methodology in economics. symposium issue: part ii || economics as a science and its relation to...

Economics as a Science and Its Relation to Policy: The Example of Free TradeAuthor(s): Warren J. SamuelsSource: Journal of Economic Issues, Vol. 14, No. 1, Methodology in Economics. SymposiumIssue: Part II (Mar., 1980), pp. 163-185Published by: Association for Evolutionary EconomicsStable URL: http://www.jstor.org/stable/4224902 .

Accessed: 24/06/2014 20:32

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].

.

Association for Evolutionary Economics is collaborating with JSTOR to digitize, preserve and extend access toJournal of Economic Issues.

http://www.jstor.org

This content downloaded from 185.44.78.31 on Tue, 24 Jun 2014 20:32:54 PMAll use subject to JSTOR Terms and Conditions

http://www.jstor.org/action/showPublisher?publisherCode=aee

http://www.jstor.org/stable/4224902?origin=JSTOR-pdf

http://www.jstor.org/page/info/about/policies/terms.jsp


J JOURNAL OF ECONOMIC ISSUES Vol. XIV No. I March 1980

Economics as a Science and Its Relation to Policy:

The Example of Free Trade

Warren J. Samuels

Economic controversy has centered on questions of substantive doctrine, the conflict of schools and ideologies, and issues of scope and method. Somewhat more peripheral but no less fundamental in importance have been controversies over the social role of economists and the relation of economic theory (or science) to policy. These have involved the tension between the desire for analysis free of ideology or values, on the one hand, and the more or less reluctant belief in the inevitability of ideological or valuational elements, on the other;' whether economic principles are independent of practical affairs or are applicable, directly or indirectly, to matters of policy; whether economic theory is an engine of inquiry or a corpus of truth; and, in general, the nature of economics as a science and its relation to policy. In all these and other respects, there have been considerable diversity, ambiguity, and conflict of views.

Recently, I have been studying in some depth the period 1870-1914 to understand the factors and forces which produced the combination of mainstream and diversity in twentieth-century economics, principally, of course, neoclassicism. All the controversies noted above were present then and persist to the present day, as evidenced in part by the numerous arti-

The author is Professor of Economics, Michigan State University, East Lansing. He wishes to acknowledge the cooperation of his colleagues, whose beliefs and views provided the raw material for this article, and who cooperated as sounding boards. In particular, Lawrence Officer was extremely patient and helpful.

163



164 Warren J. Samuels

cles during the past decade which have criticized the status of economic knowledge from within orthodox ranks.

With these considerations in mind, it seems useful to probe the belief structure of contemporary economists in order to reject or confirm (and if so, spell out in some detail) the diversity, ambiguity, and conflict of views bearing on the controversies noted above. My inquiry posed a basic question with regard to a doctrine which I believed would command widespread if not fundamental assent and which thus would not introduce com- plicating substantive issues. The principle of free trade was chosen. Not unsurprisingly, the doctrine was generally adhered to by those questioned. Although its use introduced no needless controversy, it was found that the basic status and relevance of the theory of free trade to policy is perceived with enormous diversity among contemporary economists.

This article reports on and interprets that probe. It also suggests certain lines of possible resolution of the conflict and the ambiguity. At the least, it may help clarify the issues and the positions taken. The first section out- lines the free trade controversy as it began to develop a century ago. The second section reports on the responses to my inquiry. The third discusses a seminar which focused on the subject. The concluding section attempts a limited resolution, perhaps only an interpretation, of the issues. The relation to policy of economics as a science is addressed in terms of resolving the positive-normative controversy, specifically, the varying senses in which certain propositions are positive and normative.

A Retrospect

It will be useful, if not also comforting,2 to examine briefly the period 1870-1914, roughly midway between our own day and the times of Adam Smith and David Ricardo. During those decades prior to World War I, economics as a discipline often was identified in the public mind with free trade, but there was considerable diversity among professional economists as to both the scientific status and the policy merits of free trade. For example, in the early twentieth century, there was marked disagreement among some theoretical economists supporting free trade and some his- torical economists favoring protection in one form or another. C. E. Collet has cited Herbert Somerton Foxwell's reservations (to put it mildly) about what we might call the Pareto-optimal character of free trade: "What were somewhat floridly described as the 'bloodless victories of Free Trade,' often left such a train of suffering behind them that the epithet applies less truly to the victories than to their victims."3

Shortly before the turn of the century, in speaking of the Manchester



Economics as a Science 165

School, but making a point applicable to many if not most contemporary economists, Frank W. Taussig noted the predominant strong faith in the effects of international free trade.4 Narmadeshwar Jha, writing of the period after 1890, the age of Marshall, argued that the main trend in the development of international trade theory (F. Y. Edgeworth, H. H. S. Cunynghame, and C. F. Bickerdike) was an undermining of faith in the theoretical case for free trade. Jha added that "these theoretical develop- ments did not in any way weaken the faith of the majority of British economists in the policy of free trade as the best one for England and other industrially advanced countries.") Joseph Schumpeter wrote of Marshall that "his success was as great as A. Smith's, if account be taken of the facts that a science must inevitably grow less accessible to the general public as its techniques develop and that Marshall had no winning political horse to back, such as free trade had been in its prime."'" Edgeworth remarked, with respect to Marshall's work on foreign trade, that "he feared that if sep- arated from all concrete study of actual conditions, it might seem to claim a more direct bearing on real problems than it in fact had."7

Arthur Latham Perry's affirmation of the scientific character of the free trade doctrine will be referred to in the next section. That view had widespread sympathy among his contemporaries. Leslie Stephen seemingly echoed the views of many, however, when he declared that "the free trade argument is perfectly conclusive in a negative sense. It demonstrates, that is, the fallacy which lurks in the popular argument for protection."8 He did add that there were extra-economic considerations which also had to be considered, with "arguments which, good or bad, are outside the sphere of economics proper."9 Perhaps his principal methodological argument was that economics as a science was not fully able to "deduce from the laws accepted by Economists the necessary working of any given measure- say, the effect of protection or free trade."'0

