Michał Kalecki

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Michał

Michał Kalecki (Polish: [ˈmixaw kaˈlɛt͡skʲi]; 22 June 1899 – 18 April 1970) was a Polish Marxian economist. Over the course of his life, Kalecki worked at the London School of Economics, University of Cambridge, University of Oxford, and Warsaw School of Economics, and was an economic advisor to the governments of Poland, France, Cuba, Israel, Mexico, and India. He also served as the deputy director of the United Nations Economic Department in New York City. Kalecki has been called "one of the most distinguished economists of the 20th century" and "likely the most original one". It is often claimed that he developed many of the same ideas as John Maynard Keynes before Keynes but remains much less known to the English-speaking world. He offered a synthesis that integrated class analysis of Marxism and the new literature on oligopoly theory, and his work had a significant influence on both the neo-Marxian (Monopoly Capital) and post-Keynesian schools of economic thought. He was one of the first macroeconomists to apply mathematical models and statistical data to economic questions. Being also a political economist and a person of left-wing convictions, Kalecki emphasized the social aspects and consequences of economic policies. Kalecki made major theoretical…Citește mai mult

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Early years: 1899–1933 Michał Kalecki was born on 22 June 1899 in Łódź, Congress Poland, then part of the Russian Empire, to a middle-class Ashkenazi Jewish family. Information about his early years is very sparse, part of it being lost during the German occupation. He grew up in a major labor-turbulent industrial center, which affected his future views. In 1917 Kalecki enrolled at the Warsaw Polytechnic to study civil engineering. He was a very able student and formalized a generalization of Pascal's theorem, concerning a hexagon drawn within a second-degree curve: Kalecki generalized it for a polygon of 2n sides. Because his father lost a small textile workshop, Kalecki was forced to work as an accountant. During his first year in Warsaw he continued working sporadically and precariously. After finishing his first year of engineering studies, he had to interrupt his studies from 1918 to 1921 to complete military service. Upon leaving the military he joined Gdańsk Polytechnic, where he stayed until 1923, but because of the family financial situation had to leave the institution just before graduating. During these years he first approached economics, although informally. He read mostly "unorthodox" works, particularly those of Mikhail Tugan-Baranovsky and Rosa Luxemburg.…Citește mai mult

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Revolution of Kalecki and Keynes: 1933–1939 In 1933 Kalecki wrote Próba teorii koniunktury ('An Attempt at the Theory of the Business Cycle'), an essay that brought together many of the issues that dominated his thought for the rest of his life. In the essay Kalecki for the first time developed a comprehensive theory of business cycles. The foundations of his macroeconomic theory of effective demand presented in the paper anticipated similar ideas published three years later by John Maynard Keynes in The General Theory of Employment, Interest and Money. According to Lawrence Klein (1951), Kalecki "created a system that contains everything of importance in the Keynesian system, in addition to other contributions". In an introduction to the essay's 1966 English translation, Joan Robinson wrote: "Its sharp and concentrated statement provides a better introduction to the general theory of employment, interest and money than any that has yet been produced." Except for a small number of economists (in particular econometricians) familiar with his work, Kalecki's contributions, originally in Polish, failed to gain recognition. In October 1933 he read his essay to the International Econometrics Association in Leiden and in 1935 published it in two major journals: Revue d'Economie Politique and Econometrica.…Citește mai mult

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World War II years: 1939–1945 Kalecki was hired by the Oxford Institute of Statistics (OIS) early in 1940. His job there consisted mainly of writing statistical and economic analysis for the British government of the management of war economy. Occasionally he gave lectures at Oxford University. The elaborate reports Kalecki prepared for the government were chiefly about the rationing of goods, and the scheme he developed was very close to the policies adopted later when rationing was introduced. According to George Feiwel, "Kalecki's work of the war period is far less known than it deserves to be". Several of Kalecki's wartime articles were devoted to the subject of inflation. He argued, on economic grounds, against the government's efforts to suppress inflation by official regulation of prices and by government wage stabilization (freezing of wages), recommending in each case economic rationing instead (especially the full rationing system rather than the wage stabilization program). Some of Kalecki's major works were written during this period. In 1943 he produced two articles, one dealing with new additions to the traditional business cycle theory, and one presenting his completely original theory of business cycles caused by political events. The latter was published in 1944 and…Citește mai mult

