Kalecki and Unemployment Equilibrium

The great economic and social problems of the 1930s were accompanied by equally great ferments in economic theory and policy. This is hardly surprising considering that circumstances have always played a dominant role throughout history in stimulating the progress of knowledge.

From his earliest writings in the 1930s until 1954 Kalecki’s analysis of prices reflected the trouble which marked the discussion of this subject at the time. Sraffa’s criticism (1925, 1926) of the marginalist theory of prices started a period of transition rich in ferment but lacking in really innovative proposals.¹ For at least twenty years no alternative schemes embodying sufficiently-defined theoretical settings were presented: Hall and Hitch’s contributions in Great Britain and Sweezy’s in the United States date from 1939,² but modern versions of the theory of prices in oligopoly were not to come until many years later.³

In Kalecki’s works, the theory of effective demand was the least troubled part; it was free of the troubled course of the theory of distribution or the many revisions the theory of investments and economic fluctuations underwent. Its structure has remained basically unchanged since its original formulation in (1933a, 1993b),¹ while the author’s efforts were directed to clarifying connections with earlier theories (namely, with Marxian schemes of reproduction) and with other contemporary theories (i.e., Keynes), to specify its microeconomic premises and some methological aspects, and to investigate further the implications of the new scheme for economic policy.

A simplified model which brings together the most important points outlined in the preceding chapters is proposed here; further considerations will be added subsequently and several possible extensions explored.

This chapter investigates the relationships between the stream of thought associated with Marx and the ideas conceived by Kalecki starting from the 1930s. An appraisal is made of Marxist ascendancy over Kalecki, on the one hand, and whether, and to what extent, his work contributed to giving a solution to problems unsolved in Marxist tradition, on the other.

According to Harrod (1951, pp. 474–5), Keynes’s Treatise on Money (1930a) did not have a happy career. Within a few months of its publication, many of its ideas had been made obsolete by further discussion within the ‘Cambridge Circus’ (which was preparing the General Theory), and the subsequent appearance of the latter did much to discourage interest by reinforcing the Treatise’s image as a transitional work. This lack of attention was later corrected by arguing that the Treatise’s importance went well beyond what had been originally thought, i.e., that it was a re-examination of the channels through which monetary impulses are transmitted, in a perspective that went beyond the mechanism of the quantity theory, though remaining fundamentally dependent on it. Arguments supporting ‘rehabilitation’ ranged from the importance the Treatise attributed to institutional factors to its being a forerunner of many of the ideas later developed in the General Theory, such as underemployment and the theory of profits.

The economists of the so-called ‘Stockholm School’ share some of the conditions already noted for Kalecki, namely an education within a cultural tradition less hostile to the new ideas, both as regards theory and economic policy, which made it easier for them to grasp these ideas but at the same time hampered the full appreciation of their novelty compared to the state of economics of the time.¹ The need to distinguish between aggregate demand and national income, the autonomy of investments from savings, the conviction that full employment does not represent a normal state for the economy nor a condition toward which it tends: all these aspects were currently accepted by the exponents of this ‘circus’ and claimed to be explainable within a frame of ideas which was considered the natural extension of Wicksell’s scheme.

The term ‘post-Keynesian’ originally indicate¹ the stream of thought linked to Keynes’s closer disciples, which was chiefly concerned with the relationships among distribution, accumulation and steady-growth dynamics. More recently, other economists have been gathered under this label who, though interested in different topics, refer to a core of common propositions: on one hand, the rebuttal of the neo-classical approach to value and the conception of income distribution as a phenomenon ruled by circumstances which are outside the productive process; on the other, the introduction into the Keynesian matrix — featured, first of all, by the income multiplier and by the autonomy of some components of demand — of a number of specifications and integrations (especially concerning prices and distribution) which were foreign or, at least, not explicit to it. The widening of the criterion of classification, of course, amplified the range of approaches which can be termed ‘post-Keynesian’ — from disciples of Keynes and Kalecki to some neo-Marxist branches, from those referring to Sraffa to American institutionalists, and so on — and has led to a live debate even within the stream. This state of things renders the post-Keynesian approach a source of stimulating ideas and impulses but, at the same time, makes it difficult to set up a unique theoretical corpus, a new paradigm to match the neoclassical one.