To Most of the Classical Economists, the Theory of General Over-production Was a Heresy

It is one thing to deny the existence of demand deficiency and another to provide a theory of the cycle. Classical economists, because of their acceptance of the law of markets, had to do both. Those who accepted the validity of the law of markets had to explain the fact of recession without reference to demand deficiency or over-production. This was done by explaining recessions as resulting from misdirected production or other factors which drove demand and supply out of alignment.¹ This theory of recession must be seen as an integral part of the matrix of ideas associated with the law of markets since it was this which explained the existence of recession while denying the possibility of deficient demand or overproduction. The two concepts, in fact, evolved together and are part of a unified conception of the operation of an economy.

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¹ Cf. Wesley Mitchell (1927: 8) who wrote, ‘to most of the classical economists, the theory of general over-production was a heresy, which they sought to extirpate by demonstrating that the supply of goods of one sort necessarily constitutes demand for goods of other sorts. But maladjusted production they allowed to be possible, and their brief references to crises usually aimed to show how production becomes maladjusted through the sinking of capital in unremunerative investments.’

—Steven Kates, Say's Law and the Keynesian Revolution: How Macroeconomic Theory Lost its Way (Cheltenham, UK: Edward Elgar Publishing, 2009), 75, 75n.