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Postwar years: 1945–1955 Kalecki went to Paris for a while, then moved to Montreal, where he stayed for fifteen months working at the International Labour Office. In July 1946 he accepted the Polish government's invitation to head the Central Planning Office of the Ministry of Economics, but he left some months later. By the end of 1946, he assumed the job of Deputy Director in the Department of Economic Affairs of the United Nations Secretariat in New York. He remained there until 1955, mainly preparing the World Economic Reports. Kalecki resigned that position as a result of McCarthyist pressures. It was argued that he was punished on political grounds (a non-merited economic planner stance was attributed to him). He became depressed by Senator Joseph McCarthy's witch-hunt, as many of his close friends were directly affected. Denounced in the US Senate as a supporter of communism, Kalecki ultimately failed to achieve professional success in the US (although he influenced the future post-Keynesians there), unlike in England, where he had a large following and was supported especially by his friend Joan Robinson.

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In communist Poland: 1955–1968 In 1955 Kalecki returned to Poland, never to work abroad for any extended period again. Hopeful for an opportunity to participate there in reforms that were socially advantageous, he believed that socialism would avoid the miseries brought by capitalist policies. He became economic advisor to the Office of the Council of Ministers. In 1957, he was appointed chairman of the Central Commission for Perspective Planning. The perspective plan had a time horizon of 1961 to 1975 and basically meant a practical implementation of Kalecki's theories of growth in socialist economies. However, the final plan developed by Kalecki was dismissed by board members as defeatist. Then things got worse, as related by Feiwel: "By 1959 the policy makers had forsaken rationality altogether and had reverted to "hurrah planning". Constraints on the growth rate were disregarded under the spell of optimism engendered by the good performance in 1956–57. Although Kalecki remained with the Commission of the Perspective Plan for another year beyond 1959, all concerned knew that it was a pro forma function. The end of 1958 had marked the beginning of the erosion of his influence." Still holding some of his government appointments, Kalecki spent much of…Citește mai mult

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In retirement: 1968–1970 Kalecki kept writing research articles. During his last visit to Cambridge in 1969, his seventieth birthday was celebrated. Kalecki gave a University Lecture on the theories of growth under various social systems, after which he was greatly applauded for the soundness of his arguments as well as for the overall trajectory of his life. Keynes had said that knowledge of the laws governing capitalist economy would make people more prosperous, happy and more responsible regarding economic decisions taken. Kalecki contested this view, arguing that the idea of political business cycle (governments can force situations to their advantage) seems to point in the opposite direction. As he grew older, Kalecki was ever more convinced of this, and his view of humanity was getting increasingly pessimistic. Michał Kalecki died on 18 April 1970 at the age of 70, and although he was bitterly disappointed with political developments, he lived long enough to see the recognition of the value of his many original contributions to economics. Feiwel wrote the following summary of Kalecki's life: "With Michal Kalecki's death, the world lost a unique individual of extremely high principles, powerful energy, and brilliant mind, and economics lost a model and inspiration.…Citește mai mult

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Background and overview Despite the fact that Kalecki authored many theoretical economic constructs, his interest in economics was more practical than academic and resulted from his work in engineering, journalism, credit investigation, use of statistics and observation of business operations. Full-time university teaching, for which he did not have formal qualifications (a degree), he did only during the last thirteen years of his career. He was contemptuous of abstract research and declined Keynes's invitation to undertake a critique of Jan Tinbergen's econometric business cycle work, for which he would also lack an in-depth knowledge of statistical theory. Kalecki stressed that the predominant economic growth models were built on the assumption of an idealized laissez-faire capitalism and did not properly take into account the crucial and empirically demonstrable role of the government sector, the state's intervention and the interaction between the state and private sectors. In 1943 Kalecki wrote: '... "discipline in the factories" and "political stability" are more appreciated by the business leaders than are profits. Their class instinct tells them that lasting full employment is unsound from their point of view and that unemployment is an integral part of the normal capitalist system.' The capitalists therefore want to limit…Citește mai mult