A quite different but nonetheless complex approach was taken by Charles Dunbar. He argued that the "problem is to determine the mode of action of the reciprocal demands made by two trading countries" as these attempt to "satisfy certain wants with the least effort." The intro- duction of protection in one form or another "would obviously bring in a new element, not necessary to the essentials of the problem, and of in- finitely variable action and intensity." Dunbar, however, was unwilling to treat the simpler case as the basis for normative policy analysis: "But, plainly, the question whether competition may be restricted by law or by combination, or should be free, must be answered by entirely independent reasoning. No answer is implied, or is approached, by that reasoning which merely seeks to ascertain the normal effects of the primary forces with




which political economy has mainly occupied itself." Seemingly cognizant that the free trade doctrine is a surrogate for free market doctrines in general (that is, domestic policy as well), Dunbar stated: "It seems, then, that laissez faire is no part of the logical structure of the old economic doctrine.... It is plain, in short, that, not only logically, but according to the practice of leading economists, the maxim laissez faire, whatever validity we assign to it, has to do only with the practical applications of economic reasoning, and has no place as a part of the reasoning itself." He did not leave the matter at that: "It is no doubt true that, for various reasons, the great majority of economists of the deductive school have in fact given so much effect to the maxim as to recognize a presumption in favor of non- interference, to be set aside only for strong reasons.""1

In 1 891, Dunbar wrote that the conflict between free trade and protection

as a political question, . . . is often treated by partisans in the heat of discussion as if its solution were the chief, and sometimes as if it were the only, aim of political economy.... The call for exceptional treatment of the question between protection and free trade is, in effect, a demand that upon a controverted point, as to which scientific opinions are not at one, political economy shall be made to give its answer in a particular, pre- determined sense.... In short, the attempt was made to judge of a body of scientific inquirers by references, not to their processes, but to their opinions upon questions still sub judice. This was not far different from requiring of them the profession of a creed.12

In 1889, Francis A. Walker had declared it unfortunate that economists had become "divided early and decisively on the issue, largely a false issue, between so-called protection and free-trade. Ethical and political considerations were held to require that an economist should, first of all, range himself as a protectionist or as a free trader."'13

Some years later, in a lecture entitled "Government is Founded on Opinion," James Bonar wrote: "There are parts of the economic system hardly now influenced by public opinion," such as the areas covered by the principles of exchange and division of labor, value, currency, and credit. "To that extent economic theory is also superior, or if you like anterior, to public opinion. But economic policy depends as we all know very largely on public opinion; and, as theorists are human, and even man is influenced by his atmosphere, economic theory is influenced by it too, as soon as the first elementary principles are passed and the question is of their further applications." Thus, said Bonar, "when free trade is alleged to be a development of division of labor [the principle of division of labor being one which "no economist would repudiate"] there may be a bias in




our attitude, hostile or favourable, towards the allegation."14 It may be noticed that the thrust of Bonar's point that theory is anterior to but not conclusive with regard to policy has the same effect as Dunbar's point that the analysis of the "primary" effects of the normal operation of markets in the abstract has no logical connection with policy doctrines. But that effect was not agreed to by all in any pristine form; as Dunbar also said, economists largely continued to recognize a presumption in favor of free trade.

Stephen's affirmation of a negative role for the free trade doctrine is echoed in Schumpeter's treatment.15 But exactly how far either the negative or the positive role should be carried was questioned by Bernard Moses:

The earlier thought, that there was an art of political economy, and the disposition of certain economists to make it stand for what the art of social control now signifies, have done much to cast doubt on the wisdom of economic teaching when applied to practice. These economists have taken strictly economic principles, and inferred from them alone [?] the propriety of a line of conduct, without appreciating the fact that this line of conduct, before being definitely accepted as a rule for social control and guidance, should be modified and corrected by the principles of the other social sciences. They have vigorously affirmed the advisability of freedom in international trade, because their special science has indicated that under freedom the maximum gains of trade may be realized. With our present view of the relation of practical economics to politics and ethics, we might accept the truth of the economic conclusion, and still find it not advisable to adopt a practical policy of freedom, because of the corrective which political considerations furnish. Our rule of social conduct, whether in national or local affairs, is not identical with the indications of economics, but is, in some sense, the resultant of the principles of all of the social sciences.16

From this cursory review, it is apparent that, with respect to free trade, the critical issue of the relation to policy of economics as a science (that is, the social role of economists, the relation of and possible hiatus between the province and reach of economic theory and science and the require- ments of policy, and the faith in the presuppositions of economic analysis and its uses) were pervasive and unsettled. I now turn to the present situation.

A Probe of Present Beliefs

In October 1977, members of the departments of economics and agricultural economics at Michigan State University were sent the following letter.




Dear Colleague:

I would appreciate your thoughtful answer to a question which has arisen in my research.

As you know, economists long have both lauded the scientific character of their discipline and praised free trade, as opposed to protectionism, although often with qualifications.

Speaking of Arthur Latham Perry in the late nineteenth century, Joseph Dorfman wrote: "Perry valiantly stood his ground and declared that at Williams free trade was taught. Those college professors who proclaimed that they taught neither protection nor free trade, he said, were at best foolish, because this in fact denied that the science they professed to teach was a science at all" (Economic Mind of American Civilization, vol. 3, p. 61).

My query is this: What do you think is the relationship between the pro- free trade position and the status of economics as a science?

Warren J. Samuels

Eighteen (of thirty-six) replies were received from the economics department and nine (of forty-one) from the agricultural economics department. There were no obvious major differences in positions taken between the two departments or on the basis of age (nine respondents were under and eighteen over age 40). Responses quoted below are labelled E (economics) and AE (agricultural economics). To assure anonymity, respondents were numbered (one through twenty-seven). In some cases, follow-up inquiries were used to clarify answers. Responses were quite divergent in substance, direction, and tone.17 It is more than likely that different persons may in- terpret them, singly and in the aggregate, quite differently.

