marx and kalecki

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Contributions toPolitical Economy (1997) 16, 23-47

MARX AN D KAL E CKIP R U E K E R R *

University of Notre D ame, Freemantle, USAThis paper aims to make explicit what Kalecki often left as understood in the moreabstract presentations of his analysis. In particular, it identifies the starting point of histheories in the work of Marx and the classical economists. The first step in thisdemonstration is to establish the contribution to Marx' analysis of a capitalist mode ofproduction to Kalecki's theories, both their analytical framework and content. Thesecond is to consider the particular implications of Marx for Kalecki's theories ofinvestment, pricing and technological change, and their interaction.

It is not unusual to acknowledge the Marxist background to Kalecki's theories.1Sometimes the impact of this is compared to that of Keynes's Marshallian back-ground, and the differences between the two are identified in Kalecki's use of class, hispolitical sympathies and his incorporation of imperfect competition, a more con-temporary stage of capitalism, into his analysis. But rarely are the implications ofKalecki's Marxism for his spare models pursued.There are two steps in this task. The first is to establish the contribution of Marx'sanalysis of a capitalist mode of production to Kalecki's approach to theory, both itsanalytical framework and its content. The second is to consider the particularimplications for his theories of investment, pricing and technological change, and theirinteraction, and so to illustrate the classical and Marxist framework which underliesKalecki's models.2Section I of this paper establishes certain features of the classical framework whichMarx and Kalecki share as a basis for certain of these relationships. Section IIexamines the correspondence between Marx's and Kalecki's theories of investment

*I would like to thank, but in no way implicate in the views presented here, Geoff Harcourt, L. Pasinettiand G. Vaggi.1 Joan Robinson, for example, acknowledges Marx's contribution to Kalecki's thought, but with herlimited view of Marx's work as Keynes without the labour theory of value (see Robinson, 1942) she fails toappreciate just what this contribution m ight be. Sawyer (1986 Ch . 8) reviews mo re systematically similaritiesand apparent , not necessarily substantive, differences between Kalecki's ideas and those of Marx. Steindl(1952; see also 1990), in a different project, extends Kalecki's analysis of the stagnation stage of capitalismusing Marx's ideas.2 The main source ofstatements concerning Kalecki's ideas is th e Collected Works ofMichal Kalecki, Vol I,Capitalism: Business Cycles and Full Employment; Vol. II, Capitalism: Economic Dynamics, hereafter, CW.References will show the original publication date and, where relevant, the second reference date is toCW, Vols I and II. References to Marx are to Capital, Vol. III.

Cambridge Political Economy Society 1997

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2 4 P. KERRwith particular reference to their explanations of pricing. It is argued that Kalecki'sprices are prices of production and it is shown how he follows Marx's description oftheir formation. Section III discusses the relationship between these two parts of theoverall account of the capitalist economy, demonstrating their analytical separabilityin Kalecki's work. This m eans that his account explains the capitalist process in such away that changes in its historically specific form can be accommodated in Marx'scorresponding theory without changing the fundamental framework or structure ofthe overall account, i.e. while retaining the basic social relations and their analyticform which comprise, for Marx, the capitalist mode of production. The remainingsections consider some of the implications of the preceding arguments.

I. TH E CLASSICAL FORM OF MARX'S RELATIONSHIPS OF CAPITALISMKalecki's theories of investment and pricing are considered here in the context of thestructure of classical political economy and of Marx's discussion of these issues. Therelationship between the theories of investment and of pricing, on the one hand, andthe relationsh ip, which may itself constitute a theory, between investment and pricing,on the other hand , could be considered in the following ways:(a) These relationships together comprise a part of the structure of an account ofcapitalist dynamics.(b) A distinction is made between 'long-period' decisions and 'short-period'decisions. The former are decisions based on more permanent aspects of, orrelationships fundamental to, the capitalist social structure and, because they areoutcomes of more pe rmanent relationships, theories can be built up about them.'Short period' refers to immediate causes which are situation-specific such thattheir transitory nature precludes generalisations being made about theirbehaviour with regard to other situations. The investment and the pricingdecisions in this classical framework are both long period.(c) Th ere are the developments respectively of theories of investment and pricing,

which link these two activities together in the theoretical framework, so that inKalecki's theory the mark-up and subsequently the price are related to the level ofplanned investment. Simultaneously, at the more aggregate level, the pricedecision enters into the determination of the distribution of income so that theresulting distribution, employment and activity confirm the initial investmentdecision.(d) There is also Marx and Kalecki's notion of 'dynamics' of a capitalist system,which in the classical framework would refer to the tendency of the variables inthe economy to adjust towards some sustainable position (even if it were never atthis position). In the case of Kalecki's account of capitalist economies, this is to bethe adjustment, via investment decisions, towards the position in the economy atwhich expected rates of profits are equal in all sectors, as are realised rates ofprofits. C learly, this position will be defined partly by new technology introduced



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MARX AND KALECKI 2 5

in successive investment periods. The pricing or mark-up decisions, however,confirm that particular portions of output will be the surplus, hence the rate ofprofits depends on these decisions.Whereas (a) and (b) refer to the relationship between two separable theories, ofpricing and investment respectively, which together form independent parts of anoverall theoretical framework, (c) and (d) refer to the linking of these two separablecomponents to form one theory about distribution and accumulation.Kalecki unambiguously states a position regarding 'long-period' and 'short-period'explanations as these refer respectively to trends and to cycles, and implies a positionregarding the overall structure of theory. Concerning the former, Kalecki, referring tothe theory of business cycles, says it requires that two relations be established: thatbased on the impact of effective demand, generated by investment, on profits and

national income; and that showing the determination of investment decisions (1968A,1991, p. 435). He also makes this clearly separate from his theory of distribution andthe prices. On the short period, Kalecki states:In fact, the long-run trend is but a slowly changing component of a chain of short-periodsituations; it has no in dep end ent entity, and the two basic relations . . . should b e formulated insuch a way as to yield die trend cum business-cycles phe no m eno n . . . By this earlier separationof short-period and long-run influences I missed certain repercussions of technical progresswhich affect the dynamic process as a whole (ibid., p. 435) .

