Jack Shannon Polanyi Studies: Past, Present, and Future

Hillsdale College Nashotah House Theological Seminary

jshannon@hillsdale.edu June 9, 2016

Personal Economics: Polanyi on the Positive-Normative Distinction

Economics has enjoyed a relatively short existence as a social science. Before it became

governed by predominantly quantitative methods, economics had more in common with moral

philosophy than physics or chemistry. Adam Smith, widely esteemed as the father of what we

now call economics (but what he called political economy), took greater pride in his

philosophical Theory of Moral Sentiments than his economic magnum opus, The Wealth of

Nations. Prior to Smith, economic matters had been treated by the medieval scholastics in the

context of ethics and personal morality. The link between economics and morality extends all the

way back to Aristotle, whose major contributions to economic thought are all offered under the

heading of justice in exchange. But many economists credit their discipline’s birth as a science to

the severance of this congenital tie. The legitimacy of economic science is often said to rest in an

essential distinction between positive statements and normative statements, the former conveying

facts, the latter mere opinion. In other words, positive claims are objective and hence the proper

domain of scientific knowledge, whereas normative claims are subjective and should therefore

be relegated, along with all other moral statements, to the realm of personal belief. Now that

economics has rid itself of the naive trappings of Christian and Enlightenment moral teaching, it

can finally stand on equal ground with the rest of the “hard” sciences as an authoritative and

credible source of truth in a scientific age.

But is this positive-normative distinction viable, or even legitimate? In his essay “The

Message of the Hungarian Revolution,” Michael Polanyi passionately commits himself (what

else could we expect of him?) to the proposition that there can be no such thing as a value-free
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social science. 1 Elsewhere in his writing he also takes issue with the dichotomy between

objective and subjective knowledge, especially the misguided desire for a purely objective and

hence impersonal science. Science for Polanyi is not a dispassionate adherence to clearly-defined

procedures, but rather a passionate commitment to one’s own standards of belief and an

obligation to seek the truth and disclose it. Does Polanyi’s theory of personal knowledge

invalidate the positive-normative distinction? Is it possible to do social science without making

value judgments? If not, is there any benefit in distinguishing between value judgments and other

types of claims? I will argue that Polanyi’s position on value judgments in social sciences as

expressed in “The Message of the Hungarian Revolution” is not only consistent with but

inseparable from his larger body of work. His theory thus attacks both sides of the debate over

the positive-normative distinction: those who uphold it in the name of impersonal knowledge and

those who see it as a meaningless or unhelpful. Polanyi’s system of personal knowledge requires

a positive-normative distinction but renders a positive-normative dichotomy logical nonsense.

To understand these implications, the nature of the positive-normative distinction must

first be clarified. The distinction is made both on both popular and professional levels. One such

popular formulation comes from the website Investopedia:

Positive economics is objective and fact based, while normative economics is

subjective and value based. Positive economic statements do not have to be
correct, but they must be able to be tested and proved or disproved. Normative
economic statements are opinion based, so they cannot be proved or disproved. 2

The distinction here between positive economics and normative economics is one between fact

and value, with experimental verification serving as the distinguishing element. For economic

statements to be positive, they must be testable, and to be testable they must be tangible. On this

1
Michael Polanyi, “The Message of the Hungarian Revolution,” in Knowing and Being (Chicago: University of
Chicago Press, 1969).
2
Amy Fontinelle, “What is the difference between positive and normative economics?,” Investopedia,
http://www.investopedia.com/ask/answers/12/difference-between-positive-normative-economics.asp.
 Shannon 3

model, economics is confined to making claims about material reality. In Polanyi’s terms,

economics provides a physical-chemical description of the economy. Such descriptions are in no

way illegitimate, but they are limited because they cannot by their inherent logic lead to any kind

of normative claim.

