This is the first draft of an abstract I have put together which relates to my previous post on production versus consumption. I would be interested in any thoughts you might have.
Political Economy in Crisis:
Were the Classical Economists Right After All?
There are, generally speaking, five streams of macroeconomic thought that compete for allegiance in the modern world.
• Keynesian which comes in many varieties all of which argue recessions are due to failure of aggregate demand and which deny the validity of Say’s Law
• New Classical based on rational expectations but with no embedded theory of recession
• Austrian which typically ignores aggregations, where activity is driven by marginal utility and which builds a theory of recession based on structural imbalances caused by financial dislocation
• Marxist and other forms of socialist theory whose aim is to centralise economic decisions and whose main focus of analysis are exploitation of the working class and concern with inequality
• Classical which emphasises the supply-side of the economy, focuses on the role of the entrepreneur and sees recessions as due to structural imbalances which may come from a variety of causes.
The aim of the paper is to argue that economic theory reached its deepest and most profound level in the writings of the late classical economists which flourished over the period from the publication of John Stuart Mill’s Principles in 1848 through until the publication of John Maynard Keynes’s General Theory in 1936. The paper will discuss the classical framework and contrast this approach with the alternatives that today compete for the allegiance of economists.