The long period allows time for income to adjust to the investment decisions. Pricesand distribution adjust independently of the investment decision itself. The level ofinvestment determines the long-run level of output. But the investment decision via aprice decision determines distribution. At the same time, interventions over the longrun such as technical progress link investment to deviations of the rate of profitsaway from the standard (or average) rate of profits, but also lead to an increase inincomes.The considerations (a) to (d) above with reference to Kalecki's theories of invest-ment and pricing are , therefore, obviously related and in certain respects inseparable.Consider the meaning of 'long-period'. In the classical sense this refers not to a timeperiod but rather to a theoretical abstraction depicting a position to which theeconomy tends to move as the outcome of persistent relationships. Whether thisposition moves as a stable growth path (which Kalecki disputes see e.g. Kalecki,1962B, 1991) or is a position w hich, without external stimuli is static or in declineasKalecki maintains in his arguments concerning the tendency to stagnationis oneissue in classical political economy and whether, on the other hand, thefluctuations noutput converge on this path or move around it, is another (ibid.; see also Garegnaniand responses by Harcourt and Roncaglia in Bharadwaj and Schefold, 1990).Marx's discussion of the process of investment arises out of his basic propositionsabout the nature of capitalism: the antagonism between labour and capital and thealienation of the surplus from the direct producers; the com petition and the coexistentinterdependency between capitals; and the need for capitals to accumulate. He

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2 6 P. KERRpursues the implications of the increases in the ratio of constant to variable capital fora given capital outlay embodied in the new technology, whereby the wage bill iscertainly reduced relative to the fixed capital outlay, but so, too, in the capacity togenerate surplus value.He sees the competitive process as one in which the rate of profits on all capitalstends towards equality (either through redistributing capital through investment tosectors where the rate of profits is above average or through redistributing an alreadypro du ced surplus by way of pricing decisions). M arx also established a framework fordiscussing the possibilities of crises, or interruptions in the circular flow of capital,using the classical schema of reprod uctio n.

Kalecki assumes, following Marx, that the relevant relationships for understandingthese issues in a capitalist economy are those of competition between capitalists,antagonism between capitalist and labourer, and interdependency between capitalists.These are expressed in various forms and in different parts of Kalecki's theoreticalsystem. The relationships of antagonism, for example, Kalecki discussed in 'ClassStruggle and the Distrib ution of Na tion al Inco m e' (1971A , 1991) and also in'Political Aspects of Full Employment' (1943A, 1990), and he shows how these basicrelationships may have implications for income distribution, for levels of output andfor work organisation. His theory of pricing, however, directly expresses one form ofcom petition between capitalists, showing the conseq uences of this relationship for thedistribution of income. This competitive relationship also finds expression in thediscussion of investment decisions (which confirm the income distribution at theaggregate level). T h e interdep ende ncy between capitalists is expressed in his theory ofeffective demand using the classical schema, and in his conclusion, a demonstrationtha t 'capitalists get wh at they sp end '.Kalecki sees new investment as one element in the competitive struggle betweencapitalists as it generally embodies technical change. It also has the result ofconcentrating capital, increasing the degree of oligopoly, and hence increasing thepotential mark-up and so affecting the distribution of income between individualcapitalists and also between wages and profits.

Kalecki's work on investment (including technological change) and pricing,therefore, can be situated directly within Marx's basic social relationships ofcapitalism. Kalecki takes certain of Marx's more abstract propositions about theserelationships and explores the historically specific ways in which these are expressed,and the ways in which they interact with each other and with expressions of othersocial relations of capitalist prod uctio n: he th en selects and represen ts those elemen tsof this behaviour appropriate to abstract models. 1

1 Kalecki's ideas about the role of abstraction are reflected in the following statement where hedistinguishes between the singular use of models and his own base in an historical materialist method:the econometric model and historical materialism constitute two different approaches to the development ofa society. Th e former is based on functional relations betw een the econ om etric variables in the period as wellas between these variables and the same variables in past periods. The relationships are assumed to be givenand are not subject to change. In this way a definite dynamic process is established which, however,

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MARX AND KALECKI 27

II. MARX AND KALECKI ON INVESTMENTMarx sees investment in the 'capitalist mode of production [as] . . . a historical meansof developing the material forces of production' (Marx, p. 250). This investment anddevelopment of the productive forces has its impact on effective demand.It [i.e., consumer spending] is furthermore by the tendency to accumulate, the drive to expandcapital and produce surplus value on an extended scale. This is law for capitalist production,imposed by incessant revolutions in the methods of production themselves, by the generalcompetitive struggle and the need to improve production and expand its scale merely as a meansof self-preservation and under penalty of ruin, (ibid, p. 244)The scope of technical change ranges from new machines to reorganisations ofproduction. Marx argues that:the fall in prices and the competitive struggle would have driven every capitalist to lower theindividual value of his total product below its general value by means of new machines, new andimproved working methods, new combinations, i.e. to increase the productivity of a givenquantity of labour, to lower the proportion of variable to constant capital, and thereby to releasesome labourers, (ibid., p. 255)Despite its need for accumulation and indeed partly due to technical change, whichgenerally embodies more constant than variable capital, the capitalist mode of produc -tion has a tendency to stagnation and crises. Marx comments that the 'development ofthe productivity of labour creates out of the falling rate of profit a law which at acertain point comes into antagonistic conflict with this development and must beovercome constantly through crises' (ibid. p. 258).The actual mechanism of a level of effective demand leading to a certain level ofoutput and employment and the distribution of this output between wages and profits,on the one side, and between investment and luxury consumption and wage-goods,on the other, is the same for Kalecki as it is for Marx. Both are derived from theclassical circulation schema and as such do not in themselves constitute theories ofoutput so much as provide frameworks which demonstrate the essential inter-dependency between capitalists and the importance of accumulation for the survivalof capitalists as a class. Marx clearly uses the notion of effective demand as understoodby a Kaleckian (and Keynesian) use of the concept, for example, in the followingpassages, referring to 'social demand' ('this always is taken to mean effective demand'ibid., p. 181)1 which 'is essentially subject to the mutual relationship of the differentclasses and their respective economic position, notably therefore to, firstly, the ratio offootnote 1 continued from previous pagecorresponds to actual developments only in the case where the basic assumption of invariability of functionalrelationships... is fulfilled.Historical materialism considers the process of the development of a society as that of productive forcesand productive relations . . . which shape all the other social phenomena such as government, culture,science and technology . . . There is a feedback e ffec t. .. as well, (1964A, p. 233)1 Adam Smith (1776) also used the idea, although less systematically, referring to 'effectual demand[which] is the demand of those who are willing to pay the natural prices of the commodity' (An Inquiry intothe Nature and Cause! of the Wealth of Nations, I. vii., vol. 1, p. 49) But his markets expand with the labouremployed because increased accumulation tends to lead to labour-intensive technological change.



