Economic rationalism

For other uses, see Rationalism (disambiguation).

Economic rationalism is an Australian term often used in the discussion of macroeconomic policy, applicable to the economic policy of many governments around the world, in particular during the 1980s and 1990s.

Economic rationalists tend to favour regressive policies: deregulation, a free market economy, privatisation of state-owned industries, lower direct taxation and higher indirect taxation, and a reduction of the size of the welfare state. Near-equivalents include Thatcherism (UK), Rogernomics (NZ), and the Washington Consensus. To a large extent the term merely means economic liberalism, also called neoliberalism. However, the term was also used to describe advocates of market-oriented reform within the Australian Labor Party, whose position was closer to what has become known as the 'Third Way'.

As it is a phrase used by Max Weber in The Protestant Ethic and the Spirit of Capitalism the highest likelihood is the term was drawn from there and its modern denotations can all be accommodated within Weber's usage. Its recent usage arose independently in Australia, and was derived from the phrase "economically rational", used as a favorable description of market-oriented economic policies. Its first appearances in print were in the early 1970s, under the Whitlam government, and it was almost invariably used in a favorable sense until the late 1980s.

The now dominant negative use came into widespread use during the 1990 recession, and was popularised by a best-selling book Economic Rationalism in Canberra by Michael Pusey.

Criticism of economic rationalism

The term "economic rationalism" is commonly used in criticism of free-market economic policies as amoral or asocial. In this context economic rationalism may be summarised as "the view that commercial activity ... represents a sphere of activity in which moral considerations, beyond the rule of business probity dictated by enlightened self-interest, have no role to play." (Quiggin 1997)

The well-known statement of Margaret Thatcher that "There is no such thing as society. There are individuals, and there are families" is often quoted in this context, though the interpretation of this statement is disputed.

Support of economic rationalism

Supporters of economic rationalism have presented two kinds of responses to criticisms such as those quoted above. Some have denied that such criticisms are accurate, claiming that the term "economic rationalism" merely refers to rational policy formulation based on sound economic analysis, and does not preclude government intervention aimed at correcting market failure, income redistribution and so on.

Others have accepted the accuracy of the description, but have argued that the adoption of radical free-market policies is both inevitable and desirable. Another statement by Margaret Thatcher "there is no alternative" is frequently cited in this context.

See also


  1. Economic rationalism, by John Quiggin, Professor of Economics, James Cook University, Published as: Quiggin, J. (1997), 'Economic rationalism', Crossings, 2(1), 3-12.
  4. The Protestant Ethic and the Spirit of Capitalism by Max Weber
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