Big Puzzle- Still Unsolved

Keynesian theory was invented to solve the particular historical problem that occurred in USA and Europe. But to think that we can take that theory and apply to Pakistan is just foolish because Pakistan is completely different. For example, Karl Marx invented the theory of Marxism by studying problem of England. There the problem was that there were capitalist who have large factories, huge number of people was living and working under very bad conditions. Marxist analysis was there are capitalists who exploit the laborers and what can be done about it. Now if some Marxist economist comes to Pakistan and study what is the class struggle here but they first have to identify type of classes in Pakistan as it is not the same as that of England. In Pakistan there are landlords and peasant and the number of capitalist are very small in proportion and people working in industries don’t suffer with problems as that of England workers. So the problem is that we import such theories and apply them without applying our brains and don’t give good results. Same is true for Keynesian Macroeconomics, Monetarism or Real Business cycle theory as all of these theories invented to solve the problem of advanced industrial economies but our problems are entirely different. So we need to use brains to study our problems and to devise solutions relevant to our situation. Unfortunately, the defeat in wars and colonialism has created a enslaved mind set and people thought that white people are very smart so instead of solving our own problem we should just import their solutions.

Macroeconomic theory must be analyzed within the context of European history because that’s what it was developed to solve and one can’t understand and analyze the macroeconomics to study Pakistan because it was not developed to study problem of Pakistan.

Why is there a puzzle? Great Depression is a mystery that in 1920’s everything was booming like high employment, high production, high stock prices and people assume seen themselves at new level of civilization from where there is no return. But suddenly the stock market, banks and factories collapsed, life savings are destroyed at large and there was complete misery. Everything like factories, laborer and markets were there but the market which was working fantastically now working drastically although nothing physical has changed. Now according to economic theory the economy is self-regulating mechanism which automatically fixes problem. If there is dis-equilibrium in the market then the market forces will automatically forces it to move to equilibrium but this didn’t happened. This puzzle was solved by Keynes. Keynesian theory is not totally correct and there are some errors and flaws in it but it did have an important role. Keynesian macroeconomics was invented to solve the puzzle of Great Depression.