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2018 | OriginalPaper | Chapter

6. Profits and Money

Author : Jan Toporowski

Published in: Michał Kalecki: An Intellectual Biography

Publisher: Springer International Publishing

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Abstract

After leaving Cambridge, Kalecki took up the challenge of Keynes’s monetary theory. This is perhaps the least understood, and least researched, aspect of Kalecki’s work. In large part this was because much of his monetary theory was not labelled as such, but tended to be tacked on to papers on more general topics. He himself does not seem to have thought sufficiently highly of much of his monetary analysis to revise and republish it in his successive volumes of essays. A good example is his discussion of the money market in his 1933 paper on the business cycle, labelled an ‘application’ of his theory of the business cycle, which he excluded when he republished that paper in 1969 so that it languished unpublished until after Kalecki’s death. There, as in his later work on monetary theory, the theory of profits is at the heart of his analysis: it ensures that money spent in an economy on fixed investment does not disappear from that economy, to be replaced by plant and equipment, but, as with a trade surplus, or a fiscal stimulus, accrues as bank deposits in the accounts of firms or capitalists.

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previous chapter Progress and Profit

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Kalecki’s 1933 analysis of the money markets is examined in volume 1 of this biography, pp. 63–64. Even in the Studies in War Economics that J.L. Nicholson put together from the papers published by the Oxford Institute of Statistics after the war, there is not a single paper by Kalecki on banking or monetary policy. But then there is not a single paper by anyone on that subject in that book.

See volume 1 of this biography, pp. 81–85.

Hawtrey A Century of Bank Rate 1938 Chap. VI.

Lee Post-Keynesian Price Theory 1998, Chaps. 4 and 5.

Meade and Andrews ‘Summary of Replies to Questions on Effects of Rate of Interest’ 1938. See also Andrews ‘A Further Inquiry into the Effects of the Rate of Interest’ 1940. As Andrews pointed out, this evidence confirmed the results of studies in the United States.

Kalecki ‘The Business Cycle and Investment’ 1932b.

The floating debt nevertheless placed considerable demands on the money market on the days (usually Fridays) when bills had to be rolled over, obliging the Bank of England to provide reserves on those days in order to keep bank rate at the official level. See Sayers Central Banking After Bagehot 1957 pp. 67–68.

Kalecki ‘The “Mysteries” of the Money Market’ 1940e.

Kalecki ‘Wage Bill and Cash Circulation’ 1940d and ‘Wage Bill and Cash Circulation: A Supplement’ 1940e.

Kalecki ‘What is Inflation’ 1941.

Kalecki ‘Employment, Wage Bill and Cash Circulation’ 1942f.

Kalecki, ‘The “Mysteries” of the Money Market’ 1940e.

Kalecki ‘The War-time Trend of Deposits’ 1943c.

Kalecki ‘The Short-Term Rate of Interest and Velocity of Cash Circulation’ 1941j.

Keynes Treatise on Money 1930, Hayek Monetary Theory and the Trade Cycle 1933, and Wicksell Interest and Prices 1936.

The publishers George Allen and Unwin consulted with Paul Rosenstein-Rodan, at University College, London, who recommended publication. On 2 February 1943, Stanley Unwin wrote to Kalecki offering him a contract ‘on more or less the same lines as that for the Essays in the Theory of Economic Fluctuations. The sales of that book have unfortunately still not covered the cost of production, but we hope that the issue of this new book may do something to increase the sales of the earlier one.’ Allen and Unwin archives, Letters 1943 K.

Kalecki Studies in Economic Dynamics 1943, p. 36. Kalecki’s view of a slow impact of changes in the short-term rate, contrasts with the common view of central bankers and monetary theorists today whose Dynamic Stochastic General Equilibrium models lead them to suppose that even slight changes in interest rates are monetary ‘shocks.’

Ibid.

Kalecki acknowledged the source of this information as P.W.S. Andrews. Ibid., pp. 37–38.

Hicks, Value and Capital 1939, pp. 144–152.

Kalecki Studies in Economic Dynamics 1943, pp. 39–40.

Ibid., pp. 45–46.

Such is scientific progress in economics, that much the same is true of monetary theory in the twenty-first century.

See Chap. 4 of this volume.

Robinson ‘The long-period theory of employment’ 1936.

Keynes General Theory Chap. 11.

Robinson, ‘The long-period theory of employment’ 1936. See also Harcourt and Kerr Joan Robinson 2009, pp. 25–26.

Kalecki ‘A Theory of Profits’ 1942e.

Kalecki, Studies in Economic Dynamics 1943b, p. 58.

Ibid., p. 64.