Yet this realization often escapes those who believe that they are limiting themselves

strictly to the facts. The same article quoted above goes on to say that “[a] clear understanding of

the difference between positive and normative economics should lead to better policy making, if

policies are made based on facts (positive economics), not opinions (normative economics).” 3

The very use of the word “should” serves as a clue that this statement is itself normative rather

than positive. The author expressly makes a judgment about what constitutes “better policy

making,” namely the refusal to base policies on statements about what is “better.” Moreover, the

very act of policy making is normative to the effect that it establishes a standard, or norm, with

which all are obligated to comply. To make a policy based on this opinion, which requires

making policies based on facts, would manifestly contradict the original statement. In this

formulation the positive-normative distinction fails to meet the criterion of consistency.

But when the positive-normative distinction is justified by prominent economists, the

argument takes on a new level of sophistication and authority. Milton Friedman, a Nobel laureate

and founder of the monetarist school of economics, penned a classic essay on the distinction

between positive and normative economics in 1966. 4 In it he quotes John Neville Keynes, father

of the economic titan John Maynard Keynes, who defines a “positive science” as “a body of

systematized knowledge concerning what is” and a “normative or regulative science” as “a body

3
Ibid.
4
Milton Friedman, “The Methodology of Positive Economics,” in The Philosophy of Economics, 3rd Edition (New
York: Cambridge University Press, 2008).
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of systematized knowledge discussing criteria of what ought to be.” 5 Friedman elaborates by

adding that positive economics is “in principle independent of any particular ethical position or

normative judgments.” 6 Its task is “to make correct predictions about the consequences of any

change in circumstances,” and on these grounds it can qualify as “an ‘objective’ science, in

precisely the same sense as any of the physical sciences.” 7 Normative economics, on the other

hand, “cannot be independent of positive economics” because normative conclusions must

always refer back to positive predictions. 8 Most policy debate stems from disagreement about the

positive effects of means, not the normative identification of ends, so a sharp distinction between

positive and normative science would have the benefit of creating a more widespread consensus

over policy. 9

Lionel Robbins follows the same distinction in his famous definition of economics as

“the science which studies human behaviour as a relationship between ends and scarce means

which have alternative uses.” 10 For Robbins, the ends of economic activity are given,

exogenously determined, and economics only concerns itself with the causal relationships

between these ends and the available means. This leads to a strong dichotomy between the

positive and the normative:

Economics deals with ascertainable facts; ethics with valuations and obligations.
The two fields of enquiry are not on the same plane of discourse. Between the
generalisations of positive and normative studies there is a logical gulf fixed which
no ingenuity can disguise and no juxtaposition in space or time bridge over. 11

5
Ibid., 145.
6
Ibid., 146.
7
Ibid.
8
Ibid., 146-147.
9
Ibid., 147-148.
10
Lionel Robbins, An Essay on the Nature & Significance of Economic Science (London: Macmillan and Co., 2nd
edition, 1948), 16.
11
Ibid., 148.
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As with Friedman, the distinction rests on the possibility of “scientific verification” for positive

statements. 12 This dichotomy has a “very practical justification,” 13 and deserves being

considered at length:

If we disagree about ends it is a case of thy blood or mine—or live and let live,
according to the importance of the difference, or the relative strength of our
opponents. But, if we disagree about means, then scientific analysis can often help
us to resolve our differences. If we disagree about the morality of the taking of
interest (and we understand what we are talking about), then there is no room for
argument. But if we disagree about the objective implications of fluctuations in
the rate of interest, then economic analysis should enable us to settle the dispute. 14

Once again, the positive-normative distinction is justified on the grounds that normative

difference cannot be the subject of scientific debate but must inevitably end in a shouting match.

Normative ends cannot be the subject of “scientific analysis,” therefore they should not be. The

justification for the dichotomy is the dichotomy itself.

How would Polanyi approach this desire for a value-free social science? In “The Message

of the Hungarian Revolution,” Polanyi puts forward two arguments against the inconsistency of a

social science that claims to explain all of human action without reference to value judgments.

