First use of AS and AD

A Canadian academic, Robin Neill, put the following question up on the Societies for the History of Economics (SHOE) list last night:

Colleagues:

Who and when was the terms “aggregate demand” and “aggregate supply” first used?

I have now written both to the list and to Robin. Here is what I wrote to Robin:

Dear Robin

You have put the cat amongst the pigeons with your question, if only they knew. Using superhuman restraint, I did not point out that the use of aggregate demand was forbidden amongst economists precisely because they had all absorbed Say’s Law. If you understand that demand is constituted by supply, then so far as aggregates go, there is no aggregate demand separate from aggregate supply, and anyways, it is the structure of production, i.e. the structure of supply, that matters and not the aggregate. Not that the classics ignored such aggregates. John Stuart Mill was pretty straightforward, but on behalf of the classical view, to wit, “[aggregate] demand for commodities is not demand for labour”. Again a complete contradiction of modern macro. I don’t know if you’ve seen either, but I discuss AD in both my Say’s Law and the Keynesian Revolution and my Free Market Economics. The 2nd ed of FME will be coming out in a few months so if you haven’t seen it yet, I’d wait for that. But in short form, I have argued in every place I can that the introduction of AD was Keynes’s big contribution which has ruined economic theory, macroecvonomics and the theory of the cycle ever since.

And this is what I wrote to SHOE:

The question really is who can take us back before Keynes? So here, from The General Theory page 25:

“Let Z be the aggregate supply price of the output from employing N men, the relationship between Z and N being written Z = φ(N), which can be called the Aggregate Supply Function. Similarly, let D be the proceeds which entrepreneurs expect to receive from the employment of N men, the relationship between D and N being written D = f(N), which can be called the Aggregate Demand Function.”

And then there is this from page 32:

The idea that we can safely neglect the aggregate demand function is fundamental to the Ricardian economics, which underlie what we have been taught for more than a century. Malthus, indeed, had vehemently opposed Ricardo’s doctrine that it was impossible for effective demand to be deficient; but vainly. For, since Malthus was unable to explain clearly (apart from an appeal to the facts of common observation) how and why effective demand could be deficient or excessive, he failed to furnish an alternative construction; and Ricardo conquered England as completely as the Holy Inquisition conquered Spain. Not only was his theory accepted by the city, by statesmen and by the academic world. But controversy ceased; the other point of view completely disappeared; it ceased to be discussed. The great puzzle of Effective Demand with which Malthus had wrestled vanished from economic literature. You will not find it mentioned even once in the whole works of Marshall, Edgeworth and Professor Pigou, from whose hands the classical theory has received its most mature embodiment. It could only live on furtively, below the surface, in the underworlds of Karl Marx, Silvio Gesell or Major Douglas.

I have seen the phrase aggregate demand used before that but in a kind of aimless way. But I am interested in its use prior to 1936 as well.

The examples others have come up have been just as I described, random uses in an aimless way. But now we use AD as the basis for stimulating our economies and are then astonished that the real world does not follow textbook theory. The real world actually does follow textbook theory, but of course you have to use the right textbook.

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4 Responses to First use of AS and AD

  1. Ellen of Tasmania

    “At the top end of the wealth of the world are about 6,000 people, according to David Rothkopf in his book, ‘Superclass’. They run the show. A show does not go on unless they approve it. …..

    The rich people at the top of the wealth pyramid are Keynesians. … Keynesianism has the markings of a religion. It has a confession: “Fiat money overcomes recessions.” It has an agenda: salvation by economic growth. It has a doctrine of omniscience: monetary central planning. It has a priesthood: Ph.D-holding economists. It has evangelism: Congress, the universities, and the mainstream media.”

    (From an article by Gary North.)

    Keynesian revolution indeed.

  2. Splatacrobat

    If you understand that demand is constituted by supply, then so far as aggregates go, there is no aggregate demand separate from aggregate supply, and anyways, it is the structure of production, i.e. the structure of supply, that matters and not the aggregate. Not that the classics ignored such aggregates. John Stuart Mill was pretty straightforward, but on behalf of the classical view, to wit, “[aggregate] demand for commodities is not demand for labour”.

    I don’t understand what the learned Professor said but I agree with everything he said.

  3. blogstrop

    It could only live on furtively, below the surface, in the underworlds of Karl Marx, Silvio Gesell or Major Douglas.
    I quite liked that poetic bit, but can’t comment on the rest due to lack of knowledge of economic theory and terminology. I just felt sorry for a thread that only had three comments!

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