It’s that time of year again. Even as living standards continue to slowly ebb, there is still virtually no understanding why spending of itself cannot hasten growth and increase employment. I have just submitted a paper on my favourite economics text of all time, Henry Clay’s Economics: an Introduction for the General Reader as the hundredth anniversary of its first publication in 1916 is next year. It is why I adopted his title when I wrote my own text. This is part of what I wrote on Clay’s second edition that was published 26 years later and after the publication of The General Theory in 1936. He is trying to explain what’s wrong with Keynesian theory.

Clay then makes the crucial point in noting the error in trying to generate recovery through higher spending, which brings his argument back to the very core of the classical theory of recession and unemployment.

“The error lies in ignoring the patent fact that neither money nor income as such provides employment but only spending.” (Clay 1942: 265)

This is the fundamental difference between classical theory and modern macro confined to a single sentence with no elaboration. It is merely Clay’s restatement of John Stuart Mill’s “demand for commodities is not demand for labour” (see Kates 2015). Clay knows this – it is a “patent fact”. So obvious may it have seemed to him he may not have felt any need to explain further. For whatever reason, this single sentence is his only attempt to bring the classical denial of the possibility of demand deficiency into his critique of the Keynesian Revolution that surrounds him.

The downwards spiral we are now part of is to see our economies floundering, thinking that public spending will improve our economic prospects, therefore increasing public spending and then finding things only getting worse. A hundred years ago they may not have been as wealthy and their technology may not have been as good, but they did at least understand what was needed to hasten recovery after an economic downturn.