One group of respondents affirms that the position in favor of free trade is grounded in economic science. One writer said that "under certain ideal assumptions (perfect competition, no externalities, etc.), free trade yields a Pareto optimum. This statement is no less scientific than any other in economics." The respondent added that his view was positive, not normative, economics and that "free trade yielding a Pareto-optimum" is "a justification of free trade" but it would be "perhaps too strong" to consider that it affirms the pro-free trade position (1E). This general view was re- peated by another respondent, who said that the statement "under certain conditions free trade leads to a Pareto optimum" is "about as strong a scientific justification for the free trade position as exists in economics" (2E).




Another respondent (3AE) qualified his position: "In static analysis the proof of the benefits of free trade are scientifically provable, however, in a dynamic growth framework the modifications of free trade theory which may be needed have not been sufficiently explored, probed or presented concisely." This statement could be interpreted as akin to the opinions of respondents 20-24, who in general state that economic science cannot advocate free trade but can describe the consequences-here the "benefits"-of free trade. It also is similar to the assertion by respondents 8-1 0 that the pro-free trade position in principle could be but is not (yet) grounded in economic science. Indeed, respondent 3AE agreed with the latter point, adding that "it appears to me that in the economic growth context the free trade position is likely to be able to be demonstrated as contributing to higher income as a general proposition, but that under many particular country circumstances the position might not hold during particular time periods due to major variables not normally included in economic analysis. The above has not been yet clearly demonstrated." Apropos the position taken by respondents 20-24, respondent 3AE wrote: "I do not think we can advocate absolute free trade (no tariffs, etc.) at all times and places. Economists certainly can indicate the likely effects of trade barriers, which can then be balanced in a political economy framework against any possible benefits of barriers."

Respondent 4E simply wrote that on theoretical grounds free trade should be espoused by economists, although practically it may be a dying cause.

A somewhat circumspect respondent (5E) wrote that Paul Samuelson "has proven beyond doubt that some trade is better than no trade . .. and the result is arrived at under a general set of assumptions. Of course, the real world situations are not exactly identical to Samuelson's assumptions."'8 When asked whether the Samuelson position means that economics as a science thereby supports free trade and about the significance of the fact that real world situations are not identical to Samuelson's assumptions, respondent 5E replied that a change in social goal (welfare function) or real world situation at variance with Samuelson's assumptions precludes the pro-free trade conclusion. Respondent 5E believes the pro- free trade conclusion is scientific insofar as it follows from the assumptions. He also feels that all such analysis is strictly normative economics, inasmuch as it involves goal functions and judgments as to who is made better or worse off.

Respondent 6E said that economics is a science with propositions or hypotheses (imperfectly) capable of being refuted and, therefore, "any stance on free trade is consistent with economics as a science." By "any




stance" he meant "any hypothesis concerning benefits of trade; i.e., any refutable position." With regard to the question of support for the free trade position, "if by 'support' one means 'tangible' evidence indicating free trade maximizes some objective (life efficiency, etc.), then 'support- evidence' is positive. However, if given some (positive) evidence, some actor (policy maker, etc.) 'supports' free trade then 'supports' is normative, i.e., based on available positive findings the actor feels free trade ought to exist."

Quite a different view of science is taken by respondent 7AE. In his conception, "economics is a science insofar as its practitioners use methods which exhibit internal clarity and coherence of analysis and external cor- respondence with other practitioners' experiences or theory. As such, economics does not avoid being influenced by values; indeed, such influence is, I expect, inevitable." He therefore considers pro-free trade arguments by economists "scientific insofar as they are clear, coherent and corres- pond to other neoclassical economic theory and empirical conclusions." But a similarly qualified position different from the strict pro-free trade position would be "no less scientific."

Respondent 8E in effect takes issue with the reliance by the first two respondents on the significance of the Pareto criterion:

1. Any science worthy of the name is grounded in "values." (T. Kuhn, B. Ward, etc.)

2. An alleged "value" of economic science is the Pareto Criterion. a. The Pareto Criterion is one of the key assumptions of welfare

theory. b. The Pareto Criterion is especially important because it is used to

exclude other stronger value judgments at a crucial stage of the analysis (work of Arrow notwithstanding).

3. Welfare theory shows that competition can lead to an equilibrium which is Pareto optimal.

4. This conclusion is often carried over into the theory of trade, and used to justify a free trade position.

5. A careful analysis of welfare theory would show that most real-world policies which allege to move in the direction of free trade cannot be justified under the Pareto Criterion alone.

6. Thus the free trade position goes beyond economic science in the sense that it requires stronger value judgments than are usually admitted by the running dog lackey practitioner of the science.

This respondent believes that it is normative economics to base the pro- free trade position on the Pareto criterion.

A similar position is taken by respondent 9E, who suggests that second




best considerations require the conclusion "that the intransigent advocacy of the market allocation in any and all circumstances is not supported by the 'science' of economics." Moreover, "free trade may indeed be the second best policy, but that determination depends on empirical work and analysis which has not yet been done and certainly hadn't been done by the late nineteenth century." Stating that "a conclusion of the form 'free trade is optimal' either as a first or second best result would be a result in normative economics," 9E also believes that "it is possible in principle ... for a combination of artful a priori analysis and solid empirical results to generate a normative implication which would be desirable from the point of view of any social welfare function which satisfies certain conditions. One possible result of this sort might be 'don't interfere in any markets.' "

Interestingly, with regard to empirical research, 9E says that "this work has not been done, and while possible in principle, I doubt whether it will be done, simply because I don't believe that 'free trade' is optimal."

Another respondent (1 OE), who believes the pro-free trade position is not fully grounded in economic science, also says that it is a plausible but not conclusive jump to the pro-free trade conclusion.

1. The pro-free trade argument in its simplist form-two nation, two commodity, static-has a pretty strong basis in logic. But it is a conclusion drawn from an abstraction in the extreme. Further, it is based on an implicit assumption regarding the joint welfare of the two countries.

2. There is an understandable tendency to generalize to the real world from this simple abstraction-multiple products, multiple nations, unequal parties, confused national priorities.

3. There is no comparable, neat logical model which points toward protection as a desirable policy even in the simple or more complex cases.

4. The logic of the simple case fits mostly the biases of economics and economists; thus it was easy for them to jump quickly (and perhaps in error) from the "provable" simple case to the conclusions they wanted (expected) in the general case.

5. "Free trade" provides an answer. No set of policies suggests complete protection; it was considerably easier to go with a plausible answer rather than be faced with defining an optimum level and type of protection.

6. As "science," this suggests a high degree of inexactness and some un- scientific jumping-to-conclusions. A great deal has been done to try to spell out the meaning of assumptions, the distribution of the benefits, the changes wrought if explicit voting priorities are entered. These seek modification to the imperfect first approximation. They don't make for "more" scientific conclusions but "better" conclusions as they derive from better science.




When asked whether the foregoing is positive or normative economics, lOE wrote: "I think that it probably starts out positive (i.e., simple 2x2 model). But as it progresses to the more complex real world and skips from both may benefit to both do benefit, then the conclusions read are those which fit the values of the expounders rather than the elucidation of all possible outcomes. It is positive in a loose sort of way at the outset, be- coming more sloppy and more value-determined as the logical niceties are relaxed. Not a very tight answer."

A group of respondents quite in conflict with the first seven argues that there is no possible justified and conclusive relation between the pro-free trade position and economics as a science. Respondent 11 AE says that "economics is concerned with the allocation of scarce resources among competing ends. The science of economics does not define the end. Equa- tion of economics as a science with free trade implies that maximum 'output' is the only valid end." Two others claim that no science can be identified with a particular paradigm (1 2AE) or with a particular doctrinal position (13E), the latter saying that "no one 'position' is the 'scientific position.' " Respondent 12AE writes: "It appears to me that if the status of any science-as a science-is dependent upon specific paradigm being embraced, the claim of scientific inquiry is in fact negated. My conception of science follows closely the ideas of Leslie White, John Dewey, Jacob Bronowski, Thomas Kuhn, et al.... Science, in this context, is thought to be an activity wherein the most important component is the need for continual re-evaluation and, if appropriate, rejection of exist- ing paradigms. The failure to reject concepts and ideas which have out- grown their usefulness leads to the establishment of a religion-not a science." Respondent I 3E stated that "a case can be made effectively that free trade doctrines are of a particular time."

The two previous writers are echoed in respondent 1 4E's statement that he disagrees with any view which "suggests that 'free trade' is the only sound position for an economist.... To teach 'free trade' to the exclusion of any other position is no more sound than to teach only one side of any question which is controversial or debatable. It also does not take account of the world as it exists today." A quite different position, but to the same negative effect, is taken by respondent 15E: "Economics is a science only to the extent that it can predict and 'explain' observable phenomena." (This view is also close to that of respondents 20-24. Compare it, however, with that of respondent 6.) Another writer (16E) replies simply: "No relationship." Much stronger views are offered by one respondent (1 7E), who writes: "You give a curious and telling example of the peren- nial character of neo-classical economics: the effort to dress up an ideology




with the garb of pure science-with no real idea of the character of science, but only of its superficial forms. Thus mathematizing of the discipline today." Another ( 1 8E) is of the view that "Perry was engaged in 'scien- tism' not science." He does not believe that a study of economics proceed- ing upon an assumption of protection is any less scientific than that of free trade.

One respondent (1 9E) would have nothing directly to do with the relation of free trade and economics as a science. Nevertheless, his position is clear: Arguing that Samir Amin's Accumulation on a World ScaleI9 pre- sents "a definitive explanation of world trade (neoclassical style) as world exploitation," 19E believes that neoclassical trade theory fails to capture or explain the forces operative in international trade in a world of state and corporate imperialism.

Another major group of respondents, concentrated in agricultural economics, takes the general position that economics cannot advocate a position but can describe the likely consequences of alternative policies, a view compatible with several earlier responses. Respondent 20AE writes: "Free trade like any welfare economics proposition is value selective and pre- sumptive. To describe the distributive consequences of free trade is scientific. To advocate free trade without making explicit the interests to be counted is not scientific." (Also see responses 25-27.) A similar view is stated by respondent 21AE: "As a science economics should strive to identify the magnitude and distribution of benefits and costs associated with different institutions regulating trade under different situations. There is no scientific-that is, objective-basis for a universal conclusion favoring free trade. Teaching free trade would thus be inconsistent with the values we usually associate with science." Respondent 22AE believes that educators (even those who favor free trade) should present the arguments for both sides. He also feels that the economist can explain, presumably scientifically, why protectionism is so widespread (largely, he feels, because producer interests are so politically powerful). "This is not neces- sarily an argument for protectionism, although economists should be able to analyze the cost of the [protectionist] status quo versus free trade and let the general public and elected officials decide on the trade-offs." A similar role is advocated by respondent 23AE, who adds that extreme par- tisanship by economists would render them useless in the evaluation of policy alternatives and would not make "full use of our talents as economists." The last of this group (24E) writes as follows:

Where some policy goals clearly favor free trade, economic science helps by exposing the self-serving role of trade restraints and how it favors the




selected. But there are goals which conflict with free trade, and ignoring them or saying they should be consigned to the dustbin makes free trade a normative prescription and a religion.

The role of economic science is merely to illuminate the consequences of changes in trade restrictions-consequences as one proceeds towards more and more liberalization or as one becomes more and more protec- tive. Addiction to some normative goals has generally hindered the process.

Even the word "free" trade, like "free" collective bargaining, hinders science and objective discussion because things get loaded. Nothing is really "free" except within a framework of initial endowments, etc. The word is best left out if economics is to progress as a science. (I write as a man strongly in favor of liberalization of trade, etc., particularly among LDCs.)

