Business cycle mechanism, investment multiplier concept and wage levels in the models of Michał Kalecki and John Maynard Keynes

Abstract

DOI: 10.19251/ne/2020.32(5)

The objective aim of the article is to compare selected elements of M. Kalecki’s theory from the 1930s and 1940s with the theory of J.M. Keynes presented primarily in the “General Theory of Employment, Interest and Money”, published in English in 1936. Keynes, like Kalecki, was critical of the basic theorems of
traditional economics. Despite this (when we take into account the publication dates of both authors main works), it appears indisputable that it was M. Kalecki who first managed to transcend the system of axioms of orthodox economics, which, in isolation from the economic reality of the years of the Great Depression, excluded the problem of effective demand from the area of research. J.B. Say “market law” has served, for many decades, as the justification for the assumption of the full use of factors of production. The automatic equilibrium between global supply and demand was conditioned by the belief in the
solely technical function of money in the process of circulation. Theorists of the neoclassical school believed that there was a mechanism that automatically (through changes in interest rates) transformed savings into investments. The amount of national income was determined by the labor resources and productive assets, while the level of savings was determined by the level of accumulation. The harmonious and sustainable development of the economy,
which resulted from theoretical premises, stood in stark contrast to the economic reality characterized by the crisis and unemployment. The latter phenomena did not fit within the theoretical system. The common point of both analyzed theories was the consistent rejection of Say’s law. None of the compared models was equipped with an automatic mechanism capable of restoring an equilibrium characterized by the full use of production factors. Kalecki, who, in his most important work (An Attempt at the Theory of Business Cycles – 1933) published a few years earlier than “The General Theory of Employment, Interest and Money”, set forth to elaborate the mechanism of the functioning of the real economy in which labor and productive capacity remained unused, and national income was determined by effective demand, was several years ahead of Keynes’ achievements. The fact that Kalecki’s model contained all the key elements of the Keynes system that made the latter so popular is often underestimated. Kalecki himself pointed out this fact in his review of the “General Theory”.