Classical Theory of Unemployment

The classical theory of unemployment ran throughout the 18th, 19th and 20th centuries. Classical economists believed that in the long run, the economy would fix itself and have full employment. Adam Smith was one of the first classical economists, and he believed that wages and prices are flexible and that the economy would bounce back on its own. As well, they believed unemployment was a result of wages being too high, that business cycles are temporary and that the market is intrinsically stable.
if aggregate spending ( C+I+G+X-IM) is not sufficient to produce full employment then decrease in spending > demand down> prices will fall> interest rates will fall> loans will increase> causing demand to increase.
*when unemployment is high> there will be many people looking for jobs> the competition (or surplus of workers) will drive wages down> there will be more people hired> the unemployment rate will fall.
Classical economists cared more about inflation then they did about unemployment.
"Say's Law" was a part of the classical theory: it was incorrectly attributed to french economist Jean Baptiste Say (1776-1832) - producing goods and services requires the use of the factors of production (which households own), factor payments create income for households, households purchase goods and services using their income. Therefore, the classical theory according to "Say's Law" follows the circular flow.

*All info taken from lecture notes "Labour," slides 39-44.*