Two respondents focused on the recognized and not-so-neat distinction (as one of them puts it) between exposition and advocacy (a distinction present in several earlier responses). Respondent 2E declared:

I start from the position that economics isn't a science, because in economics we are unable to conduct controlled experiments with which we can test hypotheses and establish theories and laws. We come close, to be sure, in that we can observe behavior and state hypotheses and tentative generalizations. Our predictive power, unlike that of a bona fide science, is not impressive.

Assuming that economics aspires to be a science, one supposes that an important aspect of economics would be that it be value-free. From that it would seem to follow that if an economist examined the effects of free trade upon the world-wide level of output from available resources and concluded that free trade would yield optimal allocation of resources and consequently optimal output, then the economist would become an ex- positor of the advantages of free trade, but not an advocate of it.

Advocacy of a position does not seem to be consistent with scientific inquiry, as I understand the nature of science.

I should think that an economist would stand on firm ground as a student of economic relationships if, as Keynes did, he or she pointed out the short-run sacrifices espousal of free trade would expose a nation to if other countries were exporting their unemployment. In such a case, the economist, while explaining the ramifications of a free trade position under those particular circumstances, provides ammunition to the soldiers in the protectionist army. But that's not the same thing as teaching/advocating protectionism.




The other respondent (26E) wrote: "What the scientist can say is that free trade is a precondition to maximizing the value of output from given resources and techniques (for the country and for the world), under certain conditions which are not too hard to approximate in the real world. Interferences with free trade can benefit certain groups, but at the expense of other groups and of the total value product. Is this being pro-free trade?"

Only one respondent (27AE) analyzed the relation of free trade to economics as a science in terms specifically of the conflict between positive and normative economics and also of the conditional nature of propositions.

Are free trade advocacy and economics as science incompatible?

Light can be shed on this question from two directions. First is the purely philosophical and second is the philosophical combined with economic theory.

An economist whose philosophical stance is positivism would argue that any normative position (advocacy or otherwise) is nonobjective and therefore nonscientific. The true positivist, who argues that normative facts and experience simply do not exist, would also reject that part of the economics discipline known as welfare economics. To be true to his position he would also need to reject normative economic theories of behavior and value concepts such as prices. Thus to the strict positivist economist free trade advocacy and scientific economics are incompatible. But such a philosophic position for an economist, particularly a policy economist, is sterile.

An economist willing to embrace normativism at least to the extent of recognition of the existence of normative facts and experience (i.e., facts and experience about values) has a somewhat different perspective. He along with his positivist brother would argue that under perfectly competitive conditions, free trade by all nations provides the most efficient allocation of resources to productive activities. He would go on to say that if performance criteria [are] based on allocative efficiency alone then free trade conditions by all nations [are] (along with perfectly competitive domestic economies) the way to achieve the allocative efficiency objective. In addition, since the normativist will recognize welfare economic theory as valid, he must conclude that equity objectives may or may not be served by free trade per se. And even more difficult is the question if (as in the real world) the starting point is one in which various nations are engaging in some form of protectionism. Then, any movement from the status quo either toward protectionism or toward freer trade by one or many nations will leave some nations and some individuals within nations worse off than they were before. The economist can assess the costs and benefits of a movement from the status quo using a common denominator-the poli-




tician must determine the weights to place on that common denominator for interpersonal validity and to determine the net welfare changes.

Are free trade advocacy and economics as a science incompatible?

Yes, if you are a positivist.

No, if you are a normativist and allocative efficiency is your only criterion.

Maybe, if you are a normativist and your criteria are both allocative efficiency and equity.

But in your advocacy you step outside the bounds of what you can objec- tively say about the specific case using knowledge from economic theory including welfare economics.

Seminar Reactions

In April 1978, the responses to my inquiry, plus a preliminary version of the next section of this article, were presented to a faculty-student seminar at Michigan State University. Discussion was held after each phase of the presentation. Most comments centered on the responses and on an effort to pose scientifically meaningful propositions about free trade.

Numerous points were raised about the original query itself. Some remarked that since there was likely to be great variability of individual views on the subject over time, some idea of distribution (with an indica- tion of central tendency) would have been preferable to single-headed responses. Others noted that semantic differences may obscure greater unanimity than appeared in the responses. Some suggested that the query itself should have been more specific, to preclude respondents' answering, in effect, different questions. Several said that the responses to the single query, while interesting, were limited in significance given the complexity of the issues involved and the smallness of the sample. All who participated in the discussion indicated an awareness of the profound importance of the general question of the nature of economics as a science and its relation to policy matters. Some seemed determined that economics be considered a science; others were less concerned with the point; a few insisted to the contrary. Despite substantive disagreements, they seemed to concur that the query had elicited most if not all of the considerations entering into the matter.

Seminar discussion on the nature of science was sporadic and largely subordinate to the question of the possibility and substance of purely positive statements. Among the aspects attributed to "science" were: internal




logic and coherence, predictive ability, dealing with universals, if-then relations, if-then relations "which people don't burst out laughing about," explaining a system on its own terms, empirical analysis, alternative in- ferences from alternative premises, a set of tools, and knowledge of what is impossible and of the effective means of achieving goals. There was little argument as such over these characteristics of science but clear disagreement as to their present applicability and as to whether free trade analysis qualified as science according to any or all of them. The view was ex- pressed by one person (and perhaps silently held by others) that economists should do their work, not worry about being scientific, and certainly not engage in self-flagellation over it. This opinion diverged sharply from the apparently widespread concern in the seminar that economics be recognized as science. The general focus of this disagreement was the question of whether free trade statements were scientific.

