This essay argues in favor of retaining the positive/normative distinction in economics, in spite of developments in methodology and epistemology that have cast doubt on the possibility of a “value-free” economics. The central claim is that it is worthwhile to distinguish between positive economic analysis and normative judgments, even if economics is viewed as being permeated with ethical values. This argument is presented without trying either to demonstrate that there is (or is not) a profound epistemological difference between science and ethics or to show that positive science can (or cannot) afford us access to objective reality.

In the January 6, 1991, issue of the Washington Post Magazine, reporter Walt Harrington wrote a profile of Bryan Stevenson. Mr. Stevenson is a 31-year-old working-class African-American from Delaware who graduated from Harvard Law School and the Kennedy School of Government. Like the typical graduate of Harvard Law School, Mr. Stevenson had the opportunity to join the worlds of six-figure corporate law or high-visibility politics. Rather than follow his colleagues, however, Mr. Stevenson works seven-day, eighty-hour weeks as director of the Alabama Capital Representation Center. He appeals death sentences, handling twenty-four death-row cases himself, supervises five other lawyers who cover about thirty cases, and raises federal government and foundation funding. He does this living a Spartan existence on a salary of $24,000, refusing even the $50,000 directorship salary offered to him.

Benefit/cost analysis is a technique for evaluating programs, procedures, and actions; it is not a moral theory. There is significant controversy over the moral justification of benefit/cost analysis. When a procedure for evaluating social policy is challenged on moral grounds, defenders frequently seek a justification by construing the procedure as the practical embodiment of a correct moral theory. This has the apparent advantage of avoiding difficult empirical questions concerning such matters as the consequences of using the procedure. So, for example, defenders of benefit/cost analysis (BCA) are frequently tempted to argue that this procedure just is the calculation of moral Tightness – perhaps that what it means for an action to be morally right is just for it to have the best benefit-to-cost ratio given the accounts of “benefit” and “cost” that BCA employs. They suggest, in defense of BCA, that they have found the moral calculus – Bentham's “unabashed arithmetic of morals.” To defend BCA in this manner is to commit oneself to one member of a family of moral theories (let us call them benefit/cost moral theories or B/C moral theories) and, also, to the view that if a procedure is (so to speak) the direct implementation of a correct moral theory, then it is a justified procedure. Neither of these commitments is desirable, and so the temptation to justify BCA by direct appeal to a B/C moral theory should be resisted; it constitutes an unwarranted short cut to moral foundations – in this case, an unsound foundation. Critics of BCA are quick to point out the flaws of B/C moral theories, and to conclude that these undermine the justification of BCA. But the failure to justify BCA by a direct appeal to B/C moral theory does not show that the technique is unjustified. There is hope for BCA, even if it does not lie with B/C moral theory.

Consider how your consumption would change if you were stranded on a deserted island. Isolation would eliminate all social influences on your consumption decisions, even for the same choice set. You might decide not to consume cosmetics, curtains, or neckties, and pay less attention to the style or color of your clothes, car, or furniture. These choices might not matter as much to you anymore, for you would not have to consider the reactions of other individuals to your consumption. Similarly, isolation would also eliminate social influences on your speech. Absent an audience, your choice of words would not be subject to the judgments of others.

Expected-utility (EU) theory has been a popular and influential theory in philosophy, law, and the social sciences. While its original developers, von Neumann and Morgenstern, presented it as a purely predictive theory useful to the practitioners of economic science, many subsequent theorists, particularly those outside of economics, have come to endorse EU theory as providing us with a representation of reason. But precisely in what sense does EU theory portray reason? And does it do so successfully?

There are two strikingly different answers to these questions in the literature. On the one hand, there is the view of people such as David Gauthier that EU theory is an implementation of the idea that reason's only role is instrumental. On the other hand, there is the view suggested by Leonard Savage (1954/1972; and see Anderson, 1993) that the theory is a “formal” and noninstrumental characterization of our reasoning process.

