Are Current Economic Theories True?

Economic text book tells us that theories are mathematical equations and these theories are assumed to be workable everywhere. But actually theories are not universally applicable and that’s why to understand any theory it is necessary to understand historical context of that theory. Mathematics has a role in economics but its role is minor. Economics is something that everybody can understand unlike complicated mathematics equations that requires lot of training. Mathematical models do not help in understanding the economics.

Any economic theory, irrespective of whether it’s true of false, represents how people understood their experience. Even if economic theory is wrong people shape their response according to their experience of world and its understanding. Even a wrong theory can be a guide to action for example people think that increase in gold supply will bring prosperity then they will take policies which will increase the gold supply even though it may be the right thing to do. Similarly if there is a theory that every nation should have free trade then people will try to act according to this. If we understand what people are doing we can understand the theory. So, true and false are not necessarily relevant. Most theories are in fact false but they still drive the human actions so if we want to understand what is going in world we have to understand all of the theories behind it. So, we have to understand theory in order to understand history. Most of theories are wrong but we have to understand those theories because they will determine how people react to any historical event.

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