Some discussion centered on the claim that the Pareto optimal exposition of free trade was positive economics: There were a set of Pareto optimal results, free trade leads to one optimal result, and free trade plus lump-sum transfers leads to another. Some felt that Pareto optimality itself was normative; others felt that although that was true, propositions which stated that an arrangement was or led to a Pareto optimal result were positive and scientific. There seemed to be agreement that, regardless of that divergence, to go beyond such a proposition and advocate free trade was normative. But there was ambiguity with regard to whether or not and in what sense such a proposition itself justified free trade.

Contention arose over the proposition that free trade leads to the maximization of the value of output (in the GNP sense of goods with prices attached) as opposed to the advocacy of free trade (say, because it maximizes the value of output). Some viewed the former as positive and scientific, the latter as normative, requiring an additional normative premise. Most of this discussion dealt with whether value maximization was a value. Some believed that statements of the form "free trade leads to such and such results" were positive and scientific, not normative. Others believed that value-maximization statements are normative. They argued, first, that maximization per se is normative, involving interpersonal utility compari- sons and adoption of value of output maximization as the social welfare function. Second, value maximization (1) as the object of economic science is normative (even if not the value of the analyst); (2) is not un- equivocally the object of the economic system; (3) as the choice of model or paradigm for analysis is normative; and (4) can be interpreted as a mask for bourgeois domination of the world economy, or as functioning to obscure the dependence of resource allocation upon income, wealth,




and power distributions. Third, both the definitions and weighting of output by utility functions are a function of rights and are normative. Fourth, value maximization, therefore, is conditional upon and tautological with certain inevitable normative premises, such that the proposition that free trade leads to the maximization of the value of output is normative.

Seminar participants also were asked whether the proposition that "a tax cut will have a change of a certain probable magnitude on investment" is positive in the same sense that "free trade will result in the maximum value of output" is positive (given their different testability). Some believed that the two statements were epistemologically identical; others thought that the latter was distinctively normative for the reasons given above, particularly because it dealt with maximization. The issue seemed to reduce to this: Are prices purely descriptive subject to initial resource distributions, power, and so forth? Is the following a scientific, positive proposition: Given weights and prices, free trade will maximize the value of output.

Interpretation

Economics is much more a system of belief than it is a corpus of verified logical positivist knowledge. What economists actually believe is no less important than what they "should" believe on the basis of verified fact and/or methodological or normative principle. Indeed, it may be more important; they think, research, consult, and advise on the basis of actual belief, however grounded or substantiated.

The responses to my query, qua responses, can be interpreted as follows. First, no single or stylized answer was given. Rather, there was considerable diversity, especially regarding arguing with respect to policy on a "scientific" basis. This diversity echoes that of the 1870-1914 period, although the latter-day responses are somewhat more sophisticated.

Second, there is considerable explicit and implicit diversity as to the meaning of economics as a "science." Five points may be made in this respect. (1) Among the various conceptions are deductive theory, predictive empiricism, the combination of these two (logical positivism), and something best termed "specialized intensive study."

(2) Interestingly, only one respondent invoked and applied the specific distinction between positive and normative economics. Several others took positions on this point when queried further, but only respondent 27 explicitly introduced this consideration. The overwhelming majority did not appear to think of the relation between free trade doctrine and economics as a science in terms of this distinction, although the stress by many




upon the inability of economics properly to do more than describe the performance consequences of various policies may constitute an implicit emphasis.

(3) The great majority (but not all) of the respondents seem to be saying that the free trade position is not positive but normative economics. Even among those who believe that the pro-free trade position is grounded in economics, not all think that the grounding is in positive economics. The question is, of course, of enormous epistemological importance for the probative or truth value of a doctrine.

(4) With regard to the refutation criterion of scientific work, some seem to believe that economists can rely upon economic science to support free trade precisely because it is a refutable positive science. Others believe that economists cannot so rely upon economic science precisely because it is only a refutable positive science and nothing more, that is, it does not permit the normative leap from explanation of what is to prescription of what ought to be.

(5) A further and extremely important question concerns the identity of normative economics as a science. It would appear that about 80 per- cent of respondents believe that economics, either generally or in relation to the free trade doctrine, is a normative and not a positive science. But such emphasis on the normative character of economics must lead to ex- ploration and explication of the grounds on which normative economics is to be differentiated from "lay" views on policy. Presumably, the difference lies neither in the superiority of economists' normative insights nor in the strictly positive nature of economic doctrine, but in the advantage of specialized intensive study accruing to professional economists. But is normative economics science, and if so, in what sense? Thus, on both questions -whether economics in relation to the free trade doctrine is positive or normative economics, and whether normative economics is a science- there seems to be considerable diversity of opinion among respondents. To the extent that specialized intensive study constitutes the difjerentia specifica of normative economics as a science, then it would appear that the combination, inter alia, of professional training (investiture in a particular mode of belief or paradigm) and social acculturation produces a general belief system to which the substance of formal economic analysis (by whatever specific definition) relates as reinforcing cause and conse- quence. There clearly is tension between the obligation of economists to apply the results of their disciplined study and their perception and felt obligation of objectivity as the crux of positive science. The predominant view seems to cast serious doubt on the viability, recommendatory force, relevance, and meaningfulness (in accordance with the belief system of




economists themselves) for policy of wide ranges of normative economics. Much implicit doubt is cast on the practice of seeking "optimal" solutions. Many uses of normative economics, perhaps the entire corpus of the subject as such, may represent only the clothing of normativism with the garments of science, confusing the social role of analyst with that of moral teacher, priest, and advocate.

Third, there are obvious differences among the respondents as to the proper social role of economists, although most seem to favor a relatively active role in one form or another. Some distinguish between description and advocacy; others do not. There is wide acceptance of the view that economic analysis can (only) describe the likely consequences of various policies without directly assessing their merits. There is much less acceptance of, and some marked opposition to, the view that economists should support the free trade doctrine as a matter of scientific or professional obligation.

