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Leading experts on Kalecki have contributed special essays on what economists in the 21st century have to learn from the theories of Kalecki. Authors include surviving students of Kalecki, such as Amit Bhaduri, Mario Nuti, Kazimierz Laski Jerzy Osiatynski, and Post-Keynesian economists such as Geoff Harcourt, Marc Lavoie, and Malcolm Sawyer.





The Polish economist Michał Kalecki (1899–1970) needs little introduction to English-speaking economists because of his widely acknowledged co-authorship of the Keynesian Revolution in economic theory and policy, and because his theory of the business cycle seems espedaily appropriate to analysing the instability of capitalism in the 21st century. Quite how much his theory is as widely understood is another matter. While his aphorisms have caught the mood of the new century, for example ‘the social function of the doctrine of “sound finance” is to make the level of employment dependent on the state of confidence’, recently cited by Paul Krugman (Krugman and Wells 2012), his theory is much less well-known, often hidden by rather forbidding mathematics, and more difficult to read than the engaging John Maynard Keynes.

Łukasz Mamica, Jan Toporowski

Kalecki and Macroeconomics


1. The Failure of Economic Planning: The Role of the Fel’dman Model and Kalecki’s Critique

In the 1920s, Soviet economists began to develop growth theory with the specific aim of facilitating the planning of their economy. Their work differed from that of most 20th-century economists because it was not aimed at academic economists but, rather, at politicians, bureaucrats and others involved in the machinery of planning. This meant that, although the work was often not as technical as the authors may have liked, it strongly related to the actual economy that they were attempting to model.

Peter Kriesler, G. C. Harcourt

2. Are Rigid Prices the Cause of Unemployment?

The view of old and new mainstream economics that rigid wages are the single most important cause of unemployment rests on the assumptions of declining marginal productivity of factors of production and the substitution hypothesis which makes the entrepreneurs chose more labour-intensive techniques of production when wages fall in relation to the cost of capital. Kalecki and Keynes opposed that view and demonstrated that when the economy operates below full employment of factors of production, cuts in money wages either would have to be offset by corresponding reductions of prices to leave the purchasing power of worker households unaffected, or would result in a reduction of aggregate demand, and therefore of total output and employment. Notwithstanding some significant differences in their respective theories, both Kalecki and Keynes show that after cutting wages throughout the economy, capitalists have no reasons either to increase investments — since their additional profits take the form of accumulation of stocks of unsold consumer goods, and their capital equipment continues to idle below full capacity output — or to raise their consumption, which in turn largely depends on their profits. When imperfect competition and cartelized sectors are allowed for, reduction of wages reduces employment and output even more than under free competition.

Jerzy Osiatyński

3. Kalecki and Post-Keynesian Economics

Michal Kalecki is recognized by many observers as an important contributor and inspiration of post-Keynesian economics.2 For instance, Joan Robinson, Geoff Harcourt and Malcolm Sawyer have constantly reasserted the importance and relevance of Kalecki’s work, arguing, as Philip Arestis (1996, p. 11) did, that ‘there is very little doubt that Kalecki’s role in post-Keynesian economics is both extensive and paramount’. This, however, is not the opinion of all post-Keynesians. Undoubtedly, the most reluctant author to induct Kalecki within the post-Keynesian Hall of Fame is the long-time editor of the Journal of Post Keynesian Economics, Paul Davidson. As recalled by John King (1996, p. 151), Davidson’s reluctance to pay homage to Kalecki is not something new; from the very beginning of his career in the early 1960s, Davidson found little of interest in Kalecki’s writings. This, of course, can be contrasted with the views of another prominent American post-Keynesian, namely Hyman Minsky, who from 1977 on explicitly adopted Kalecki’s macroeconomic theory of profits.

Marc Lavoie

4. Effective Demand and Path Dependence in Short- and Long-Run Growth

It is a common practice in mainstream neoclassical economics to bypass awkward problems by assuming they are transient, basically temporary failure of the price mechanism in the ‘short run’ that gets resolved in the ‘long run’. Depending on the context this might mean different things, for example, slow speed of adjustment to equilibrium like in some older theories of frictional unemployment or in some modern search theories of unemployment. It might mean deficient learning in the short run that gets remedied in the long run, that is, people are wiser in the long run (even if dead!). It was captured by Milton Friedman’s famous quip against money illusion, ‘you cannot fool all the people all the time’. This view became an obsession with later Chicago monetarists who argued that money is neutral in the long run as enough information becomes available; continuous market clearing ‘rational expectations’ is only a short step from it on the assumption that the market most efficiently processes all the available information implying that market generated prices provide the best guidance.

