­entific method.

1. The first step is to define the concepts to be used in
such a way that they can be measured. This is necessary if we
are to test the theory against facts. If the task is to discover a
relationship between 'income' and 'consumption', these
terms must be defined in a clearly understood manner,

2. The next step is to formulate a hypothesis. This is a
tentative untested statement which attempts to explain how
one thing is related to another. For example, an economist
asked to say why prices vary over time, might offer the
hypothesis that changes in prices are caused by changes in
the quantity of money. Hypotheses will be based on obser­
vation and upon certain assumptions about the way the
world behaves. These assumptions may themselves be based
upon existing theories which have proved to have a high
degree of reliability. In economics, for example, many the-

ones are based upon the assumption that people will behave in such a manner as to maximise their material welfare. Using observed facts and making use of certain assump­tions, a process of logical reasoning leads to the formulation of a hypothesis. This must be framed in a manner which enables scientists to test its validity.

3. It is now necessary to think out what would happen if
the hypothesis is correct. In other words, the hypothesis is
used to make predictions (or the hypothesis itself may be
framed as a prediction). If the hypothesis is correct, then if
certain things are done, certain other things will happen. If
the general level of prices is causally related to the supply of
money, we might deduce that an expansion of bank deposits
would be followed by an increase in prices.

4. The hypothesis must now be tested — are the predic­
tions of the hypothesis supported by the facts? In the natur­
al sciences the testing of hypotheses can be carried out by
controlled experiments in the laboratory, but this, as
explained later, is not possible for the social scientist. If the
hypothesis is supported by the factual evidence we have a
successful theory which may be formulated in the form of a
scientific 'law'. It must be noted, however, that, since the
number of tests which can be carried out is limited, we can
never say that a theory is true for all times and in all places.
A successful theory is one which up to now has not been
proved false. If, at some future time facts emerge which con­
found the theory and its predictions become unreliable, it
will be discarded and a search for a better theory will begin.
A successful theory is extremely useful because it helps us to
predict with a high degree of probability the outcome of cer­
tain events.

/5 economics a science?

Economic analysis is based upon the procedures described above, and, to the extent that the economist

makes use of scientific method, economics may be described as a science. The subject matter of economics, however, is human behaviour and this is much more difficult to predict than the reactions of inanimate matter. Economists, like other social scientists, cannot achieve the precision of the natural scientists and they are denied the use of many of their techniques. Many people argue that these differences are so fundamental that economics cannot be regarded as a 'true' science. Others would say that the dif­ferences are not fundamental but merely differences in the degree of accuracy attainable.

The most obvious limitation experienced by the social scientist is that he cannot test his hypotheses by laboratory experiment. His laboratory is human society; he cannot put a group of human beings into a controlled situation and then see what happens. The predictions of economic theory must be tested against developments in the real world. Economic activities must be observed and recorded and the mass of resulting data subjected to statistical analysis. Modern sta­tistical techniques help the economist determine the proba­bility that certain events had certain causes. He can assess from recorded data, for example, the probability that some given increase in consumption was caused by an increase in income.

The fact that 'all people are different' is not such a handicap to the social scientist as might appear at first sight. The economist is interested in group behaviour. He is con­cerned with the total demand for butter rather than the amount purchased by any one individual. While the behav­iour of any one person may be unpredictable, this is not nec­essarily true of the large group. When Arsenal score a goal at Highbury we can predict with a high degree of certainty that there will be a roar from the crowd, although we cannot forecast how, this or that individual will react. The econo­mist is able to make generalisations about economic group

(consumers, workers,' shareholders) which are quite dependable guides to their expected behaviour.

Another problem facing economists is the complexity of the world they are studying — so many things are changing simultaneously. Natural scientists in their laboratories can 'hold other things constant' while they study the effects which changes in X have on Y. Economists cannot do this. They cannot vary the quantity of money in the economy, hold everything else constant, and then see what happens. What they have to do is to assume that other things remain constant. Many propositions in economics begin with the phrase 'If other things remain equal' (or the Latin equiva­lent ceteris paribus).

From the vast array of facts observed, economists (and other scientists) must isolate those things which are impor­tant and study them in isolation. They have to abstract from reality in order to build a simplified model of a small part of the real world which will help them to see how things are related one to another. In fact, the influences surrounding real-life situations are so many and so varied that we cannot take them all into account. All that economists can do is to try to get close to the real world by extending their model to include more and more 'other influences' — but no one can construct or understand a model which includes everything.

What we are saying is that economic theories as such do not describe the real world as we see it. They attempt to show, one by one, the forces that operate within that real world. We proceed step by step from very simple models of economic reality to more and more sophisticated ones, introducing at each stage more and more of the facts of life which we can observe and experience.

Why economists disagree

It is often said that economics cannot be a science because no two economists agree on any economic prob-

lem. This is an exaggeration, but it is certainly true that economists disagree. Disputes among economists often arise from problems of definition and from the inadequacy of statistical data. For example, the statement 'The unem­ployment rate in the USA is much higher than that in the UK' may be based upon the official figures issued by the authorities in these countries, but that does not mean that the statement cannot be disputed.

The numbers unemployed may refer to those people who actually register themselves as available for work, or it may represent all those who would take a job if one became available. This latter group would include a large number of people (e.g. married women) who do not normally register themselves as unemployed. In fact, the figures for the UK and the USA are collected on these very different bases so that official unemployment rates are not strictly comparable and the real differences between them may be disputed.

Although statistical information on economic affairs is now available to a far greater extent than ever before, there are still many deficiencies. Such information often takes a long time to become available in processed form, and often it is too late to be used in current analysis. It may often be presented in a form which is not very convenient for analy­sis, as the example above demonstrates. These deficien­cies, therefore leave room for disagreement among econo­mists.

Economics is a very young science, and although eco­nomic analysis has made great strides in recent years, there is still a great deal about the workings of the economic sys­tem which is imperfectly understood. There are many implications of existing theories which have not yet been tested, either because insufficient time has elapsed to pro­vide adequate data, or because no one has found a satisfac­tory way of testing them. Technical and economic changes also bring about changes in economic behaviour so that

assumptions about human behaviour which served as useful bases for predictions at one period of time may become increasingly unreliable as the social and economic environ­ment changes. Economists, then, will be in dispute over the adequacy of certain existing theories — but it is these very disputes which lead to improvements in existing theories and the development of new ones.

The main area of disagreement among economists is on matters of economic policy. This is exactly what one would expect because policy statements are normative statements. They are value judgements. The determination of policies lies in the province of politics; ii is the politician's function to decide policy matters. The economist's role in policy making is to act as an adviser, using specialist knowledge to provide policy makers with an analysis of the likely eco­nomic effects of the policy proposals. The economist, as such, has no more right to decide policies than the lorry dri­ver, the shop assistant, or the artist. We must recognise, however, that economists, like everyone else, will have their own personal viewpoints on what is 'best' and we must, 'therefore, expect them to disagree on policy questions such as the desirability of Britain's membership of the Common Market, or the likely effectiveness of an incomes policy. What we have to recognise, however, is that when econo­mists pronounce on the desirability of any economic policy they have moved out of the field of economic analysis they are making a value judgement.