The first argument proceeds as follows. 15 First, all men make moral judgments, and these moral

judgments refer to moral standards, which through universal intent we believe to be true for all

men. This creates a distinction between moral truth, a moral judgment made in light of a valid

standard, and moral illusion, a judgment made in light of an illusive standard, just as a man

wandering in the desert may judge that he sees an oasis in light of an illusive sensation created

by a mirage. Once we have admitted that moral standards exist and that men make judgments in

light of them, we have denied that all human action can be explained without reference to moral

12
Ibid., 149.
13
Ibid., 150.
14
Ibid., 150-151.
15
Polanyi, “The Message of the Hungarian Revolution,” 33-34.
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standards. It is not enough for the social scientist to observe that his subjects acted in a certain

way because they believed some moral claim because it “leaves open the question why they

believed this.” 16 The scientist must find an answer to this question by passing judgment on the

moral judgments of his subjects, and this value judgment “proves indispensable” to his activity

as a scientist. 17

Whereas the first argument proceeds from men in general to the scientist, the second

argument begins with the scientist and proceeds to mankind. It is beyond contention that the

scientist makes moral judgments in light of moral standards in his personal life, outside of his

professional capacity. But if the standards of his profession claim that all human action can be

explained by “value-free observation,” this implies that his own moral judgments can also be

explained without reference to the moral standards in light of which he made them. He must

either exempt himself from his own theory or deny that his actions have any moral meaning. 18

The former option is inconsistent, and the latter “repulsive.” 19

The presentation of these two arguments is rather condensed, and consequently Polanyi

leaves himself open to a major objection. 20 It is not clear that a social science means what

Polanyi wants it to mean when it claims to be able explain all of human action without reference

to value judgments. Social science could just as easily claim to be able to explain all of human

action without reference to the chemical composition of the major human organs. This in no way

denies that human physiology is governed to a large extent by the laws of chemistry, but social

16
Ibid., 33.
17
Ibid.
18
Ibid., 34.
19
Ibid.
20
Jon Fennell tackles the same problem in “Polanyi’s Arguments against a Non-Judgmental Political Science,”
Reason and Tradition 37, no. 1 (2010-2011): 6-18. Whereas Fennell argues that Polanyi’s arguments fail when
taken on their own merits, this paper will go on to argue that Polanyi’s understanding of science, as expounded in
Personal Knowledge, redefines the terms of the arguments in such a way that they withstand these objections.
 Shannon 7

sciences need not consider these laws in detail for the purposes of their particular analyses. For

the sake of doing social science it is simply enough to state that human organs are physically

composed of chemicals and leave the development of further understanding of this composition

to other disciplines, such as medicine and physiology. Likewise, the social scientist may be

perfectly legitimate in claiming that for his purposes it is enough to assume that people make

moral judgments based on standards that they believe to be true without passing judgment on the

validity of those standards, leaving that task to the moral philosopher. 21

Economists are particularly well-equipped to raise this objection. Economics is

inescapably driven by judgments of value. Every economic actor must determine the values of

the alternatives he is presented with and make a judgment about which alternative he values

most. These value judgments can be incredibly mundane, such as the decision to purchase a

hamburger with cheese instead of without, but they can extend to decisions with inescapable

moral consequences, such as whether to purchase illegal narcotics. These economic decisions are

made on the basis of utility, and utility is subjectively by determined by each individual’s

preferences. The task of the economist is not to project his own preferences over everyone in the

economy but rather to explain the effects that changes in economic forces will have on the

allocation of goods. The economist need not pass judgment on the moral decisions of drug

addicts to recognize that an increase in the demand for drugs will result in an increase in the

quantity supplied. Economics may claim to explain all of human action with reference to value

judgments (i.e. individual utility functions), but normatively assessing those value judgments as

correct or incorrect lies outside the proper realm of positive economics.

21
This is, in effect, Robbins’s argument in An Essay on the Nature & Significance of Economic Science, 146ff.
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This amounts to a denial of the plank of Polanyi’s first argument that requires a

distinction between moral truth and moral illusion. Mistaken assessments of value still affect the

price system, so from the standpoint of positive economic analysis there is no difference between

true and illusory judgments. By granting this limited legitimacy to all value judgments, even

mistaken ones, positive economics also avoids the dilemma presented in Polanyi’s second

argument. If economics interacts with the world through value-free observation, what it observes

is explained by the value-laden actions of individuals who have made judgments in accordance

with their own standards. Positive economics leaves open the possibility of normative economics

and thus avoids reducing economic activity to something that can only be explained in material

terms.

In defense of Polanyi it must first be noted that he distinguishes between mere

preferences and standards with universal intent: “We do not prefer courts of law to be unbiased

in the same sense in which we prefer a steak to be well-done” because the latter is a matter of

mere preference whereas the former is believed to be binding on all men. 22 A court system that

shows special favor to wealthy landowners is not an equally viable economic alternative in the

same sense that an alternative dinner plan is. Everyone knows the difference between their

personal preferences and the convictions they hold with universal intent, so it is pointless and

even deceitful to pretend that all preferences are essentially the same. Consistency demands a

distinction between what I will call subjective preferences and responsible preferences, or

preferences that can be judged by rules of rightness and that entail the obligation to pursue them.

Thus, there is a real distinction between a preference for a medium-rare steak and a preference

for the impartial rule of law. This means that there is a logical gap in the prior claim that the

22
Polanyi, “The Message of the Hungarian Revolution,” 33.
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economist must not project his own preferences onto everyone in the economy. While subjective

preferences cannot reasonably extend beyond the individual who holds them, responsible

preferences must by their very nature be imposed on others because they derive from rules of

rightness that are believed to be universal.

It turns out that economists are no strangers to employing rules of rightness in economic

analysis. The positive-normative distinction is itself one such rule of rightness. To say that

economists should restrain from making value judgments and imposing their preferences on

others is itself an imposition of a responsible preference. But this is far from the only standard

economists employ. One very common term is “market failure,” which contains implicitly a

definition of how a market should operate as well as a set of criteria for determining when a

market deviates from this rule of rightness. The concept of market failures is often defended on

the ground that they are measured objectively in terms of deadweight loss, but a normative

judgment cannot be generated by a mere positive measurement. For example, obesity is

measured objectively in terms of body mass index, but the two statements “the patient has a BMI

of 31” and “the patient is obese” are not necessarily equivalent. In order to move from the first to

the second the speaker must apply some sort of rule to the number to determine its meaning, the

rule in this case being that obesity is defined as a BMI between 30.0 and 39.9. Obesity is in turn

defined as a deviation from normal weight and is thus a normative judgment. Just as the medical

professional judges whether a BMI value denotes a deviation from the norm, the economist

analyzes positive measurements of deadweight loss to make the normative judgment of

identifying market failures.

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Another rule of rightness worth mentioning is the term “tax distortion.” Casey Mulligan,

an economist at the University of Chicago, commonly regarded as among the best economics

schools in the nation (Friedman himself taught there), writes about the nature of tax distortions:

Tax distortions are changes in behavior on the part of businesses or households

for the purpose of reducing their taxes or increasing their subsidies. We call them
distortions because they don’t occur for real business or real personal reasons.
They occur because of the tax code. 23

This notion of a “distortion” is especially relevant because it not only implies a deviation from a

standard and therefore a normative judgment but also connects to Polanyi’s distinction between

moral truth and moral illusion. The author here makes a similar distinction between “real”

reasons and distorted reasons. Real reasons presumably derive from correct assessments of value,

whereas distorted reasons are the product of an illusion of value or cost created by the tax code.

Both are subjectively determined and both have positive effects, but one is approved while the

other is judged a pernicious error. The economist passes judgment on the value judgments of his

subjects, and this value judgment proves indispensable to his activity as a scientist. By

employing rules of rightness, which necessarily entail normative judgments, economists cannot

avoid the brunt of Polanyi’s argument against value-free science.