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Profit equation The volume of economic literature written by Kalecki during his life was very large. Although in most of his articles he returned to the same subjects (business cycles, determinants of investment, socialist planning), he often did it from a slightly unusual perspective and with original contributions. Kalecki's most famous contribution is his profit equation. Kalecki, whose early influences came from Marxian economists, thought that the volume of profits and their sharing in a capitalist society were vital points to be treated. This followed from Karl Marx's work on relationships such as the rate of surplus value or the organic composition of capital (and even a forecast about the overall trend of profits). However, Marx was not able to make a meaningful statement about the total volume of profits in a given period. Kalecki derived this relationship in an extremely concise, elegant and intuitive way. He starts by making simplifications which he later progressively eliminates. These assumptions are: Divide the whole economy into two groups: workers, who earn only wages, and capitalists, who earn only profits. Workers do not save. The economy is closed (there is no international trade) and there is no public sector. With these assumptions Kalecki…Citește mai mult

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{\displaystyle P\,\ } is the volume of gross profits (profits plus depreciation),

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{\displaystyle I\,\ } is the gross investment that has been made in the economy. Since we have supposed workers who do not save (that is

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{\displaystyle W=C_{W}\,\ } in the preceding equation), we can simplify the two terms and arrive at: This is the famous profits equation, which says that profits are equal to the sum of investment and capitalists' consumption. At this point, Kalecki goes on to determine the causal link between the two sides of the equation: does capitalists' consumption and investment determine profits or profits instead determine capitalists' consumption and investment? Kalecki says, "The answer to this question depends on which of these items is directly subject to the decisions of capitalists. Now, it is clear that capitalists may decide to consume and to invest more in a given period than in the preceding one, but they cannot decide to earn more. It is, therefore, their investment and consumption decisions which determine profits, and not vice versa". For someone who has not seen the preceding relationship before, it might, upon examination, seem somewhat paradoxical. If the capitalists consume more, obviously the amount of funds which they have at the end of the year should be less. However, this reasoning, obvious to the individual entrepreneur, is not true for the business class as a whole, as the consumption of one capitalist becomes part…Citește mai mult

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{\displaystyle S\,\ } ) in the economy, because the workers do not save. The previous causal relationship still applies, and goes from investment to saving. That is to say, total savings are determined once investment has been determined. Therefore, in some way, investment generates sufficient resources. "Investment finances itself", so that equality between savings and investment is not caused by any interest rate mechanism as earlier economists thought. Finally, we can eliminate the assumptions of the original equation: the economy can be open, there may be a government sector and we can let workers save something. The resulting equation is: In this model total profits (net taxes this time) are the sum of capitalists' consumption, investment, public deficit, net external surplus (exports minus imports) minus workers' savings. Before trying to explain income distribution, Kalecki introduces some behavioural assumptions in his simplified equation of profits. For him, investment is determined by a combination of many factors difficult to explain, which are considered given, exogenous. Regarding capitalists' consumption, he considers that a simplified form is the following equation: That is, capitalists' consumption depends on a fixed part (independent part), the term

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{\displaystyle A\,\ } , and a proportional share of profits, the term

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{\displaystyle q\,\ } , which is called the marginal propensity to consume of the capitalists. If this consumption function is substituted into the profit equation, we have:

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, this gives: The advantage of the above manipulation is that we have reduced the two earnings determinants (capitalists' consumption and investment) to only one (investment). Income distribution and the constancy of the share of wages Income distribution is the other pillar of Kalecki's efforts to build a business cycle theory. To do this, Kalecki assumes that industries compete in imperfectly competitive markets, more particularly in oligopolistic markets where firms set a mark-up on their variable average costs (raw materials, wages of employees on the shop floor that are supposed to be variable) in order to cover their overhead costs (salaries to senior management and administration), to obtain a certain amount of profit. The mark-up fixed by firms is higher or lower depending on the degree of monopoly, or the ease with which firms can raise price without causing reduction in the quantity demanded. This can be summarized in the following equation: