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