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2 8 P. KERRtotal surplus value to wages, and, secondly, to the relation of the various parts intowhich surplus value is split u p ' (ibid.). And the 'prob lem of a lack of effective demandarises because in this specific capitalist interrelation the surplus-product assumes aform in which its owner cannot offer it for consumption, unless it first reconverts itselfinto capital for him ' (ibid., p. 257).The imperative of realising surplus-value to the overall process of reproduction isdescribed:[TJhis production of surplus-value completes but the first act of the capitalist process ofproductionthe direct production process . . . Now comes the second act of the process. Theentire mass of comm odities, i.e. the total pr oduct .. . must be sold, (ibid., p. 244)Th ese were not particularly profound observations as earlier writers had made similarremarks (e.g. the debate over 'General Gluts'). But Marx goes on to suggest, still atthe abstract level of basic social relationships of capitalist production, a reason for theemergence of this problem of inappropriate or insufficient effective demand forenabling uninterrupted accumulation to continue.T he con ditions of direct exploitation and those of realising it, are not iden tical. Th ey diverge no tonly in place and time, but also logically. The first are only limited by the productive power ofsociety, the latter by the proportional relation of the various branches of production and theconsumer power of society. And this last-named is not determined either by the consumerpow er based on antago nistic conditions of distribution . . . . It is . . . restricted by the tendency toaccumulate, the drive to expand capital and produce surplus-value on an extended scale, (ibid.)This consumer power is itself at variance with the narrow basis on which theconditions of consumption rest, that is, on there being a high enough wage share.And so the other side of this interruption to the circulation of capital is that ascapitalist production develops, it 'intensifies] the contradiction between the con-ditions under which this surplus-value is produced and those under which it isrealised' (ibid. p. 245). The contradiction to which Marx refers here is that resultingfrom the tendency for the organic composition of capital to rise with the developmentof the productive forces, so that out of the profits an increasing proportion must beused for constant rather than variable capital, while at the same time it is from thelatter that further surplus-value can be produced. T hu s, although a certain amount ofsurplus-value might be produced, the resultant accumulation will depend on whatportion of it is reconverted to capital, and, out of this, to variable capital. This latterwill be affected by the further introduction of new technology. The new technologytends to incorporate a higher ratio of constant to variable capital, of machines tolabour. Yet it is the total wage bill, the variable capital, which provides the funds forpurchasing the products of labour. Whether this is greater or less in real terms than

5 This basis perhaps provides a reason for his disregard for the criticisms of his pricing and distributiontheory , seeing these as simplistic misinterpre tations, and for his com m ent : as I indicated tim e and again inmy previous work the relative share of labour prime costs in the national incom e depen ds on the mark-upsover prime costs ..." (Kalecki, (1968A, 1991 p. 438). For a discussion on this issue with early critics, seeKalecki (CH719 91, pp . 48 5-9 2) and also Kriesler (198 7, pp . 40 -4 2) .


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MARX AND KALECKI 29

before will depend on whether the technological change cheapened wage goods bymore than it reduced total employment.

III. KALECKI'S MARXISMThe contention that Kalecki's investment and pricing theories are extensions ofMarx's theories at a less abstract level can be seen in the context of the considerationslisted in section I concerning the relationship between investment and pricing inclassical political economy. The objective is to clarify the implications of Kalecki'swork relevant to the answering of questions such as how does the theory of investmentexpress capitalist competitive relations, and what relation does pricing have to this?Marx's work provides a reference point for understanding the implications ofKalecki's theories.The problem of effective demand is one outcome of the antagonistic social relationbetween capital and labour. Kalecki criticised Keynesian growth theory (see, e.g.,1951; also 1992, pp. 197, 593 for brief no tes). Keynesian theories of stagnation tendto develop from this point, and interpret the antagonism in the context of the struggleover the final distribution of income rather than, as above, in the context of aredistribution resulting from the type of technology which evolves under capitalism.The outcome is a theory of stagnation based on 'under-consumption' and the inabilityof the working class to absorb their output owing to their low real wages relative to thevalue of this output. The implication of this former kind of analysis is that stagnationcan be resolved by a simple redistribution of income. Theories of'disproportionality'imply similar possibilities for intervention tomaintain the desired balance between thecomposition of demand and output.Another possible solution to the problem of lack of effective demand andconsequent stagnation might appear to be an expansion of capitalists' luxuryconsum ption. Marx points out, however, that 'the entire nature of the capitalist modeof production is lost sight of; and also forgotten is the fact that it is a matter ofexpanding the value of capital, not consuming it' (Marx, p. 257). Kalecki makes thesame point. Accumulation, or expanded reproduction, is a crucial aspect of thecompetition between capitalists and of the survival of capital as a whole; tomaintain acertain mass of profit in the face of a falling rate of profit (in Marx's model), requiresexpanded reproduction.Kalecki, following Marx, uses the same classical scheme to demonstrate thetechnical and social interdependencies of capitalist production and exchange and thusto develop a model of effective demand.1 Keynes had no such underlying model.

1 Kalecki uses the schema in the following way:There are three sectors; the wage goods sector, the investment goods sector and the capitalists'consumption goods sector, I, II, and III respectively. There are two classes, workers and capitalists. Theformer do not save at all and the latter spend on the products of sectors I and II.

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30 P. KERR[The schema] re prese nt . . . the gist of the m odern theory of effective demand . . . this theorymay be derived in full from the Marxian equation . . . representing the exchange betweenDepartments 1 and 2 on the one hand and Department 3 on the other, if this equation isconsidered in the general context rather than in that of uniformly expanding reproductions,(Kalecki, 1968B, 1991, p. 462).Developing this to a growth context, Kalecki states that if there is uniform accumu-lation of capital and a given relationship between productive capacity and the stock ofcapital goods, the prob lem of effective dem an d does no t arise. 'It is this approac h tha tis inherent in many contemporary theories of economic growth' (ibid., p. 463). But ifcapitalists decid e to invest at a lower rate there will be a decline in effective de m an dand a further effect on the degree of utilisation of capacity.Some economists tend to consider this phenomenon as the downswing phase of the businesscycle which takes place around the initial path of growth. . . . [But] why cannot a capitalistsystem, once it has deviated downwards from the path of expanded reproduction, fin d itself in aposition of long-run simple reproduction? (ibid, p . 464; see also Sardoni, 1989)Kalecki concludes that '[w]e have moved one step forward: we have shown that thedevelopment of capitalism which does not encounter the problem of effectivedem and , even if i t is possible , is unstable ' (196 7, 1 99 1, pp . 4 54 -5 . Having dem on -strate d the possibilities of sustained lack of effective de m an d w ith this m od el, he thendevotes his attention to the main component of effective demand, investment.

