I love thinking about economic theory, the puzzles, the paradoxes, and just the logic of a well constructed economic argument. I am also struck by the beauty of an economic explanation of the self-regulating free market economy; how the really great economic thinkers are able to derive the invisible-hand theorem from the self-interest postulate via the institutional analysis of private property rights, relative price adjustments, and profit and loss accounting. Hume, Smith, Ricardo, Say among the classics; Menger, Bohm-Bawerk, Wicksteed, Wicksell among the early neoclassicals; Mises, Hayek, Alchian, Buchanan, Coase, Demsetz, Kirzner, V. Smith, and Tullock among the moderns --- all reflect this beautiful logic of economic theory in the hands of a skilled practitioner.
The beautiful theory these thinkers helped to construct and work with, however, was part blackboard abstraction, and part hard nosed observation of the economic world. They used the blackboard economic theory they worked out to understand the world they saw out the window. The purpose of theory is to do history. But you must use a theory --- there is no such thing as theory-less observation. You either utilize articulated and defended theory or you use implicit and undefended theory, but theory is going to guide interpretation of the world of economic experience.
A lot of complainig is currently going on about blackboard economics -- some of it is justified, much of it is VERY confused and ideologically motivated. In these discussion, however, it seems important to stress two things: (1) the world of economic life is so intellectually fascinating that taking on the role of the economic naturalist (to use Robert Frank's term) is an amazing adventure once you allow yourself to be open to the mystery of the mundane, and (2) you cannot accomplish (1) without being in possession of a solid understanding of basic economic theory. Economic theory must be understood as a tool for social understanding, never as a tool for social control. But in order to learn theory, you must study the blackboard, follow the logic of an argument, engage your critical reasoning skills, and adopt the attitude of a life-long learner.
I discuss this issue in my latest Economic Way of Thinking column for FEE. Being able to look out the window is our goal, but our vision will be that much better when improved with the eye-glasses of economic theory as developed by the classical political economists, the early neoclassical economists, the Austrian school economists, property rights economists, market process theorists, and modern political economists -- i.e., what I describe as "mainline" economics in Living Economics.