January 1, 2015

Kalecki: the man who missed it by a hair's breadth

Comment on 'Kalecki on weg-led growth'

Blog-Reference

Kalecki addressed two important questions:
(i) the relationship between profit and employment,
(ii) and the difference between a partial wage rate change and an overall wage rate change.

To take the second point first: Kalecki was perfectly right in pointing out that even if it were true that a partial wage cut could increase employment in one firm it would be a fallacy of composition to maintain that this holds for the economy as a whole. For a consistent analysis of the partial-global interrelations see (2014a; 2014b).

With regard to point (i) Kalecki has to be praised for being the first to take overall profit explicitly into the picture. However, he got the relationship between profit and distributed profit wrong (2011b; 2013b; 2011a).

This can be regarded as a trivial offense because Keynes did not get it right either: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson and Bezemer, 2010, pp. 12-13, 16)

Or, to jump directly into the present, Keen did it not get right either (2013).

Or, to to take the broader picture: Neither Classicals, nor Walrasians, nor Marshallians, nor Keynesians, nor Marxians, nor Institutionialists, nor Monetary Economists, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor Econophysicists ever came to grips with profit (cf. Desai, 2008).

To sum it up: The profit theory is false since Adam Smith.

Kalecki recognized that profit is the pivotal concept for the analysis of how the economy works. In marked contrast to his fellow economists, he did not take Walras's zero profit economy for one moment seriously. Yet he stumbled at the very last step: he did not get the formal foundations right. In this respect Orthodoxy and Heterodoxy is one big family.

Egmont Kakarot-Handtke


References
Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, pages 1–11. Palgrave Macmillan, 2nd edition. URL
Kakarot-Handtke, E. (2011a). The Emergence of Profit and Interest in the Monetary Circuit. SSRN Working Paper Series, 1973952: 1–23. URL
Kakarot-Handtke, E. (2011b). What is Wrong With Heterodox Economics? Kalecki’s Profit Theory as an Example. SSRN Working Paper Series, 1845803: 1–9. URL
Kakarot-Handtke, E. (2013a). Debunking Squared. SSRN Working Paper Series, 2357902: 1–5. URL
Kakarot-Handtke, E. (2013b). The Emergence of Profit and Interest in the Monetary Circuit. World Economic Review, 2: 106–118. URL
Kakarot-Handtke, E. (2014a). Towards Full Employment Through Applied Algebra and Counter-Intuitive Behavior. SSRN Working Paper Series, 2456184: 1–25. URL
Kakarot-Handtke, E. (2014b). The Truly General Theory of Employment: How Keynes Could Have Succeeded. SSRN Working Paper Series, 2406891: 1–25. URL
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL