Wednesday, March 21, 2007

Michal Kalecki, One of the Greatest Economists Ever

Kalecki is probably most famous for having invented the theory of effective demand, as in Keynes' General Theory, prior to and independently of Keynes. I cannot read Polish, so I cannot document this claim. I have read a later 1965 work of Kalecki's, in which he lays out his views on business cycles and the level and the rate of growth of the national income.

But I want to describe another aspect of Kalecki's work. Kalecki demonstrates that at least some of those who advocate Keynesian policy do not think of government as staffed by far-seeing and disinterested philosophers working entirely for the good of society, whatever that may mean. Rather, Kalecki described government policy as refracting conflict within society, including conflict resulting from the divergent interests and views of members of different classes.

For instance, in Kalecki (1967), he analyzed the prospects of governments coming to power in third world developing economies in which representatives of the lower middle class do or do not find themselves serving the interests of big business, in alliance with remnants of the feudal system. Kalecki analyzes, for example, how land reform can be expected to change the balance of class forces.

Apparently that article was of importance in the literature on development economics. But I am more aware of Kalecki (1943). In this article, Kalecki explains why a government in a first world country might be unwilling to maintain full employment through increased deficit spending. Kalecki's explanation has several aspects:
  • Full employment policy threatens big business' ability to carry out a capital strike.
  • Public spending might start with "objects which do not compete with the equipment of private business, e.g., hospitals, schools, highways", but is unlikely to stop there, and might lead to newly nationalized industries and subsidization of consumption.
  • Under full employment, if maintained, '"the sack" would cease to play its role as a disciplinary measure.'
Still governments have been thought for many decades accountable for downswings in business cycles. How can governments manage this tension between the needs to maintain full employment at election time and to maintain the social position of business leaders? Kalecki suggests one can expect large scale spending on armaments, an emphasis on tax cuts (as opposed to increased spending), and the emergence of a political business cycle. Kalecki's observations on political economy might have something to do with, say, United States government policy over later decades.

References
  • Kalecki, Michal (1943). "Political Aspects of Full Unemployment", Political Quarterly, V. 14 (Oct.-Dec.): 322-331
  • Kalecki, Michal (1965). Theory of Economic Dynamics: An Essay on Cyclical and Long-Run Changes in Capitalist Economy (Second Edition), George Allen & Unwin
  • Kalecki, Michal (1967). "Observations on Social and Economic Aspects of 'Intermediate Regimes'", Coexistence, V. 4, N. 1: 1-5

8 comments:

Anonymous said...

I have to agree with that post. It is stunning that Kalecki is not better know. Perhaps because, unlike Keynes, he came from a socialist background and rejected the neo-classical assumptions which Keynes had so many problems (partially) escaping from?

His article on the politics of full employment is an absolute classic and explains a lot of what happened after 1973:

"to maintain the high level of employment. . . in the subsequent boom, a strong opposition of 'business leaders' is likely to be encountered. . . lasting full employment is not at all to their liking. The workers would 'get out of hand' and the 'captains of industry' would be anxious 'to teach them a lesson'" because "under a regime of permanent
full employment, 'the sack' would cease to play its role as a disciplinary measure. The social position of the boss would be undermined and the self assurance and class consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. . . 'discipline in the factories' and 'political stability' are more appreciated by business leaders than profits. Their class interest 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."


Kalecki correctly predicted the rise of "a powerful bloc" between "big business and the rentier interests" against full employment and that "they would probably find more than one economist to declare that the situation was manifestly unsound." The resulting "pressure of all these forces, and in particular big business" would "induce the Government to return to. . . orthodox policy."

I would recommend Malcolm C. Sawyer's The Economics of Michal Kalecki (MacMillan, Basingstoke, 1985) as a good introduction. The quotes come from "An Anarchist FAQ" (www.anarchistfaq.org)

Iain

Michael Greinecker said...

Reminds me of the "military Keynsianism" John K. Galbraigth was talking about.

Anonymous said...

The question becomes how are you going to gain full employment. Are you going to force workers to work places they don't want to or force companies to hire people they can't afford? Govt has to find the balance between several things, inflation and employment come to mind. So if we get full employment that would mean that workers were able to job hop and keep demanding higher raises, forcing higher prices and eventually companies will overhire. Or is the govt going to get rid of min wage so businesses can hire people for less?

anonymous mike

Anonymous said...

http://en.wikipedia.org/wiki/Labor_theory_of_value

Can someone who understands necoricardian economics please fix the above article, it is terrible, confuses use value and exchange value and is far too biased to marginalist apology.

Robert Vienneau said...

Iain, thanks for the comment.

Michael, I agree it's a description of what became know as Military Keynesianism. Kalecki described such before it arose. I think this is a sign that he might have been working in a tradition worth building on. (I tend to think Popper had some heuristics worth using to render internal judgements on developments in a discipline. I know philosophy of science has moved on. I don't think I have to accept his posing and solution of the demarcation problem to use his ideas as heuristics.)

Mike, nothing is being said here about "forcing" employers to hire anybody or laborers to work.

I've given up on the Wikipedia entry on the labor theory of value long ago.

Anonymous said...

I guess there are several Mike's posting.


My point about forcing someone to work deals with how you are going to get full employment. There will always be businesses in different cycles with hirings, staying steady, and firings and changes in customer preferences that cause some businesses to expand and some to contract so you ar never going to get full employment.

Businesses would like at this current time to have full employment because that means they are making the most money they can, however it creates the bubbles that eventually end.

anonymous Mike

Adi the Austrian said...

Kaleckian economics is praised for wrong reasons; his business cycle theory is a just kind of multiplier-accelerator model of investments (though more advanced, see article in Econometrica from Frisch and Holme 1935/36? about mixed difference/differential equations).

And it's idiotic to think that the employers are conspiring to get level of employment down and monetary system sound. Many industrialists are actually supporting central banks accomodating monetary policies if they will get inflationary credit first.

And there cannot be "cost-push" inflation; if money supply is fixed then increase of prices of one group of commodities means reduced spending on other types of commodities. Cost push inflation is invented by government economists who make excuses for bad central bank monetary policy.

Bubbles are created by malinvestments which are caused by central banks monetary policy to fix interest rate abnormally low. So no blame to individual entrepreneurs who are getting very distorted signals from price system...

Robert Vienneau said...

I don’t know that Kalecki, for example, has ever denied that sectors can become out of proportion in the economy. So I don’t see that Mike, in that part of his comment, is addressing anything Kalecki says. Kalecki does claim that businessmen will not support policy that increases their profits if that policy also threatens their social status. I previously noted that events after his 1943 paper suggest he was onto something.

Adi, I think I have already demonstrated Austrian business cycle theory to be faulty. I think that being early in formulating a multiplier-accelerator model is impressive. But, as demonstrated, Kalecki fit his business cycle theory into some descriptive observations on government policy. And he contributed to Industrial Organization, as well as having some observations on money and finance.

Post Keynesians do indeed think that inflation can be cost push. That is, inflation can result from a conflict over the distribution of income. An important strand of thought in Post Keynesian economics denies the money supply is fixed in advanced capitalist economies. Kaldor, for example, contributed to the theory of endogenous money.