But rules of rightness about the practice of science and judgments of economic value are

still not on the same level as moral judgments, so to draw the final link in this chain of reasoning

we must turn to Polanyi’s other writings and trace the implications of his theory of personal

knowledge, starting from his distinction between focal and subsidiary awareness. When we focus

our attention on an object, there is a difference between the object of our cognition and the

instruments by which we attend to it. We are aware of the meaning of a book that we read in a

different way than we are aware of the words by which we grasp that meaning. The former mode
23
Casey Mulligan, “Effects of the Affordable Care Act on Economic Productivity,” Imprimis,
http://imprimis.hillsdale.edu/effects-of-the-affordable-care-act-on-economic-productivity/.
 Shannon 11

may be called focal awareness, the latter subsidiary awareness. 24 The two are mutually

exclusive – by focusing our awareness on the words themselves we would be forced to lose our

sense of the meaning they convey. Thus, the comprehension of a whole cannot be reduced to an

awareness of its constituent parts. The “molar” cannot be specified in terms of the “molecular”

and therefore must designate a higher level of being that cannot be defined in terms of the level

beneath it. 25

The identification of distinct logical levels clarifies the relationship between positive and

normative science. Normative science concerns itself with rules of rightness, or operational

principles, which cannot be specified in terms of physical science. Positive science, on the other

hand, describes the physical composition of mechanisms governed by operational principles,

including the conditions for their successful operation. It is possible to move from physical

description to operational understanding, but this requires a comprehension of an order that

transcends the physical particulars. The science of crystallography was initially inspired by the

shapeliness of certain stones but later developed into a set of standards that cannot be falsified by

any conceivable event and can thus be said “to transcend the experience to which it applies.” 26

The perfection of a crystal can only be explained in terms of crystallographic rules of rightness,

whereas any defects must be explained in terms of its physical composition. Reasons for success

are explained normatively, causes of failure are explained positively.

In the context of economics, positive science describes what the economy is: the current

distribution of wealth, the current price of goods, the relative strength of economic forces, etc.

Normative science describes what the economy should do: what should happen when demand

24
Michael Polanyi, Personal Knowledge: Towards a Post-Critical Philosophy (Chicago, University of Chicago
Press, 1962), 55.
25
Ibid., 327.
26
Ibid., 47.
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shifts, when the interest rate rises, and so forth. No description of what the economy is as a

physical reality can lead to an understanding of how the economy should operate. It is only by

subsidiarily attending to the physical particulars, by dwelling in them, that the comprehensive

entity called “the economy” can be perceived and the rules of its right operation known. These

rules are defined independently of any particular material reality – the rules of economic

behavior do not depend upon the markets of eighteenth-century Britain any more than they

depend on those of twentieth-century Germany. Normative economics can exist independent of

any specific positive circumstances, but positive economics cannot exist without a prior

normative understanding, as we know from Polanyi’s example of the frog. A complete physical

and chemical description of a frog would be meaningless unless we already knew it previously as

a frog, that is, unless we had a prior understanding of the rules of rightness for being a frog. 27 It

is impossible to create a mathematical model without first recognizing the morphological

correctness of the shape to be modeled. 28 This turns Friedman’s hierarchy of positive science as

freer than normative science on its head by restricting positive science to the domain of prior

normative understandings and freeing up normative principles to apply to any situation,

regardless of the positive circumstances.

Thus far we have dealt only in terms of mechanisms, but in order to rise from the level of

mechanism to social science we must first pass through the level of biology. In the study of life

we become focally aware of responsible centers capable of action – and hence capable of acting

wrongly. The standards by which actions are judged right or wrong are set not by the animal but

by the observer. In fact, “[y]ou cannot observe deliberate action or perception except by

legislating for it,” that is, by “appreciating the rightness which is impaired by these

27
Ibid., 342.
28
Ibid., 358.
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shortcomings” of subjectivity and error. 29 When an animal eats “it is the observer’s judgment

which appraises what is right and what is wrong in feeding.” 30 Similarly, it is up to the observer

to judge whether a sense perception is a “correct performance” by asking “if he himself endorses

the affirmations implied in it.” 31 In all these cases the judgment of the animal’s conduct by the

standards set by the biologist is indispensable to the very observation of deliberate action and

perception and thus indispensable to conducting the science of biology.

