Bob Murphy recently asked me, "Do you believe in the very concept of economic theory at this point?"
Well, on one level, how could one not "believe" in economic theory? There is obviously tons of it. It would be like not believing in trees.
But Bob surely means "Do you approve of economic theory?" or "Do you think economic theory is..." Is what? Well, hmm, there's the rub.
I think economic theory is a fine thing. I teach it. Some times I even engage in it.
But is it true? Well, there certainly are true and false conclusions in economic theory. For instance, it is false that an increase in demand will, ceteris paribus, result in a lower price for a good, and true that it will result in a greater quantity demanded.
But is economic theory true, strictly speaking, of the world? Well, no, because no theory is. Every theory is literally false, in that a theory is always a partial and abstract description of the world, and, as such, defective. And as Collingwood put it, "One cannot abstract without falsifying."
Then what is the use of theory for practice? It is very much like the use of a map in driving: it can guide practice, but not dictate it. So we drive along using our map, but we must continually look at the road as well, and ignore the map when need be. Otherwise, we will wind up driving off the bridge under construction and into the bay because our map shows a solid line across the bay at that point.
So, for instance, sure, free trade is a great idea. Except when it isn't. And the fact that you have an abstraction showing you that it is always a great idea is no evidence against my caveat. It just means you have made a mistake about how to employ abstractions.