ABSTRACT
The classical theory had its uses when our economy was primarily agricultural and was dominated by flexible market prices. According to classical theory, a free enterprise system has built into it an automatic mechanism which tends to maintain full employment. If, for some reason, say a speculative collapse such as occurred in 1929, there is a general drop in aggregate demand which might result in unemployment, the theory said this would automatically be corrected by a fall in the price-wage level. Administered prices also make obsolete the classical theory of an automatic corrective for unbalanced international payments. If classical theory applied, an additional competitor would appear offering more product, prices would fall, etc. But where prices are administered, it is quite likely that the eleventh and twelfth competitor etc. will open up for business at the existing administered price and try to take business away from the existing competitors by advertising and other forms of promotion.
