Classical Paradigm

The classical paradigm of macroeconomics covers economic thinking about macroeconomics from Smith through the early 20th century. The basic assumptions were:

_____1. Prices adjusted quickly to changes in supply and demand. Consequently, the real wages would quickly adjust such that the supply of labor equals the demand for labor. Hence because any unemployment would be quickly eliminated by the adjusting real wage rate, there was no basis for for government fiscal policy.

_____2. Monetary policy affected the price level and not real output.

Social Interpretations of Darwin

After Darwin's Origin of Species was published in 1869, Oscar Spengler and others decided that if competition created new better species then business competition would create better business firms and that the government should leave this market selection alone.

Consequently, other than Marxian theories there was no basis for government intervention into the marketplace.