Kalecki's explanation of both effective demand and of distribution are logical andhistorical developments of the basic relations of a capitalist mode of production. Theimportance which Kalecki attached to these issues and his historical approach arereflected in his criticism of orthodox and Keynesian growth theory, which is worthquoting at length:[T]he central problem of the laisser-faire capitalist system . . . is that of effective dem and. . . .But from the time the discussion of economic dynamics has concentrated on problems ofgrow th the factor of effective demand was . . . disregarded. Either it was simply assumed that inthe long run the problem of effective demand does not matter . . . apart from the business cycle

footnote 1 continued romprevious pageL K YI W l + PI = YlII W II + PII VIIm wm = PHI = ni l

Since the surplus in the wage goods sector must provide for the workers in the two other sectors, II andni:PI = wa + winTh en PI + PII + PHI = H I + VTHTotal capitalist income is equal to their total spending on investment goods and luxury consumptiongood s. Kalecki illustrates the notion of circulation in prod uction and distribution to demon strate tha t whilewo rkers receive a total wage bill dete rm ined by political forces and the total level of em ploy m ent an d ou tpu t,

capitalists as a group receive as income an amount exactly equal to what they spend on productive and"unproductive' go ods. Since these two latter variables are the ind epend ent ones they also determin e the levelof total output (see 1964B). Hence the interdependence of capitalists on each other for markets alsobecomes clear.


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MARX AND KALECKI 3 1. . .; or . . . the problem was approached in two alternative fashions: (a) The growth is at anequilibrium (Harrodian) rate, so that the increase in investment is just sufficient to generateeffective demand matching the new productive capacities which the level of investment creates,(b) Whatever the rate of growth the productive resources are fully utilised because of long-runpriceflexibility:prices are pushed in the long run in relation to wages up to the point where thereal income of labour and thus its consumption is adequate to cause the absorption of fullemployment national product.I do not believe . . . in . . . neglect [ing] . . . the problem of finding markets for the nationalproduc t at full utilisation of resources either in (a) or (b) fa sh io n ... . [T] he trend represented bythe (a) case is unstable. . . . The belief that such disturbance creates merely a downswingfollowed by an upswing in relation to the growth proceeding at an equilibrium, i.e., that it yieldsa trend cum business cycle is mathematically indefensible. . . . Nor do I subscribe to the long-run priceflexibilityunderlying theories of the (b) type. The monopolistic and semi-monopolisticfactors involved infixingprices cannot be characterised as temporary short-periodrigiditiesbutaffect the relation of prices and wage costs both in the course of the business cycle and in thelong run. (Kalecki, 1970, pp. 311 -12).The pricing behaviour expresses the competitive relations between individualcapitalists: the model of effective demand governing the level of output illustrates thedependency of individual capitalists on the aggregate accumulation of capitalotherfirms are the market for the investment-goods outputs of each individual firmandtherefore raises the possibility of realisation problems and of a tendency to stagnation.(At the same time Kalecki's distinction can be seen between two situations. One ismedium-term recessionary phases of the business cycle which are subject to solutionwithin the framework of the capitalist system and the other is the structural crises ofcapitalism w hich can not b e so 'statically' resolved.)1Kalecki states:[A]n expanded reproduction will take place if there exist factors that simply do not permit thesystem to remain in the state of simple reproduction . . . [this state] leads to a level of grossinvestment exceeding depreciation.Such a factor may be first and foremost the influence of technological innovations, . . . whichopens before the capitalists new perspectives. The technical progress appears in this approachnot merely as depreciating old plant, which leads to their replacement by new ones; it is also astimulus for investment over and above that level resulting from the fact that capitalists investing'today' think to have an advantage over those having invested 'yesterday' because of technicalnovelties that have reached them (1967, 1991, pp. 454-5).The above should not be construed in the sense that such a possibility of expandedreproductionwithout 'external markets 'is tantament to the elimination ofinfluence of inadequate effective demand. Indeed, the rate of expanded reproduction

1 Pasinetti (1981) outlines the fundamental relations which must exist between technological change andeffective demand. Pasinett i (Ch. 4) develops a method of approaching the expanded reproduction of theclassical system with the added complexity of uneven rates of technical progress and the associated changesin the structure of f inal dem and. T his ap proach could also be an appropriate guide for developing Kalecki 'stheory as he presents it in the form of the schema, as it shares many of the basic features of this classicalst ructure.

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3 2 P. KERRresulting from this factor is by no means necessarily adequate to secure the fullutilisation of equipment or even to keep the degree of this utilisation at a constantlevel. Inno vations break the impasse of a simple reprod uction only to some extent.

For Kalecki, it is via the model of effective demand that the importance of anadequate level of investment for the reproduction of the material (and social)conditions of production is introduced; commodities must be sold if finance is tocontinue to be forthcoming. Furth erm ore, i t is the tendency for net investment to bepositive in response to the competitive advantages of new techn ology. At the aggregatelevel, the implication is that the individual firms' investment plans will depend fortheir actualisation on the rate of accumulation of all capitalists. The aggregate rate ofaccumulation, explained through the theory of effective demand, therefore poses alimit (together with the distribution of income) to investment. While the model of theschema, the mechanism whereby effective demand generates a certain mass of profit,demonstrates the interdependency between capitalists, and the reliance for theirsurvival on the reinv estme nt of profits so that each prov ides a marke t for the other, theexplanation of the decisions about investment itself derives from the competitiverelation between individual capitals.

In the work of both of Marx and Kalecki investment is one of the activities whichexpresses the competit ive nature of capitalis t production. Furthermore, investmenthas a nu m ber of less direct connections with the competitive conditions of prod uction .For example, net investment is the means by which accumulation proceeds, andaccu m ulatio n of capital is essential for a certain m ass of profit to be m aintained in theface of a postulated tendency for the rate of profits to fall with the development ofcapitalist production. Investment in new technology can temporarily raise theindividual's rate of profit above the standard rate, thus giving that capitalist acompetitive edge. The general proposition that investment is one resolution of thecompetitive nature of capitalist production, which acts as one vehicle for movingtowards a uniform rate of profits, is stated by Marx repeatedly. For example, indiscussing the formation of prices of pro du ctio n, p rices which imply a uniform rate ofprofits,capital withdraws from a sphere with a low rate of profit and invades others, which yields ahigher profit. Through this incessant outflow and influx . . . which depends on how the rate ofprofit falls here andrises here, it creates such a ratio of supply to demand that the average profitin the various spheres of production becomes the same (Marx, p. 195)Marx qualifies this generalisation insofar as ' [c] apital succeeds in this equalisation, toa greater or lesser degree, depending on the extent of capitalist development in thegiven nation' (ibid.). For example, this equilibration will be achieved more quickly,' the mo re mo bile the capital i.e. the m ore easily it can be shifted from one sphere an dfrom o ne place to ano ther . . . . It implies . . . the dev elop m ent of the credit system,which concentrates the . . . mass of disposable social capital vis-a-vis the individualcapitalist ' (ibid., p. 196) .

