On Michał Kalecki

Brad DeLong posted the following earlier today, referring to Michal (not Michel) Kalecki:

Back in the 1930s there was a Polish Marxist economist, Michel Kalecki, who argued that recessions were functional for the ruling class and for capitalism because they created excess supply of labor, forced workers to work harder to keep their jobs, and so produced a rise in the rate of relative surplus-value.

For thirty years, ever since I got into this business, I have been mocking Michel Kalecki. I have been pointing out that recessions see a much sharper fall in profits than in wages. I have been saying that the pace of work slows in recessions--that employers are more concerned with keeping valuable employees in their value chains than using a temporary high level of unemployment to squeeze greater work effort out of their workers.

I don't think that I can mock Michel Kalecki any more, ever again.

Few economists have been more unjustly neglected by the profession over the past century than Kalecki, so I was happy to see him mentioned on DeLong's widely read blog. But I feel obliged to point out that Kalecki was well aware that "recessions see a much sharper fall in profits than in wages". His two-sector model predicts precisely this. Kalecki assumes that all wages (and no profits) are spent on consumption goods, which implies that total sales in the consumption good sector are equal to the sum of wages in both (consumption and investment good) sectors. Hence total investment expenditures equal total profits in the economy. Since total investment expenditure is determined by the aggregate (uncoordinated) decisions of firms, Kalecki concluded that while workers spend what they get, capitalists get what they spend. When private investment investment collapses (the hallmark of a recession) then so do profits.

Kalecki's work anticipated significant parts of Keynes' General Theory, and it's a pity he doesn't get more credit for this.