Economics, 3rd Edition

Empiricism or Rationalism?

Like many things in economics, there is no right answer to this question. The debate between rationalists 

is beyond the scope of this introduction. The debate lies in the realm of economic philosophy – about the 

nature of knowledge, how we acquire knowledge. Some things may seem intuitive and have led to ‘laws’ 

or beliefs to be widely held and in some cases entrenched. For example, intuition tells us that if the price 

of a good rises, people will buy less of that good. Rationally, this would also make sense and logic would 

tell us that if the price of a good is higher it changes the way people view that good, whether they can 

now afford it and how they view the good in relation to others that they could buy that are similar. Putting 

all these things together the conclusion must be that when prices rise, the amount purchased will fall. 

Such a conclusion can then be seen as being generalizable. This means that we can extend the reasoning 

for this one good to most others.

Some of these can become self-evident truths which are accepted by the general public. For example, 

the idea that a large proportion of those who claim welfare benefits are ‘scroungers’, that an increase in 

immigration will take jobs away  from the indigenous population, that the increase in carbon emissions 

will cause global warming, or that the way of reducing the budget deficit is to cut taxes, may all be widely 

accepted ‘truths’.

Economists will be mindful of the debate between rationalists and empiricists but the idea that sci-

entific methodology can be applied to economics as a discipline and help to improve the knowledge 

we have and to build upon this knowledge, regardless of how we arrived at it (whether through initial 

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20  PART 1  INTRODUCTION TO ECONOMICS

observation or through theorizing) is now widely accepted as the direction for the subject. The Cambridge 

economist, Joan Robinson, perhaps captured the debate very well when she wrote [economics] ‘limps 

along with one foot in untested hypotheses and the other in untestable slogans … our task is to sort out 

as best we may this mixture of ideology and science’ (Robinson, J. (1968) Economic Philosophy. Pelican).