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Economic theories cannot be understood outside their historical context

Summary:
From Asad Zaman It is an Obvious Truth that economic theories analyze specific historical economic systems. In nomadic societies, there is no production. Economics would be about finding plants, game, and moving according to seasons. In agricultural societies, private property becomes important. Those who plant need to have rights to harvest their plantings. Feudal Societies are mostly self-sufficient in commodities and operate without money. These are barter societies. Money is not a goal, but only a means to get more goods. Karl Marx explained this via the formula: C – M – C’  which means that Commodities are sold for money, which is used to get different commodities. Market societies: people sell labor for wages to produce commodities. Money is used for purchase. Money is main

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from Asad Zaman

It is an Obvious Truth that economic theories analyze specific historical economic systems.

In nomadic societies, there is no production. Economics would be about finding plants, game, and moving according to seasons.

In agricultural societies, private property becomes important. Those who plant need to have rights to harvest their plantings.

Feudal Societies are mostly self-sufficient in commodities and operate without money. These are barter societies. Money is not a goal, but only a means to get more goods. Karl Marx explained this via the formula: C – M – C’  which means that Commodities are sold for money, which is used to get different commodities.

Market societies: people sell labor for wages to produce commodities. Money is used for purchase. Money is main driver of society. Laborers sell their lives for money. Producers start with money, use money to produce commodities, and sell commodities for more money: M – C – M’  – This inversion of goals is tremendously important in understanding market societies. Both laborers and producers are driven by the desire to make money – not to consume goods. It is important to note the modern economic theory does not recognize this, and treats market societies like barter societies. It is only because of this failure to recognize the motivations that economic theories treat money as a veil, and say that money is neutral.

All of this discussion is to make a very simple point: Economic theories cannot be understood outside their historical context.

To understand Keynes, we must study the Great Depression. What were the theories which failed, and how was Keynes driven to find a new theory? How did his theory explain the Great Depression?

To understand Minsky’s Financial Fragility Theory, we must study the repeated banking crises that occurred since the 1970’s. These led Minsky to think about the causes of these crises, and come up with a theory which explained them.

To understand Mercantilism, we must understand European history driven by wars, and the necessity for accumulating gold to finance them. For modern economies, it make no sense to accumulate gold, but in the 18th Century, gold was of central importance to finance wars.

It is of great interest to understand that the opposite is also true. Just as we cannot understand economic theory without the historical context, so we cannot understand history without understanding economic theory. This is because history is shaped by theories.  read more

Asad Zaman
Physician executive. All opinions are my personal. It is okay for me to be confused as I’m learning every day. Judge me and be confused as well.

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