Th ese statem en ts illustrate a process by which the rate of profits ten ds to its average


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MARX AN D KALECKI 3 3

by the activity of investm ent.1 Competition between capitalists means that capital willtend to move to areas of production where the rate of profits is highest: this form ofcompetition requires mobility of capital; the reallocation of capital will be bettereffected through a developed credit system. Kalecki's theory presumes Marx'sobservations to be an appropriate basis on which to proceed with an account of thiscompetitive process in investment.

Kalecki follows through the process whereby investment decisions take place. Atthe basis of his argument is the proposition that investment decisions are made byreference to a 'standard rate of profit 'they are based on the profits expected inrelation to this standard rate (see 1968A, 199 1, pp . 43 8- 40 ). The investmentdecisions will also depend on the availability of financewhich implies the mobility ofcapital between spheresand also on the perceived risk in borrowing relative to theexpected rate of profit. He specifies that investment decisions will be made whenentre pren eurs h ave access to internal finance bu t will be co nstrain ed by limited capitalmarkets and by increasing risk involved in using various types of external finance. Ifentrepreneurs are confident that the new investment will return a rate of profits inexcess of the standard (and therefore of the cost of borrowing), then they are morelikely to use this external sourc e. Th e m obility of capital m us t de pen d o n the degree oforganisation of the financial system and, therefore, on the margin between the cost ofborrowed funds and the expected return on new investment. Access to external fundsalso depends on the degree of accumulation already attained. The gross savings offirms thus extend the boundaries set to investment plans by the limited capital marketand the factor of ' increasing risk' (1937, 1990, pp. 285 et seq.) The direct link withMarx's construction of the 'capitalist mode of production' is evident in observationssuch as Kalecki's concluding remarks to the essay 'Entrepreneurial Capital' , in whichhe states:Many economists assume, at least in their abstract theories, a state of business democracy whereanybody endowed with entrepreneurial ability can obtain capital for starting a business venture.This picture of the 'pure' entrepreneur is hardly realistic. The most important prerequisite forbecoming an entrepreneur is the ownership of capital (Kalecki, 1954B, 1991, p. 280)2

He also incorporates the effect at the level of the particular industry or branch ofcapital in aggregate, of the expansion of capacity on the rate of profits in that sector.As more capital moves into a sector it might lower capacity utilisation and also lowerthe mark-up and bring down the rate of profits, thereby reducing the incentive toinvest further in that secto r. Th is does not co ntrad ict tha t effect of a decline in the rate

1 Although note that Steedman (1992) argues that if everything is measured in market prices, such aconvergence may not occur.2 This observation is also made by Smith (1775) an d later Kaldor (e.g., 1972), in their respective versionsof materialist history. For Smith the social division of labour and consequent production for exchange, theprelude to the development of capitalism, required a stock of goods to have been accumulated by anindividual. For Kaldor the development of capitalism required that someone hold a stock of goods to use ascapital.


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3 4 P. KERRof profitsthe need to accumulate in order to maintain a mass of profits. Thisreduced incentive applies to individual capitalists in competition with each other. InKalecki's model, the expansion of capacity brought about by new capitalists enteringthe field , can reduce individual capitalists' capacity utilisation and rate of profits. Butthe redistribution to wages will generate dem and, and if capacity levels are maintainedin aggregate, profits will be unchanged .Kalecki's method is to represent these various factors in a simple model so that theinteraction between themthe possibilities of interaction between the various formswhich capitalist relations have taken in this specific historical phasecan be moreeasily seen, as can the relative importance of different factors depending on otherspecified circumstances.Marx presents several arguments about the influences of technological change. Firstnew technology gives first users the advantage of a surplus profit, by selling theirproducts at the same market price but producing them with higher-productivitylabour (and, therefore, at a lower individual value with less socially necessary labour).Second, the introduction of new technology hastens the depreciation of existingcapital equipment and therefore hastens the accumulation of capital by thecompetitive need for all firms to introduce the new technique. Third , the depreciationof existing capitals checks the tendency for the rate of profits to fall as the new capitaltends to take a form in which its value composition is decreasing. Fourth, newtechnology which is more productive and acting to increase the rate of profits canincrease th at portion of output available for reconversion into capital. And, fifth, if thenew technology reduces the value of constant capital, cheapens the elements ofproduction (either those directly involved in production or those which comprisewage-goods), then the same capital value can produce an expanded mass ofcommodities. The contradiction here is that although the depreciation of existingcapitals brings with it a corresponding expansion in the mass of capital values, the newtechnology introduced can embody a higher rate of profits while also tending toembody a higher com position of capital.Kalecki takes up these ideas as a major part of his final article on investment(1968A, 1991, pp., 435-50). He saw a theory of investment as absolutely funda-mental to understanding both growth (or stagnation) and the cycle. The mainimplication from Marx's more general statement was that competition ensures thatcapitalists invest in new capital, with the technology yielding the highest expected rateof profits and lowest cost for a given distribution of income.Kalecki incorporates both aspects of Marx's argum ent. H e describes both 'ordinary'investment and investment which introduces the new technology (in a way which issuggestive of Salter's [1960] more complete, though neoclassical, exploration of thisaspect of investment):We assume that innovations, in the sense of gradual adjustments of the equipment of a firm tothe current state of technology, are part and parcel of'ord inary' investment. (Kalecki, 1954A,1991, p. 114).


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MARX AND KALECKI 35

In an earlier article on new technology, Kalecki (1941) lists the effects of thisinvestment. Technological change has a tendency to:(i) . . . increase the productivity of labour;(ii) . . . change the ratio of maximum capacity of the plant to the a mo u n t of capitalit contains;(iii) . . . increase the degree of oligopoly because it promotes concentration ofindustry,(iv) . . . lower the general level of prices . . . with a given wage rate the marginallabour cost (in money terms) corresponding to a given utilisation of plant, fallsas a result of the rise in the productivity of labour; then tends to reduce pricescorresponding to a given utilisation of an industry 's equipment. This tendency

is counteracte d by the rise of the degree of oligopoly, but is not likely to be fullyoffset by it.(v) New inventions increase the prospective rate of investment decisions . . . ishigher. (Kalecki, 1941, p. 109)He summarises the complexity of these effects of technical progress on productivity oflabour and on the ratio of productive capacity to capital as effects which influencedirectly the volume of emp loyment and the structure of capital equipm ent. The effectson the degree of oligopoly, general price level and inducement to invest are incidentalside-effects of technical progress and influence economic development in a differentway. The increase in the degree of oligopoly tends to decrease the relative share ofwages in national income. The relative fall in the general price level tends to reducethe demand for cash and so reduce the interest rate: this tends to redistributecapitalists ' income from entrepreneurs to rentiers.1 0 But the stimulus to investmentcom ing from new inventions keeps the effective demand higher than it would be in theabsence of inventions.

