Keynes vs the Classicals

WHO  WERE  THE  CLASSICAL  ECONOMISTS?   Keynes used the term "classical" to refer to virtually all orthodox (non-Marxian) economists who  had    written on macroeconomics prior to 1936 (the year of his  General Theory).   More  conventional  modern  terminology  distinguishes between two periods in the development of economic theory  before 1930.   The first, termed classical, is the period  dominated  by the  work of Adam Smith (Wealth of Nations, 1776), David  Ricardo (Principles  of  Political Economy, 1817), and John  Stuart  Mill (Principles of Political Economy, 1848).  The second, termed  the neoclassical period, is represented by such economists as  Alfred Marshall and A. C. Pigou.

THEORY BASE:   Microeconomic  +   logical extensions

POLICY  PHILOSOPHY:   Laissez faire - Government should protect competition and the market, otherwise hands off.   Classical economists were generally confidant that markets would self-correct and eliminate temporary problems.

SOME SPECIFICS:  Classical economics assumed that the normal  (or equilibrium)  level  of income at any  point  in time  was  the  full employment  level.    Why?  Classical  economists generally  accepted  Say's Law (Supply creates its own demand-named for the French  economist,  J.B. Say, who wrote  in  the early nineteenth century).

IMPLICATIONS OF SAY’S LAW:  There would   not   be  general   or  aggregate  over-production. Since any level of production would call forth a level of spending sufficient (in the aggregate) to take that production/output off the market, then overproduction would not be a cause for concern. Insufficient aggregate demand  thus could not  be the cause of significant unemployment  and recession. Finally, wage  flexibility would eliminate any minor, temporary unemployment; price flexibility would clear product markets.