Finally, as to the relation of the pro-free trade position and the nature of economics as a science, there is broad disagreement as to the authorita- tiveness and confidence with which an economist can speak to the free trade issue as a policy question. There are enormous differences as to whether economics can properly address the policy issue at all; what economics can say on the issue, assuming it can speak to it; what considerations are relevant; and, inter alia, the substance of any value premises involved. Among those who believe that economics properly can directly address the policy issue, there are quite different grounds for finding that economics as a science supports the free trade position. Most if not all respondents seem to recognize the real world limits to the usefulness of theory for policy (for example, second-best considerations).

In sum, economists as a group apparently are much more circumspect and their views on the scientific status of free trade much more heteroge- neous than the doctrinal position with which they generally are identified would lead one to believe.

It would appear that economics is a system of belief, far from homoge- neous. It might behoove individual economists, if only to communicate better among themselves, to clarify the sense in which they adhere to certain concepts, such as positive and normative economics, science, and world value-of-output maximization through free trade.

The central issue separating large groups of respondents was the epistemological status of the two principal lines of reasoning, namely, that free trade leads to the Pareto optimum and that free trade results in the maximization of the value of output. The usual procedure is to ask whether these statements are positive or normative. Such a query inevitably seems




to place the believer in their positive status on the defensive, as whatever positive qualities the statements may have are threatened. Positive and normative are considered mutually exclusive categories with regard to particular propositions. It would seem preferable to inquire, instead, into the normative elements which define or limit the sense in which a proposition is positive. The problem of identifying normative elements long has been neglected and is fraught with difficulties, in part due to the disagreement about the ways in which normative elements enter into positive propositions.20 In the remainder of this article I shall suggest the normative elements which delimit and render conditional the positive character of the two lines of reasoning.21

Conclusion

Let me specify the use of certain terms. A statement is positive if it is (an attempt at) objective, confirmable, and descriptive of is knowledge. A statement is normative if it contains an element of choice and in some respects this incorporates an ought element. The statement, for example, that "consumers have such and such preferences" is a positive proposition. Preferences are themselves normative (a matter of choice), but the observer-analyst can treat them as an object of positive knowledge. Sim- ilarly, the economy operates to allocate resources (which is normative, a matter of choice), but the observer-analyst can treat its operation and the resultant allocation as an object of positive knowledge. From the point of view of the consumer-participants, the preferences and the allocation are normative, a matter of choice. The observer can analyze in a positive man- ner the prices which emerge in the market; for the analyst, the prices are objective givens, but price data as such are normative. From the point of view of the economy, the prices are normative: They emerge, in part, from the interplay of consumer preferences and represent, in Joseph Schumpeter's words, coefficients of choice. Given the sense(s) in which preferences, allocation, and prices are normative (not all of which are noted above), the positive economist must be careful in formulating statements. Normative elements readily enter, and they are of at least two kinds: those analytically a part of the proposition, and those which tend to accrue to the meaning attached to the proposition by the nature of its use.

Let us consider the proposition that free trade leads to a Pareto optimal result. At least four normative elements are involved. First, the choice of Pareto optimality as the relevant (normative) category is itself normative. The statement establishes a normative category (Pareto optimality) and




identifies (within the limits of its technical assumptions, for example, second-best considerations, and its nature as a paradigm or model) something as coming within or leading to it (free trade). The systematic use by economists of Pareto optimality excludes (and may obscure) other normative categories (and can be manipulated to do so in a selective way). The Pareto criterion is not "minimally" normative, as is sometimes alleged; it is no less normative than any other rule; it has a distinctive normative thrust in favor of the status quo in which its use is (selectively) made.22 The Pareto optimum character of free trade can, in fact, coexist with lines of reasoning in which free trade is identified as part of a system of power and domination; that is, both the Pareto optimal character of the voluntary exchange under free trade and the nature of free trade as an instrument or adjunct of international power play can be simultaneously positive (and, arguendo, true) propositions. Emphasis on one to the exclusion of the other is itself normative. Pareto optimality analysis expresses a point of view, or certain values, and functions as a guide to conduct (policy), especially when used exclusively. The very use of the Pareto criterion as the relevant frame of reference (say, in contrast to the Pigovian approach) tends to lead to assuming the propriety of the status quo power structure within which voluntary exchange takes place and thereby to reinforcing same.

Second, any move from a restricted to a free trade policy is itself non- Pareto optimal.

Third, there is no one Pareto optimal solution. Each is specific to the power structure (set of entitlements) from which it arises. Different power structures may adopt free trade, and each will yield a different Pareto optimal solution. Different power structures may adopt a regime of lump-sum transfers (and so on), and each will yield a different Pareto optimal solution. In order for any specific such solution to have recommendatory force, there must be an additional normative premise relating to the propriety of the initial and resultant distributions of income, wealth, and power.

Fourth, the proposition that free trade results in a Pareto optimal solution is nonoperational, nontestable, and nonrefutable. It is a matter of logic. Pareto optimality is one characteristic of an equilibrium solution in which voluntary exchange exists. Both free and unfree trade (say, with tariffs, quotas, and lump-sum transfers) involve voluntary exchange. Given the assumption of constrained maximization (rationality) by economic actors, trade will be conducted up to the point at which there are no further mutual gains from trade and one person can gain only with a loss to another. Thus, the Pareto optimal result of free trade is implicit in the premises of voluntary exchange and constrained maximization; there is




thus a logical implication or a tautology. In either case, it is nonrefutable. I conclude that given these normative elements and the technical limits

of the statement, the statement that free trade results in a Pareto optimal result is "positive." (Notice that I also have abstracted from an array of technical assumptions, including an implicit assumption concerning the marginal utility functions of persons in the different trading nations.) Free trade does result in a Pareto optimal solution. The significance of that proposition/assertion is constrained and made conditional by the factors added above which delimit the sense in which an efficient solution is efficient.