After isolating the outcomes for individual features of technological progress anddiscussing likely institutional reactions to these Kalecki concludes that 'thesignificance of our theorem is to show that technical progress influences output onlythrough channels of invention stimulus, oligopoly and the general price level (or byovercoming the scarcity of labour) (ibid., pp. 115). As it does in Marx 's argument , theintroduction of new technology acts to accelerate the rate of depreciation of theexisting capital stock. The rate of depreciation is an im portan t underlying factor in thetrend rate of economic growth. It is also an important determinant of the ' s tandard

10 Kalecki, twice in this article, refers to the redistribution of income (profits) from entrepreneurs torentiers in the context of falling interest rates. A possible explanation is that the rate of profits has fallen bymore than the interest rate. This could occur if there is a rise in the capital intensity of production and thedegree of utilisation falls so that the rate of profits also falls. The effect on capacity utilisation could becompounded by the fall in effective demand from the wage sector. To the extent that prices are falling andmargins might also fall, the effect on the rate of profits will be exaggerated. As well, the expansion ofinvestment in response to inventions will tend to reduce profit rates as capacity utilisation falls and thetendency towards concentration of industry with technological change will act on profit rates in the samedirection.


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36 P. KERRrate of profit ' and, therefore, of the rate of new investment. Kalecki, in this way,incorporates into a model the argument that entrepreneurs refer the rate of profits ontheir new investment back to the 's tandard rate ' and base subsequent investmentdecisions on this. Entrepreneurs who are first to use a new technique will do betterthan this average but, when the class as a whole is considered, over more than oneperiod of time, the advantage of the increase in productivity to the one group will beseen to be temporary. In putting his argument into model form (see ibid., 1968A,1991), Kalecki specifies the transfer of profits from entrepreneurs using oldequ ipm ent to those using new equip men t which is of higher productivity.

In this way, the competition is clearly between capitals and does not implicate anynecessary change in the relation between capital and labour: the stimulus to adopt thenew technique does not, in this case, therefore, arise out of re-addressing changes inthe distribution of power or of income between wages and profits (as in Kalecki,1943A, and 1944, for example), nor between 'changes in factor prices' , but aredistribution of profits between producers. The redistribution between profits andwages is an ou tcom e of the cap italists ' spending decisions an d their po wer to set pricesafter money wages are settled.The conclusion from Kalecki's statements and his model is that technical changestimulates the rate of investment and via its impact on effective demand can generatean upturn in economic activity. Thus Kalecki relates deviations from a trend and thetrend itself to the emergence and the adoption of new technology. And so he states:'by this [earlier] separation of short-period and long-run influences I missed certainrepercussions of technical progress which affect the dynamic process as whole' (ibid.,p . 435). When this argument is related back to Marx's general s tatement, thatinnov ation is on e essential outcom e of the need for capital to accum ulate a nd so of thecom petitive relations of pro du ction , Kalecki's description of trend and cycle no longerappear as a mechanistic accelerator model, but is located clearly in ' the socialprerequisites on which the production process is based' (Marx, p. 196).

The introduction of new methods of production therefore explains howcompetition between capitalists can be resolved to counteract a trend to stagnationan d also to explain fluctuations in econ om ic activity as 'technolo gy b oo m s' o ccur.At the level of individual firms, the adoption of new technology can explain aredistribution of the surplus between firms and the need for new techniques to beadopted in order that individual firms survive. It is a direct link, then, between Marxand Kalecki's elaboration of Marx. Marx argues that the

depreciation of the old capital could not occur without struggle, and . . . the additional capital. . . could not assume the functions of capital without a struggle. The rate of profit would not fallunder the effect of competition due to over-production of capital. It would rather be the reverse;it would be the competitive struggle which would begin because the fallen rate of profit andover-production of capital originate from the same conditions. The part of [die change in capitalstock] in the hands of old functioning capitalists would be allowed to remain more or less idle toprevent a depreciation of their own original capital and not to narrow its place in die field ofproduction. Or they would employ it, even as a momentary loss, to shift the need of keepingadditional capital idle on newcomers and on their competitors in general.


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MARX AND KALECKI 3 7Th at portion of [the change in the capital stock] which is in new hands would seek to assume aplace for itself at the expense of the old capital, and would accomplish this in part by forcing aportion of the old capital to lie idle. (Marx, pp . 25 2-3)From this basis, Kalecki makes explicit the fact that the common feature of firms inthe manufacturing industry is the underutilisation of capacity; this enables firms torespond quickly to a change in demand without necessarily changing prices (and withincreased profit margins to the extent that overheads are an important component ofcosts) and therefore to act as a barrier to entry to new firms. The way the competitiveconflict is settled, for Marx, is through the depreciation of the old capital, and thedistribution of the losses involved depends on the competitive position of theindividual capitalists.

Again, this is the starting point for Kalecki, and he develops the argument for thecompetitive advantage of new techniques for individual capitalists while maintainingthe po sition th at ultim ately utilisation will decline and profits in general will fall. Th isis compounded by the argument that the rate of profits will fall as accumulationproceeds (e.g. , 1954, 1991, p. 283).His construction of a model of investment decisions which determine investmentactivity is then extended to explain fluctuations in activity and trends and the insightsof this model are easily obscured unless reference is made back to its basis in specificsocial relations. Referring to technological change, Kalecki states:

The cost-price relations . . . were based on short-run considerations. However, the onlyparameters which enter the equations in question are the coefficients . . . reflecting the degree ofmonopoly. These may, but need not necessarily, change in the long run. If [they] are constant,the long-run changes in prices will reflect only the long-run changes in unit prime costs.Technological progress will tend to reduce the unit prime cost . . . But the relations betweenprices and unit prime costs can be affected by changes in equipment and technique only to theextent to which they influence the degree of monopoly.This, however, is qualified by the assumption . . . that the unit prime cost does not depend onthe degree of utilization of equipment and that the limit of practical capacity is not reached,(Kalecki, 1954A, 1991, p. 217n.)A nd, in a passage closely resem bling M arx's statem ents , he says:The above argument [for investment decisions] is based on the idea that entrepreneursscrutinise how the new investment 'is doing' in terms of profitability, and on this basis form adecision whether just to reinvest their savings, to exceed their level or to fall short of it: thisdepends on whether the rate of profit on new actual investment proves to be equal, higher orlower than the 'standard rate '. An important element of how the new investment 'is doing' is therise in productivity due to technical progress, which causes a transfer of profits from old to newequipment. But there is still another effect of innovations.In the year considered new inventions come within the compass of the entrepreneurs. T hus theyexpect to do better out of their investment than those whose investment materialised in the yearconsidered. In fact, this will not prove true for the investing entrepreneurs as a body: if theincrease in productivity is not accelerated the investment materialising in the next year will notbe more profitable on the average than that in the present one. Nevertheless, those



