22 August 2022
In my previous article I stressed that Steve Kates (honorary adjunct associate professor in the College of Business at RMIT University in Melbourne) has erred badly in claiming that there is a classical theory of the trade cycle and that it emerged from the general glut debates of the 1820s. I clearly showed that the first theory of what the much neglected James Pennington aptly called “alternate periods of commercial excitement and depressions”1 was formulated by Henry Thornton and published in 1802 and soon after was adopted by Ricardo2 and the currency school. Moreover, the theory had its roots in eighteenth century financial crises, which reveals that the origins of the trade cycle are not to be found in the Industrial Revolution but in the banking system3. It appears clear from his constant references to John Stuart Mill with respect to recessions that Steve Kates thinks of him as the classical school’s leading exponent of what he erroneously belies is the classical theory of the trade cycle.