The Kalecki-Steindl Theory of Financial Fragility

Kalecki and Steindl modelled the financial fragility of companies through a circular flow of income analysis, extending the treatment of inter-sectoral flows that Marx put forward in Volume II of Capital to include household saving as a leakage from firms’ revenues and firms saving representing the financial accumulation of capitalist firms. Household saving causes financial fragility by reducing that financial accumulation. In Kalecki, this relation was put forward as an element in the ‘trend’ of economic development. Steindl made it of more immediate macroeconomic concern because it induces ‘enforced’ indebtedness among companies. The chapter extends this analysis by showing how recent asset inflation may have reduced this source of financial fragility, albeit at the expense of the indebtedness of households.