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38 P. KERRentrepreneurs who are first to avail themselves of the technical novelties will do better than theaverage. (Kalecki, 1968A, 1991, pp. 442-3)

For Marx, an important outcome of the competitive struggle was that it led, via areduction in the rate of profits, to a concentration of capital. Marx characteristicallydevelops the argument by stating the contradictory tendencies and their possibleinteractions. T he process is that the fall in the rate of profits associated with accumu-lation, leads to the competitive struggle between capitalists becoming a dominantfeature (i.e., dominating over the effects of the struggle between capital and labour).The outcome of this competitive struggle is the elimination of small firms and firmswith lower rates of profit, thus countering the trend to a decrease in the average rate ofprofits.Kalecki refers to this trend but does not develop it in much detail in his theory ofinvestment. On the contrary, he refers to the likelihood of collusion between largefirms who see it in their particular interests to act against other firms and preventoutside firms entering, particularly in a depression: but he also notes tha t the oppositemay occur (1954B, 1991, p. 230). Furthermore, he observed that the degree ofmonopoly had shown a general tendency to increase in the long run and he examinesthe implications of this rather than the causes of it {ibid.). Kalecki could observe thattrends in the new technology of production were not themselves sufficient to accountfor growing concentration of capital, this being only one step in Marx's reasoning

behind the tendency to increased concentration.In the context of this argument, however, the important implication of a growingconcentration of ownership of capital is that it tends to lead the system to stagnation.For example, Marx justified his above statement, that centralisation tends to lead tothe collapse of capitalism, on the grounds that this concentration of capital into fewerand fewer activities removes the means whereby the tendency for the rate of profit tofall can be checked. But stagnation and concentration are both phases of the cycle. ForMarx, capital can be stagnant and temporarily 'give up its characteristic quality ascapital, so far as acting as such and producing value is concerned' (Marx, p. 253).Kalecki's notion of stagnation appears in the context of excess capacity and lack ofeffective demandinvestment in particular. This can be further related to thetendency towards a concentration of capital.Another aspect of stagnation described by Marx, which Kalecki does not con-sistently pursue in his later work (although see 1941) is developed through the effectof a general decline in prices. The process of reproduction, Marx argues, is governedby definite price relations, meaning those of prices of production, which imply auniform rate of profits on all capitals. Stagnation, by causing a depreciation in certainelements of fixed capital, thereby disrupts the process of reproduction by disruptingthe function of money as a means of payment based on the appropriate price relations.Stagnation of production also entails unemploym ent and this can lead to a reductionof (real and money) wages. The apparent over-production of commodities is then tobe understood as an over-production of those products which would serve as capital, a



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MARX AND KALECKI 3 9delay in the change of capital from its commodity form back to a more mobile orprodu ctive form. T hu s the link emerges with effective de m an d. K alecki states:T he m ain problem of a developed capitalist econom y is the adequ acy of effective d em and . . . Infact, it is clear for us today that the problem of underutilisation of resources is, in a sense,inherent in a developed capitalist economy. (Kalecki, (1965, 1976, p. 20)The relation between pricing and investment (which implicates the relation betweenpricing and the tendency to stagnation) is considered below.

IV . K A L E C K I ' S T H E O R Y O F P R I C I N GKalecki's theory of pricing, after some initial revisions to accommodate earlyallegations of its tautologous nature, was subject to fewer revisions and the criticismsof it were of less interest to him. He argued that since firms operate at less than fullcapacity, they can respond to transitory shifts in demand by expanding output with nonecessary price change. (The extent of overheads in costs will affect the size of therealised profit ma rgin if price is unc han ged as ou tpu t chang es.) T h e m ain criticisms ofKalecki's theory were that its explanation of the 'deg ree of m ono poly ' was tautologousand that it relied on partial analysis to explain aggregate shares and prices. The first ofthese criticisms K alecki answered by restating his explanation of the ma rk- up , arguingthat it ' indicated' the degree of monopoly, the important point being that firms havesome control over their prices but that this is exercised by reference to their perceivedm arket powe r. T ha t the explanation of the actual mark -up itself may be unsatisfactoryis a separate issue from the usefulness of this depiction of pricing and its implicationsfor relative shares as representing corporate behaviour. Nevertheless this theory ofprice, it could be argued, is compatible with Marx's theory of value, as it is neitherdem and-d eterm ined nor is profit a residual.

This leads to the second criticism concerning the invalid procedure of partialanalysis. Kalecki does not, in fact, assume independent firms. Crucial to his microexplanation is the interdependence of firms and decisions firms make about pricing.Their interdependence is important in expressing the competitive nature of capitalistproduction (which also demonstrates that Kalecki's notion of competition is in theclassical mo de , so that co m petition is the classical process by which th e equalisation ofrates of profit in all sectors is approachedit is not the state of the economy which liesalong some con tinuu m w ith competition-mono poly as its poles).Kalecki clearly brings out this interdependency:In fixing the price the firm takes into consideration its average prime costs and the prices ofother firms producing similar products. The firm must make sure that the price does notbecome too high in relation to prices of other firms, for this would drastically reduce sales(1954A, 1991, p. 210)Kalecki adds that '[i]n view of the uncertainties faces in the process of price fixing itwill no t be assum ed that th e firm a ttem pts to m aximize its profits in any precise sort ofma n n e r ' (ibid.). This interdependence is expressed formally in the reference each firm


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4 0 P. KERRmakes to the existing industry average price when it sets its own price, and bydemonstrating how the new average industry price is thereby formed. It must beassumed that for the short period each firm's market share is stable.There appear, therefore, to be several ways in which the expression of competitioncan lead to or have a tendency towards the equalisation of the rate of profits. Thepricing behaviour is the result of within-industry competition and serves to equalisethe rates of profit between firms in an industry. The investment behaviour expressesthe outcome of competition within bu t also between various sectors and its expressionis the allocation of new investment expenditure to areas in which the expected rate ofprofit exceeds the 'standard' rate.Thus, for Kalecki, the distribution of income was not central to the explanation ofthe process of accumulation. The distribution reflected the resolution of thecompetitive relationship between capitalists, and its main implication for accumu-lation was that it imposed a limit on the resources available for investment. Thenecessary funds for investment come from saving out of realised profits. Thusexpansion plans and actual accumulation are directly related to the competitive natureof the economy and to (exchange) relations between firms both within themanufacturing sector and between sectors (since the profit margin is also affected bythe ratio of raw material to wage costs).