Amit Bhaduri

5. Kaleckian Traverse, Socialist Planning and Hayekian Objections

This chapter will discuss the relations between Kalecki’s macrodynamics and the method of the Traverse. It will be argued that outside the case of a deep depression all short- and long-term macroeconomic adjustments should be thought of in a Kalecki-Kaldor-Lowe type Traverse context. Indeed it was Nicholas Kaldor who developed in 1938 a fully fledged Traverse approach well before the coinage of the term by John Hicks in 1965 (Kaldor, 1938). We will argue that the only meaningful institutional, hence policy, framework of the Traverse approach is socialist planning as conceived by Kalecki himself (Kalecki, 1962, 1986). Hayek’s views are similar to the conclusions that we draw from the traverse analysis. However, Hayek rejects the proposals for economic planning and instead insists on the ability of the market mechanism to achieve the necessary structural adjustment in order to achieve sectoral balance. The essay will discuss the Hayekian objections to socialist planning and will conclude that some form of socialist planning remains the only viable option.

Roni Demirbag, Joseph Halevi

6. The Impact of Innovations on Investments and Economic Growth in the Thought of Kalecki

Kalecki treats investment as a key point in a business cycle that is connected with the effect of that investment on demand and output. This is in contradiction to mainstream economics which treats external factors as major determinants of business cycles. The problem of innovation activity (which Kalecki often called technical progress) and its impact on economic development, mainly by the necessity for new investments, was analysed by Kalecki in many of his publications. Typically he analysed innovation not from a long-term perspective but as a chain of short-term decisions of entrepreneurs concerning their innovative activities. In his opinion (1968) the long-run trend is a chain of short-period situations. Innovation activity supported by profits which are achieved by it have, for Kalecki, a crucial impact on growth in the business cycle.

Łukasz Mamica

7. ‘Dr Kalecki’ on Mr Keynes

This chapter presents Kalecki’s interpretation of the General Theory, contained in his review of the book from 1936. The most striking feature of this interpretation is that, despite criticizing a great deal of Keynes’s analysis, particularly regarding the determinants of investment, Kalecki was highly impressed by Keynes’s theory showing the effect of changes in investment on global employment, income and production levels. Kalecki’s review and restatement of the key ideas of the General Theory is superior to the original due to a clearer and more concise account of the causes of changes in investment and their influence on the short-run equilibrium position, taking into consideration the distribution of income between capitalists and workers. But the review also criticized Keynes’s methodology and does not even mention key elements of his analysis (notably his monetary and financial analysis).

Hanna Szymborska, Jan Toporowski

Kalecki and Crisis in the 21st Century


8. Michał Kalecki’s Capitalist Dynamics from Today’s Perspective

Fifty years ago, I sat in the first row of Michał Kalecki’s lecture courses, both on capitalist dynamics and on the growth of the socialist economy, at the Warsaw SGPiS (the Higher School of Planning and Statistics, as it then was, now the Higher School of Commerce). At the time there was a thriving school of economics in Poland, with eminent representatives — besides Kalecki — such as Oskar Lange, Kazimierz Łaski, Włodzimierz Brus, Ignacy Sachs and many others. In 1962, freshly graduated in Economics from the University of Rome ‘La Sapienza’ and queueing for a scholarship to go to Cambridge the following year, I decided to go to Warsaw in the meantime, braving the coldest winter of the century, and learn more in corpore vili about comparative economic systems, which were to become my main research and teaching interest of a lifetime.

D. Mario Nuti

9. Kalecki’s Profits Equation after 80 Years

Keynes and Kalecki both assumed that private investment determines (but is not determined by) private saving. For Keynes, the desired level of saving is an increasing function of GDP, somehow related to the psychology of the society; ‘autonomous’ shifts of investment are determined by the state of long-term expectations. For Kalecki, the saving propensity depends on the income distribution in a capitalist society, while investment expenditures are determined by past investment decisions. The causality link between investment and saving runs through profits. We take a look at short-run and long-run aspects of Kalecki’s fundamental profit equation: (1) We argue that the short lag between investment decisions and expenditures is an essential element of any meaningful interpretation of Kalecki’s profit equation. This lag has critical implications for the interpretation of the multiplier, for the story of ‘wage-led versus profit-led growth’ and for the various tax paradoxes related to the Kaleckian profit equation. (2) We argue that an excess of desired long-term saving over investment, which might be caused by demographic ageing in Western economies, can only be eliminated by accepting the necessity of a permanent primary public deficit and/or active redistributive policies.