Let us now consider the proposition that free trade will maximize the value of output. What are the normative elements which constrain and make conditional the positive content of the proposition? (1) The choice of maximization of value of output as the presumed objective of the economic system is normative. (2) There is no one maximum value of output. It varies, and noncomparably, with price structure and output definitions. These latter and the weighting of output by utility functions are dependent upon and generally specific to rights and are normative.23 The price structure is a function of and specific to the income, wealth, and power structures of society and is normative. Maximization within and specific to the income, wealth, and power structures which produce specific prices for specific output definitions is normative. (3) Maximization of the value of output involves index number problems whose solutions are normative. (4) The income, wealth, and power consequences of value of output maximization are normative. (5) Maximization of the value of output is a deductive implication which is nonoperational, nontestable, and nonrefutable.

I conclude that given these normative elements and the technical limits of the statement, the statement that free trade results in a maximum value of output is "positive." Given normative prices, inter alia, free trade does maximize the value of output. The significance of that proposition/ assertion is constrained and made conditional by the factors adduced above which delimit the sense in which value maximization takes place.

It is obvious that economists will differ in the recommendatory force which they attribute to the two propositions, given the conditional impact of the normative elements.

In conclusion, it would appear that there inevitably are normative facets to social science propositions.24 Very little can be said with regard to free trade which does not have normative elements. The meaningfulness of otherwise ostensibly positive is propositions is conditional upon the identi- fication of the normative elements. I suspect that if economists recognized




and engaged in the practice of specifying those normative elements which condition the positive status of propositions, there would be somewhat, perhaps considerably, less diversity of views as to the relation of economic analysis to policy. Moreover, they would acquire the habit of recognizing the senses in which propositions are positive and normative, respectively.

Notes

1. See Warren J. Samuels, "Ideology in Economics," in Modern Economic Thought, edited by Sidney Weintraub (Philadelphia: University of Penn- sylvania Press, 1977), pp. 467-84.

2. It is comforting to remember that our problems were shared by our pre- decessors, but possibly discomforting to recognize that we may have pro- gressed no farther.

3. C. E. Collet, "Professor Foxwell and University College," Economic Jour- nal 46 (December 1936): 616. Collet is quoting from notes made during a lecture by Foxwell.

4. Warren J. Samuels, "Ashley's and Taussig's Lectures on the History of Economic Thought at Harvard, 1896-1897," History of Political Econ- omy 9 (Fall 1977): 405.

5. Narmadeshwar Jha, The Age of Marshall, 2d ed. (London: Cass, 1973), p. 200.

6. Joseph A. Schumpeter, History of Economic Analysis (New York: Ox- ford University Press, 1954), p. 830.

7. F. Y. Edgeworth, "Reminiscences," in Memorials of Alfred Marshall, edited by A. C. Pigou (London: Macmillan, 1925), p. 67.

8. Leslie Stephen, Social Rights and Duties (New York: Macmillan, 1896), p. 113;seepp. 113-14, 123-24.

9. Ibid.,p. 114. 10. Ibid., p. 127. 11. Charles F. Dunbar, "The Reaction in Political Economy," Quarterly

Journal of Economics 1 (October 1886): 20-23. 12. Charles F. Dunbar, "The Academic Study of Political Economy," Quar-

terly Journal of Economics 5 (July 1891): 403-404. 13. Francis A. Walker, "Recent Progress of Political Economy in the United

States," American Economic Association, Publications, First Series, vol. 4 (1889), p. 19. "The economist is now known to all as an economist, on whichever side of the Atlantic Ocean or of the British Channel he may live, or whatever views he may hold as to free trade or protection" (pp. 22-23).

14. James Bonar, Disturbing Elements in the Study and Teaching of Political Economy (Baltimore: Johns Hopkins University Press, 1911), pp. 53- 54. On the broader issue, see Henry Sidgwick, The Principles of Political Economy, 2d ed. (New York: Macmillan, 1887), p. 13, note 1: "I think it may be said that, at least in nine cases out of ten, when reference is made by public speakers or journalists to the laws of Political Economy, it is




implied that Political Economy prescribes 'freedom of contract,' and does not merely assume it as a condition of the applicability of its conclusions." See also pp. 23-24.

15. Schumpeter, History of Economic Analysis, pp. 806-807. 16. Bernard Moses, "Certain Tendencies in Political Economy," Quarterly

Journal of Economics 11 (July 1897): 380-81. 17. The responses have been subject to minor editing. See also the third sec-

tion of this article. 18. Respondent SE cites Paul A. Samuelson, "The Gains from International

Trade," Canadian Journal of Economics and Political Science 5 (May 1939): 195-205.

19. In two volumes (New York: Monthly Review Press, 1974). 20. See Samuels, "Ideology in Economics," and book review of Glenn L.

Johnson and Lewis K. Zerby, What Economists Do about Values (East Lansing: Center for Rural Manpower and Public Affairs, Michigan State University, 1973), Journal of Economic Issues 11 (December 1977): 901-903.

21. The nature of conditional normativism is developed in Johnson and Zerby, What Economists Do; see Samuels, book review.

22. See Samuels, "Ideology in Economics," and "Welfare Economics, Power and Property," in Perspectives of Property, edited by Gene Wunderlich and W. L. Gibson, Jr. (University Park: Institute for Research on Land and Water Resources, Pennsylvania State University, 1972), pp. 61-148.

23. Output definitions as a function of rights (power) are discussed in Warren J. Samuels, "Normative Premises in Regulatory Theory," Journal of Post Keynesian Economics I (Fall 1978): 100-1 14.

24. A further example: Consider the two propositions that "markets allocate resources'' and that "markets produce an optimal allocation of resources." Both, although in the "is" form, are normative in the sense that they abstract from or exclude consideration of the power (income, wealth, rights) structure which operates through the market to produce an allocation specific to the power structure. The latter is also normative in the sense that it adopts a particular normative category (as discussed earlier in the text). There is a marked tendency in economics to treat as positive those propositions which deal with allegedly unambiguous welfare gains within the ambit of Pareto optimality. This is normative in the senses noted above in the text.



methodology in economics. symposium issue: part ii || economics as a science and its relation to...

Documents