DeLong, Bradford.<\/p>\n
In 1829 John Stuart Mill, Thomas Robert Malthus, and even Jean-Baptiste Say understood that excess demand for liquid cash money was excess supply for currently-produced goods and services, was a “general glut”.<\/p>\n
And once you recognize that your key financial asset, your medium of exchange–money–is also a savings vehicle (a store of value) and a safe asset (a unit of account), you immediately see that not just monetary but fiscal and banking policy can have macroeconomic effects. And if you say that Say’s Law works except in exceptional circumstances to ensure that aggregate demand cannot be less than supply, it would seem immediate and obvious that aggregate demand cannot be more than current production as well–that just as something unusual and exceptional has to cause the downturn from normal, so something unusual and exceptional has to cause the revival to normal. It is very puzzling. If an excess demand for financial assets is seen to cause a collapse in production and employment, then it would seem immediate and obvious that generating an excess supply of financial assets would cause a revival.<\/p>\n