Postmodernism is often characterized, among other things, as the belief in the unattainability of objective truth and as a rejection of teleological and reductionist, or essentialist, forms of thought. For instance, in his provocative book The Rhetoric of Economics (1985), Donald McCloskey sketches the implications for economic methodology of Richard Rorty's (1979) rejection of the modernist quest for Truth, as represented by various rationalist and empiricist epistemologies. McCloskey describes modernist methodology as displaying a desire to predict and control, a search for objective–;which often means measurable–;knowledge, and an attempt to develop a value-free inquiry, among other characteristics (McCloskey, 1985, pp. 7-8). This “methodological correctness,” McCloske suggests, is discredited by the postmodern dissatisfaction with traditional epistemology. Thus, in place of the modernist belief in a rule-guided path to truth, he advocates a “free market” approach to knowledge, in which participants in the variety of theoretical conversations agree to be earnest and listen politely to one another.

In Stabilizing Dynamics (1991) Roy Weintraub provides a history of stability theory from the work of Hicks and Samuelson in the late 1930s to the Gale and Scarf counterexamples in the 1960s. Unlike his earlier work in the history of general equilibrium theory (1979, 1985, 1988) this recent contribution is not an attempt to fit the Walrasian program into the narrow framework of some particular philosophy of natural science (such as Lakatos's methodology of scientific research programs). Rather, the theme in Stabilizing Dynamics is broadly social constructivist. Simply put, the constructivist view of science is “that scientific knowledge itself is constructed socially, in communities of scientists: Knowledge is constructed, not found” (p. 9).

The concept of fairness as mutual advantage has been developed in the tradition of social contract theory. In this framework society is seen as an enterprise that coordinates the activities of its members in order to advance their interests. All acceptable social rules are in the interest of each member of society. Rules are agreed unanimously – no rules can be enforced against the interest of someone. It is assumed that individuals are basically self-interested and rational. Radical libertarianism claims that individuals do not have to accept any a priori constraints on their behavior. “Libertarianism focuses on negative freedom” (Schokkaert, 1992, p. 89).

In spite of the important discoveries made by Adam Smith and later by the economists of the Austrian School, Friedrich Hayek remained intellectually challenged by the miracle of the price mechanism. As it turned out there was still some pioneering to do in describing the price mechanism. This became clear when Hayek identified the dispersal of information relevant to exchange transactions as the central issue of economic study. In the context of his distinction between competition as a state of things and as a process (Hayek, [1946]1980, pp. 92–106) the price mechanism manifests itself as a powerful integrator of information which is at first sight hopelessly dispersed in modern society. In 1945 he pointed out another intellectual challenge which the miracle of the price mechanism poses: How could such a marvelous functionality come into existence? “I am convinced that if it [the price mechanism] were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind” (Hayek, [1945]1980, p. 87). It is precisely because the free determination of prices is obviously not an invention, and because actors on the market in general do not realize that their decisions are at once also signals for the information-processing system that the market is, that in general this market order is not highly estimated. The market order is nevertheless the best illustration of the dual principle that the most beautiful forms of complex functionality are not deliberately created and are not deliberately maintained (“the twin ideas of evolution and spontaneous order,” as Hayek put it; Hayek [1978]1985, p. 250; [1979] 1982, p. 158).

I carved a massive cake of beeswax into bits and rolled them in my hands until they softened … Going forward I carried wax along the line, and laid it thick on their ears. They tied me up, then, plumb amidships, back to the mast, lashed to the mast, and took themselves again to rowing. Soon, as we came smartly within hailing distance, the two Sirens, noting our fast ship off their point, made ready, and they sang … The lovely voices in ardor appealing over the water made me crave to listen, and I tried to say ‘Untie me!’ to the crew, jerking my brows; but they bent steady to the oars. (Homer, c. –900, pp. 227–28)

At lunch one day a colleague and I had a friendly argument over occupational licensing. I attacked it for being anticompetitive, arguing that licensing boards raise occupational incomes by restricting entry, advertising, and commercialization. My colleague, while acknowledging anticompetitive aspects, affirmed the need for licensing on the grounds of protecting the consumer from frauds and quacks. In many areas of infrequent and specialized dealing, consumers are not able, ex ante or even ex post, to evaluate competence. I countered by suggesting voluntary means by which reputational problems might be handled and by returning to the offensive. I said that in fact the impetus for licensing usually comes from the practitioners, not their customers, and that licensing boards seldom devote their time to ferreting out incompetence but rather simply to prosecuting unlicensed practitioners. I mentioned cross-sectional findings, such as those on state licensure, prices, and occupational incomes. Overall, I characterized the professional establishment as a group of dastardly operators, who set the standards, write the codes, and enforce behavior to enhance their own material wellbeing - in brief, as venal rent-seekers.