Michal Kalecki – Biography, who he is and what he did | 2021

The Pole Michal Kalecki (1899-1970) has been valued as one of the most relevant economists of the 20th century. An expert in macroeconomics, his vision of the economy is characterized by having aspects of Keynes’s theories and Marxist theses.

As an economist, university professor, and UN economic adviser, Kalecki studied business cycles and income distribution. His line of economic thought had many points in common with the ideas of the English economist Keynes. On the other hand, his works would not enjoy such a wide diffusion as that of the British. All this was due to the fact that the works in which he presented his economic thesis were written in Polish.

Kalecki’s equation

One of Kalecki’s most outstanding contributions is the equation in which the sum of the sum of wages and profits equals the sum of consumption and investment. To do this, Kalecki proposed a model without a public sector and without foreign trade, with workers and companies being the only agents.

Thus, Kalecki argues that workers spend all of their salaries, while companies spend all their profit on investment.

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Salaries + Benefits = Consumption + Investment

Kalecki’s view of business cycles

Kalecki argues that there will come a point where benefits will peak. But, later, the benefits will come to a standstill to end up entering a decreasing dynamic. In this way, the great crises are preceded by the progressive collapse of profits. Therefore, after decreasing profits, the decline in investment will come, which will bring with it deep economic crises.

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Kalecki’s theory of business cycles comes to the conclusion that capitalism is not capable of creating a stage of economic growth lasting over time. Furthermore, Kalecki asserts that capitalism will lurch from recession to recession.

Kalecki, Keynesian ideas and Marx

Like Keynes, Kalecki dealt in depth with the problems related to capitalism and aggregate demand. In this sense, for Kalecky and Keynes, the problem stemmed from the fact that, in the capitalist economic system, aggregate demand was insufficient due to an equally insufficient investment.

This approach was somewhat related to the ideas of Marx, who held that accumulation was the source of profit for capitalists. Thus, the capitalists recover the money they disburse, allocating it to their own investment and their own consumption.

One wonders what was the relationship between Marxist ideas and Kalecki’s theories. Well, regarding economic crises and lack of employment, Marx stated that they were a consequence of insufficient consumption and the poverty suffered by the working classes. It is in this respect that Kalecki’s ideas come close to Marx’s theories.

full employment

One of Michal Kalecki’s most significant contributions has been his theories on full employment. In this regard, Kalecki argued that tax cuts, subsidies to companies or lower interest rates would not be instruments to boost private investment.

In fact, if these measures were implemented for the first time, they would have to be repeated repeatedly until, finally, they had no effect on the capitalists.

The answer to the employment problem lay in what Kalecki called subsidized consumption. For this, it was necessary to put into operation a wide range of public services, create jobs in the public sector and implement benefits of a social nature.

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In relation to this issue, Kalecki considered that it was decisive to invest money in public health, public education and to strengthen the welfare state.

Likewise, he considered that, for full employment, it was necessary to carry out a redistribution of wealth. This is where taxes on the upper classes played a key role.

Given their purchasing power, Kalecki argued, the wealthiest would maintain their consumption levels and would not be affected by a tax increase. In fact, this money collected via taxes would return to the upper classes when public sector workers spent their salaries and beneficiaries of social programs spent their benefits.

Kalecki, on the other hand, argued that business wielded enormous political influence and resisted full employment. And it is that, according to Kalecki, in situations of full employment, the bargaining power of the workers diminished.

On the contrary, in the face of high levels of unemployment, the bargaining power of trade union organizations and workers is much less and workers will not be consulted. Thus, in Kalecki’s opinion, full employment consolidates the position of the workers, while the capitalists will consider it inflationary and detrimental to the development of their businesses.

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