Rationalism and rationality in economics

In philosophical terms, the opposite of rationalism is not irrationalism but empiricism, that is, a willingness to form beliefs on the basis of experience rather than from a priori deduction. Empirical evidence never yields the dogmatic certainty that accompanies logical deduction. I interpret the economic experience of the last two centuries to show that an unregulated market economy is inherently unstable and that a mixed economy, with an appropriate allocation of productive activity between the public and private sectors yields outcomes superior to those generated by either of the polar alternatives - laissez-faire capitalism and comprehensive socialism. Others, particularly those who focus on the strong performance of the US economy the last decade, have drawn conclusions more favourable to the market economy.

Empiricism is consistent with an approach to policy-making based on willingness to adjust the role of the public sector in the light of new experience and of innovations in technology and policy design. Such an approach is more rational than economic rationalism.

References

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James, C., Jones, C., and Norton, A. (1993), A Defence of Economic Rationalism, Allen and Unwin, Sydney.

Langmore, John and Quiggin, John (1994), Work for All: Full Employment in the Nineties, Melbourne University Press, Carlton, Victoria.

Parkin, M. (1999), ‘In defence of economic rationalism’, Queensland Economic Review 1999(2), 4-5.

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