James C. Ahiakpor wrote:  
  
>   Let me lists the following classical   
> propositions as illustrations for him: (a) that   
> interest rates are determined in the long term   
> by the supply and demand for savings, rather   
> than the supply and demand for money   
> (currency), (b) from the Quantity Theory of   
> Money -- that the price level is determined by   
> the supply and demand for money (currency), not   
> aggregate supply and demand for goods and   
> services, (c) that the rate of inflation is   
> determined by the rate of growth of the money   
> (currency) supply relative to the rate of   
> growth of its demand, (d) the classical   
> forced-saving doctrine by which changes in the   
> quantity of money or credit temporarily affect   
> the level of real output and employment, but   
> not in the long run, (e) the law of markets,   
> which explains the adjustment of output and   
> employment to changing relative prices and   
> interest rates in an economy and thus explains   
> short-term recessions, and (f) that economic   
> growth (of output and employment) is determined   
> primarily by the growth of savings, not   
> consumption.  I wonder which classical theories Medaille has in mind.  
  
  
Well, all of the theories you just mentioned.   
They are all pieces of the over-riding economic   
theology of liberalism, namely the near-mystical   
belief in a self-regulating, self-adjusting   
utopia that required no intervention by the   
government or any other social institution. This   
was the reigning orthodoxy of England from the   
Reform Act of 1832 until the Long Depression of   
the 1870's and 80's. Everything was subordinate   
to this doctrine, and all of the propositions you   
have mentioned were the pieces that were supposed   
to perform the magical balancing act.   
Particularly important in this regard was Say's   
law of Markets, which was not, as you say, "an   
explanation of short-term recessions," but rather   
a statement that gluts in any real sense were   
impossible, so that any observed "glut" was an   
appearance only, an appearance that would quickly   
right itself. The persistence of gluts remained a   
mystery to the utilitarians. Say's law is   
pointedly full-employment (at least of capital)   
unless you wish to reformulate it as, "Supply   
creates its own demand...up to a point" or "until   
a certain amount of capital." It is quite true   
that many of the specific propositions were not   
formulated in terms of equilibrium, because those   
mathematics were not developed sufficiently until   
late in the 19th century. It is the supreme irony   
that the theory of self-regulation was getting   
its mathematical precision precisely at the   
moment it was being politically abandoned; no   
mere mathematician could be expected to overcome   
the effects of the nation's 40-year experience   
with Liberalism. But all of the theories   
presupposed the self-regulating economy,   
blissfully beyond the reach of the political or social apparatus.  
  
Of course, the problematic quantity in this   
utopia was work. In the first place, it usually   
came wrapped up in a truculent package known as   
the "worker," an individual who frequently had no   
knowledge of mathematics or utopian economics.   
Further, the canonical incentives did not work   
with this resource; while the other resources   
were encouraged by higher returns, the opposite   
was held to be true for the worker. Higher   
returns would only make them lazy, and the threat   
of starvation alone was sufficient to get them to   
part with their one asset, their labor. And since   
the worker, for some reason was produced   
independently of the quantity of work required,   
he was difficult to "balance" in the equations.   
So the economist went to bizarre lengths to find   
a balancing term; for Ricardo and Townsend it was   
natural starvation, while Malthus advocated   
taking a more active role in killing off the   
"excess" supply. But one way or another,   
equilibrium would be reached. Of course, this is   
somewhat unfair. since the major theorizing was   
done while the Speenhamland system was in place,   
which, as Karl Polanyi noted, was "capitalism   
without a labor market." While it practically   
re-imposed serfdom, it nevertheless made the   
pauper very reluctant to work and even very   
disrespectful of his betters. So it is no   
accident that as soon as the Liberals gained   
control of Parliament, they rewrote to Poor Law   
to degrade poverty as much as possible. Utopia   
can require some strong measures.  
  
  
John C. Medaille