Discussion
Which of the following are not the classical principles ?
(i) Supply is equal to Demand
(ii) Money is used as a Store of Value
(iii) Interest Rate is Flexible
(iv) Capitalist Economy is not selfequilibrating
(v) No government intervention in an economy
Answer: D
The non-classical principles are (ii) and (iv).
Classical economists held that supply creates its own demand (Say's law), that the rate of interest is flexible and equates saving and investment, that the economy corrects itself towards full employment, and that the government should not intervene. Statements (i), (iii) and (v) fit this view.
In classical theory money is only a medium of exchange, a veil; holding money as a store of value is Keynes's idea (liquidity preference), so (ii) is not classical. The claim that a capitalist economy is not self-equilibrating (iv) is also Keynesian, the opposite of the classical position.
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