The same applies when we encounter humans on the biological ladder, finally entering

the realm of the social sciences. Just as the biologist must pass judgment on the action and

perception of the animal, the social scientist must pass judgment on the knowledge of the man he

is contemplating because it is part of his subject matter. He must determine whether the man’s

knowledge is in fact knowledge or merely illusion, and to answer that question he must examine

the knowledge as if it were his own. 32 Because knowledge is an act of commitment it is subject

to rules of rightness, and it is by the satisfaction of these standards that a particular act of

knowing can be judged to be right. As an act, it is impossible to observe deliberate knowledge in

another human without legislating for him, or judging his conduct in light of our own standards.

The formulation in Personal Knowledge is the same as in “The Message of the Hungarian

Revolution,” but with “knowledge” standing in for “moral judgment.” We have passed gradually

and without interruption from the fundamental distinction between focal and subsidiary

awareness to rules of rightness generally and up the ladder to moral judgments. In doing so,

Polanyi’s insistence that the social scientist engage in value judgments as essential to the

performance of his science has been justified.

29
Ibid., 361.
30
Ibid., 362.
31
Ibid.
32
Ibid., 344.
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The positive-normative distinction, then, is nonsensical in its common formulation. The

mathematical models of positive economics would not be able to tell us anything if we did not

already have a normative understanding of the shape and function of the economy. It is

impossible to completely separate rules of rightness from science of any kind, much less a social

science. Positive statements about the operation of the economy presuppose an economic

operational principle or norm. Positive and normative science remain distinct, but cannot be

completely separated without losing either the reasons for economic success or the causes of

economic failure. Because there are multiple logical levels between material reality and moral

standards, it is better to say that there is no single positive-normative distinction but rather a

gradient with both positive and normative poles at any particular level. Material facts are positive

with respect to morphological statements about the operation of the economy, but these

morphological statements are positive with respect to moral judgments. This ambiguity results in

an equivocation between positive and normative and allows moral claims to be smuggled in

under the guise of objective fact. Instead of pursuing a false ideal of totally objective knowledge,

economists should make their normative assumptions explicit, admitting that moral judgment is

indispensable to the performance of social science. A truer formulation of the positive-normative

distinction that abolishes the dichotomy between the two will bridge the gap between the

objective and the subjective, opening up a vista of economics as more than a social science – a

personal science.
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Works Cited

Fennell, Jon. “Polanyi’s Arguments against a Non-Judgmental Political Science.” Tradition &
Discovery 37, no.1 (2010-2011): 6-18.

Fontinelle, Amy. “What is the difference between positive and normative economics?”
Investopedia, http://www.investopedia.com/ask/answers/12/difference-between-positive-
normative-economics.asp (accessed May 25, 2016).

Friedman, Milton. “The Methodology of Positive Economics.” In The Philosophy of Economics:

An Anthology, 3rd Edition. New York: Cambridge University Press, 2008.
http://digamo.free.fr/hausman82.pdf#page=76 (accessed May 25, 2016). Originally
published in Essays in Positive Economics. Chicago: University of Chicago Press, 1966.

Mulligan, Casey. “Effects of the Affordable Care Act on Economic Productivity.” Imprimis 74,
no. 11 (November 2014). http://imprimis.hillsdale.edu/effects-of-the-affordable-care-act-
on-economic-productivity/ (accessed May 25, 2016)

Polanyi, Michael. Personal Knowledge: Towards a Post-Critical Philosophy. Chicago:

University of Chicago Press, 1962.

_______. “The Message of the Hungarian Revolution.” In Knowing and Being. Chicago:
University of Chicago Press, 1969.

Robbins, Lionel. An Essay on the Nature & Significance of Economic Science. London:
Macmillan and Co., 2nd edition. 1948.