Macroeconomics Before the Great Depression

The term macroeconomics was introduced to the profession after the onset of the Great Depression. Nonetheless, prior to 1930, there was a body of theory that attempted to explain the workings of the aggregate economy. Today, this body of theory is collectively termed classical macroeconomics, although that is not a label its authors would have given themselves.
Classical macroeconomic theory consists of three distinct bodies of theory. The first is an equilibrium model of the supply of, and demand for labor. Coupled with a description of the technology of production -- the production function -- that defines how labor inputs are converted to output of final goods and services, the model provides an explanation of the determination of output and employment.
The second body of theory is concerned with the determination of the price level and the interest rate.  Prices depend, above all, on the supply of money circulating in the economy, through a relationship known as the quantity theory of money. The theory equates the supply of money to its demand.
The third body of theory is concerned with the determination of the interest rate. The equilibrium interest rate is the rate that equates the amount of funds people wish to lend with the amount that others wish to borrow.
In short, the classical model consists of three simple supply and demand models: one for employment, one for money, and one for borrowing and lending. There is remarkably little interaction between them, and little of complexity behind the basic ideas. 
How well does such a simple model do in explaining macroeconomic phenomena? The answer is mixed. The classical model embodies some policy implications that find support in the data: 
Output can be permanently stimulated by appropriate changes in tax policy.
Inflation is primarily a problem of too much growth in the money supply
Excessive government spending induces high interest rates which in turn crowd out private sector spending.
But the classical model also had one major, and untimely, failing: It had very little useful to say about the causes of, and cure for, the Great Depression.

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Detailed Contents
1. Introductory comments
2. Production and unemployment
     The effect of tax incentives on labor supply and 
     Application:  Supply-sider economics and the 
     Reagan administration's budget deficits.
Supply-side economics
3. The money market
4. Saving and investment
5. Bringing all three components together
     Causes of output fluctuations in the classical model.
     Application: Government expenditure and 
     the crowding out of investment.
     The irrelevance of monetary policy in the
     classical model.
6. The classical model and the Great Depression The Great Depression