The Pre-Keynesian Classical Theory of Recession Is Based on Disharmony between the Structure of Supply and the Structure of Demand

The structure of production refers to the way in which an economy as a whole fits together. Every output has their inputs, and each of those inputs has inputs of their own, and so on throughout the whole of the economy. There are literally an unquantifiable number of individual units of capital, workers and potential workers each of every kind who collectively possess a vast array of skills and abilities, along with resources of every kind found in different places undertaking particular roles. All of these inputs must be fit together to produce the output that is part of a process that eventually brings to us the goods and services we consume. Keynesian economics thinks in terms of aggregates, entire blocks of buyers and producers. Economic theory properly conceived instead looks at the atomic structure of the economy, at each of the individual productive components separately to understand how they can all be made to work together in a productive way. Moreover, Keynesian economics focuses almost entirely on final demand and ignores the actual structure of the economy, which it treats as irrelevant. Pre-Keynesian classical theory, on the other hand, thought of the structure as the crucial issue. They focused on whether the structure of production was synchronized with what buyers were spending their money on. For classical economics, it was whether the structure of supply could rapidly conform to the structure of demand that was the matter of first importance in understanding how well an economy worked. The Pre-Keynesian theory of recession was based on explaining why the structure of supply and the structure of demand might no longer be in harmony. Policy during recessions was therefore directed towards restoring this balance by hastening, as best a government could, the readjustment of the economy until the structure of supply and demand were in conformity once again.

--Steven Kates, Free Market Economics: An Introduction for the General Reader, 3rd ed. (Cheltenham, UK: Edward Elgar Publishing, 2017), Kobo e-book.