Kalecki's Macroeconomics

Abstract

The dissertation is divided into two parts, connected by the common theme of Michal Kalecki's macroeconomics. Part I: Kalecki and the General Theory Part I considers the question of whether Kalecki's pre-1936 macroeconomic theories contained the essentials of Keynes's General Theory, defined as: • the theory of effective demand • an integrated treatment of effective demand, the money market and aggregate supply Kalecki's work of the period 1929 to 1931 does not contain a consistent theory of effective demand. However, this work does focus on quantity variations and national income aggregates and discusses multiplier-style adjustment processes. Kalecki's macroeconomics then moved on to providing a formal mathematical theory of cyclical fluctuations in a capitalist economy. Kalecki's theory of the cycle integrates the theory of effective demand with a theory of investment which gives rise to cyclical fluctuations. The central message is not the static theory of effective demand but a dynamic theory of cycles, with effective demand underpinning the cyclical mechanism. However, in other articles published between 1933 and 1935, Kalecki draws on the comparative static theory of effective demand as a central message. The most well-developed comparative static modelling of the effective demand problem was undertaken by Kalecki in a 1934 article, "Three Systems", where he provides a fully fledged comparative static IS-LM, aggregate supply-aggregate demand model. It is therefore concluded by the dissertation that Kalecki did anticipate the essentials of Keynes's General Theory in his pre-1936 macroeconomics. Part II: Money and Real Wages Part II develops aspects of Kalecki's work on the relationship between money and real wages and employment formally in an open economy stock-flow setting, relating it to New Zealand debates on the relationship between real wages and employment. A simple mathematical model is outlined, first considering only the goods market interactions with which Kalecki was centrally concerned. Seven causes of real wage changes are isolated and the impact of each on output and employment is examined. A money market and financial capital flows are then added to the model along the lines of the well-known Mundell-Fleming model, rationalised as a partial adjustment model with a given stock of net external debt. Again, the model is used to examine the impact of the seven real wage changes on output and employment. Finally the impact of the wage changes is examined in full stock equilibrium, when both the stock of net external debt and the stock of capital have adjusted to their steady state values. As in Kalecki's work, the model shows that lower money and real wages will lower rather than raise output and employment. However, the paradoxical conclusions rest not on differing expenditure propensities between workers and capitalists and a lower export elasticity of export demand, as they do in Kalecki's work, but rather the existence of external debt accumulation and de-accumulation.