Kazimierz Łaski, Herbert Walther

10. Kalecki and Kowalik on the Dilemma of ‘Crucial Reform’ in the United States and Poland

This chapter reflects on one of the recurrent themes in the work of Michał Kalecki and Tadeusz Kowalik — the challenge of the ‘crucial reform.’ During World War II, Kalecki posed the question of whether capitalist growth would face a limit due to constraints emanating from tensions between capitalists and workers regarding the conditions for political consent and the conditions for sustained growth. One possibility to avoid the threatened slowdown in economic growth would be a ‘crucial reform’ in the political and economic configuration underlying the capitalist economy. In the post-war period, this crucial reform was undertaken, making possible the period of relatively sustained growth and rising wages that is often termed the ‘golden age of capitalism’ (Marglin and Schor, 1991). As events unfolded in the 1970s and 1980s, ‘golden age’ growth was undermined, and the question was posed whether another ‘crucial reform’ would be possible. This same time period brought the socialist economies of Eastern Europe face-to-face with their own need for a ‘crucial reform’.

Gary A. Dymski

11. A Kaleckian Perspective on Changes in the Aggregate Income Distribution in the US

In Michał Kalecki’s (1954/1991) major article on the distribution of the national income between wages and profits, he wrote that national income is measured as value added minus the cost of material inputs and as a result, <math display='block'> <mrow> <mi>n</mi><mi>a</mi><mi>t</mi><mi>o</mi><mi>n</mi><mi>a</mi><mi>l</mi><mtext>&#x2009;</mtext><mi>i</mi><mi>n</mi><mi>c</mi><mi>o</mi><mi>m</mi><mi>e</mi><mo>=</mo><mi>a</mi><mi>g</mi><mi>g</mi><mi>r</mi><mi>e</mi><mi>g</mi><mi>a</mi><mi>t</mi><mi>e</mi><mtext>&#x2009;</mtext><mi>w</mi><mi>a</mi><mi>g</mi><mi>e</mi><mi>s</mi><mo>+</mo><mi>O</mi><mi>v</mi><mi>e</mi><mi>r</mi><mi>h</mi><mi>e</mi><mi>a</mi><mi>d</mi><mi>s</mi><mo>+</mo><mi>p</mi><mi>r</mi><mi>o</mi><mi>f</mi><mi>i</mi><mi>t</mi><mi>s</mi> </mrow> </math>$$natonal\;income = aggregate\;wages + Overheads + profits$$Overheads + profits are equal to the aggregate of the percentage mark-up of prices over direct costs minus the aggregate sum of these costs, which are wages plus materials costs. The relative shares of wages, profits and overheads in national income will then be determined, Kalecki showed, by the mark-up, the ratio of materials to wage costs and the composition of industry, which affects relative shares since different industries have different mark-ups and ratios of materials to wage costs.

Tracy Mott, Mark Evers

12. Addressing the ‘Great Recession’ Using Kalecki’s Macroeconomic Analysis

The global financial crisis of 2007–2009 and the subsequent ‘Great Recession’ have often been compared with the 1929–1933 financial crisis starting with the Wall Street crash and the ‘Great Depression’. The scale of the ‘Great Recession’ has for most countries not been as great as that of the ‘Great Depression’ due to the larger scale of government and the willingness to allow the ‘automatic stabilizers’ of fiscal policy to work with resulting large budget deficits. But recently the general tenor of debate has swung in the direction of austerity.

Malcolm Sawyer

13. Economic Policies for Exit from Crisis, in a Post-Kaleckian Model

The 2008 economic crisis is the most serious crisis that Western countries have faced since 1929. Many parallels can be drawn and similarities found between these two crises. However, the fall in GDP after 2008 does not reach the level of the 1929 crisis, particularly in the United States. Lessons were learned from the 1929 crisis, and economic policies served to reduce the impact of the recent crisis on GDP. It seems obvious for the monetary policy of central banks. But some proposals, such as the return to a ‘constitutional’ balanced budget in the European Union remind us of the Treasury view denounced by Keynes at the time.

Edwin Le Heron

14. Firm Heterogeneity, Finance and Development: A Kaleckian Perspective

This chapter will argue that the insights of Michał Kalecki and Josef Steindl into the differences between ‘large’ and ‘small’ firms suggests that firms are heterogeneous in their financing, funding (replacing short-term with long-term liabilities) and liquidity management strategies, and that the financial structure of firms and the nature of the investments they conduct will vary according to the financial institutions available to them. Therefore, the impact of financial development on an economy will depend both on the dynamics of institutional change and the composition of the enterprise sector.

Jago Penrose

15. 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.

Jan Toporowski


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