See Keynes ‘Alternative Theories of the Rate of Interest’ and his subsequent discussion with Ohlin, Hawtrey, and Robertson in Keynes 1973b, pp. 201–234.

See, for example, MacLachlan Keynes’s General Theory of Interest a Reconsideration 1993.

Robinson ‘The Rate of Interest’ 1951.

Kalecki ‘The Principle of Increasing Risk’ 1937a. See also Volume 1 of this biography, pp. 92–94. In his PhD thesis, Minsky wrongly attributed this principle to Ralph Hawtrey, Minsky 1954/2004, p. 72.

See Mott Kalecki’s Principle of Increasing Risk and Keynesian Economics 2010.

Kalecki ‘The Burden of the National Debt’ 1943d.

In the event, by 1945 the national debt rose some 2.5 times in relation to its level in 1938, while prices rose 40%.

See Kalecki ‘A Theory of Commodity, Income and Capital Taxation’ 1937b. See also Volume 1 of this biography, pp. 94–96. Keynes had advocated a capital levy of this kind to deal with the debt left over from the First World War, describing the tax as ‘the fairest and most expedient method of adjusting the burden of taxation between past accumulations and the fruits of present efforts, whenever, in the general judgement of the country, the discouragement to the latter is excessive.’ Tract on Monetary Reform p. 70.

Kalecki ‘The Burden of the National Debt’ 1943d.

Kalecki ‘Some Remarks on Mr. Keynes’s Theory’ 1936.

Pigou, ‘The Classical Stationary State’ 1943.

Kalecki, ‘Professor Pigou on “The Classical Stationary State”: A Comment’ 1944a.

Fisher, ‘The Debt Deflation Theory of Great Depressions’ 1933.

Fisher, The Purchasing Power of Money Chaps. 5 and 6; see also Laidler The Golden Age of the Quantity Theory 1991 pp. 68–74.

Kalecki, appendix on ‘The Money Market,’ in An Essay on the Theory of Business Cycle 1933b.

Letters of Keynes to Kalecki dated 22 February 1944, and Kalecki to Keynes dated 28 February 1944 in Osiatyński (1990) pp. 567–568. This correspondence between Kalecki and Keynes was originally published by Don Patinkin in his Anticipations of the General Theory? And Other Essays on Keynes, 1982, pp. 96–103. Patinkin, whose work is one of the summits of the neo-classical synthesis interpretation of Keynes’s theory, was a proponent of the real balance effect. To Kalecki’s observation that the interest on the national debt does not affect aggregate income if that interest is paid out of taxation, Patinkin had added the following note: ‘Note Kalecki’s view (with which Keynes in the reply which follows concurs) that government debt serviced by taxation is not part of wealth.’ Patinkin is confusing the net wealth of society as a whole, for which debts and credit claims sum to zero, with the net wealth of the private sector. The net wealth of the private sector includes the private sector’s claims on the government. In any case, what he attributes to Kalecki and Keynes is not their view. Kalecki was referring to interest not wealth. As he expressly pointed out interest on government debt paid from tax revenue is merely a redistribution of aggregate income, and therefore cannot add to that income. In his ‘Mysteries of the Money Market’ (see above), which Patinkin seems not to have read, Kalecki explained exactly how the national debt adds to the stock of private wealth: the expenditure financed by debt creates the profits that lie in capitalists bank accounts, available to buy government bonds.

Letters of Keynes to Kalecki dated 8 March 1944, in Osiatyński (1990) p. 568.

Osiatyński (1997) p. 591.

Papers of the Oxford Institute of Statistics, Annual Report for the Academic Year 1943–1944 p. 8.

Kalecki Theory of Economic Dynamics 1954a, Chaps. 6 and 7.

Kalecki ‘Koniunktura a inflacja’ 1932, p. 148. See also Sawyer ‘Kalecki on Money and Finance’ 2001. The link between macroeconomic flows and credit circulation is also noted by Gary Dymski: ‘…Kalecki’s framework cannot be encompassed in a real analysis; his building blocks can be consistently only in a monetary analysis.’ See Dymski ‘Kalecki’s Monetary Economics’ 1996, p. 122. Kalecki’s diffidence in putting forward his monetary analysis is the reason why both Sawyer and Dymski consider that analysis to be unsystematic (Sawyer, p. 488) or implicit (Dymski, p. 134).

Title: Profits and Money
Author: Jan Toporowski
Publisher: Springer International Publishing
Book: Michał Kalecki: An Intellectual Biography
Print ISBN: 978-3-319-69663-8

Electronic ISBN: 978-3-319-69664-5

Copyright Year: 2018
DOI: https://doi.org/10.1007/978-3-319-69664-5_6