V. THE RELATIONSHIP BETWEEN TH E THEORY OF PRICE AND TH ETHEORY OF INVESTMENTThe remaining problem is that of clarifying the meaning of this 'price' and itsrelationship to investment. Insofar as it is based on a given capacity, it seems that it isrelevant for a particular set of investment decisions. Ultimately, these investmentdecisions express competition between capitalists and the movement of capital to itsmost profitable ventures: profitability in Kalecki's model depends on this pricedecision (made subject to all the capitalist relationships of production.) In otherwords, the investment decision is relevant to a particular result of the distribution ofincome and in fact depends on this. In this sense, the two theoriesthe theory ofinvestment and the theory of pricingappear not to be independent or separable.Consider two of the implications of such inseparability. O n the one hand , this couldmean that the result of competition between capitalists, expressed in investmentbehaviour in terms of the sectoral allocation of their investment, depends on theoutcome of their competition within an industry. Their competitive strength isultimately expressed by their ability to raise their relative price, this perceived abilitybeing tempered by their strengths in other forms of competition. On the other hand,the relationship between the allocation of investment and expected rates of profit isimplicit in the (general) dependence of investment on expected profits relative to the'standard' rate of profits.Thus, there is no link between investment decisions which express underlyingfundamental relationships of capitalist dynamics and price decisions which are tied to


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MARX AND KALECKI 4 1

a 'short period', insofar as they relate to a given productive capacity and perceivedcompetitive position (although not short period in the sense that they are outcomes oftransitory events and are situation-specific). The problem here is whether the two'time periods' can be legitimately linked? A connection between them would seem tocontradict the structuring of the theory as a whole in the classical manner outiinedabove in Section I. In classical theory each component of the overall accountconstitutes a separable theory to be argued independently of other componenttheories. By tying the investment theory to the value theory, there is an element ofcircularity in the causative process.The relationship between the theory of investment and the theory of pricingrequires separate consideration as there is a strong body of theory apparently derivedfrom Kalecki's theory of pricing which argues from the position that mark-ups andhence prices are governed by the need to generate finance for investment (e.g., seeHarcourt and Kenyon, 1976; Wood, 1975). This approach appears to abandon theclassical framework and the separability of the theory of value and distribution fromthe determinants of effective demand. The possibility of a relationship between thetwo theories raises the following questions. Does the attempt to construct aninterrelation between investment and pricing decisions confuse the problem oftheorising two different expressions of the competitive aspects of capitalist pro-duction, a confusion created by stating it as a problem of a micro theory beingcompatible with a macro theory? Furtherm ore , by stating it in this way, is it tha t thereis a fusion of the theory of effective dem and with a theory of value and its implicationsfor investment?The interest here, in constructing a theory of pricing and investment decision-making at the level of individual capital, which is compatible with the macro-leveltheories of value and distribution and of effective dem and, raises several points . First,it should be made clear that this search for the micro basis of the macro theory is notan issue for K alecki's account of capitalist economics. By stating the problem in theseterms, the importance of the capitalist social relations to the understanding of thesedecisions is obscured . In Kalecki's theory, pricing decisions are based on the perceivedmarket power of individual capitaliststhe extent to which they can raise their profitmargin, hence prices, in relation to the 'average industry price'. It is at first thecompetition between capitalists in a particular industry and not between capitals indifferent sectors. And this pricing behaviour is not a response to market demand andsupply pressures, as Kalecki's assumption of less than full capacity utilisation enablesthe response to these fluctuations to be one of a change in output rather than price(although with overheads, a constant price means a higher profit margin as outputincreases).By referring price decisions to some 'average industry price', Kalecki is describing,at a more concrete level, the process of the formation of the average rate of profits andhence price of production for the industry concerned, showing how this is an averageand therefore how there can exist within any industry a hierarchy of different coststructures and profit margins.


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4 2 P. KERRHowever, if the problem is considered in terms of a 'micro-macro synthesis', themeaning of pricing and investment activities, respectively, for capitalist dynamicsbecomes obscured. The need for there to be expanded reproduction is lost. The

separate aspects of competition become fused so that the inter-capitalist competitionis aggregated into one form at the 'micro level', with the resultant explanations forprice decisions and investment decisions of individual firms apparently part of thesame theory. These theories make price or profit margins determined by investmentdecisions insofar as they based on the financial requirements of those investmentdecisions. Such theories derive from the 'widow's cruse; conclusions of Keynes andKalecki, that 'capitalists get what they spend', which follow their demonstrations thatcapitalists' spending generates its own profits. However, these conclusions are 'macro 'conclusions. Th e result for individual capitalists of their investment outlays depend onthe competitive ou tcome of their individual strategies vis-d-vis each other. For a givenlevel of investment, it is a matter of distributing the mass of profit between individualcapitals and their competitive strength will determine to what extent the individualcovers the cost of his own investment outlay.A second point is linked with these issues through the way the problem is posed,viz., in terms of the need to have a 'micro-macro synthesis'. The macro aspectencompasses the theory of effective demand and ou tput and the theory of distribution.The requirement is of logical (deductive) consistency given the 'vision' of theeconomy described: the macro theory of distribution and the theory of output must belogical extensions of the micro theory of pricing and investment. The problem oflogical consistency mainly arises as a problem of aggregating from theories which arebased on partial equilibrium assumptions. The link that is made at the micro levelbetween prices and investment therefore imposes, at the macro level, a unity betweenthe theory of value and distribution and the theory of effective demand and output.The two areas of Kalecki's theory are not separable explanations but parts of the onetheory.Although post-Keynesian mark-up pricing theory could be seen as an extension ofthe market-price relation to realisation, so bringing together investment and pricedecisions into one aspect of competition (e.g., Hick's [1965]fix-priceand flex-price),Kalecki differs from this . His pricing theory is not directly related to realisation as he istalking about prices of production, clearly presuming Marx's notion of a capitalistmode of production and the relationships it entails, where both the long-run prices ofproduction and the market prices are consistent with and even require the problematicand often central issue of his associated labour theory of value. The Keynesiantheories could be located within this theoretical structure were they seen as theoriesabout market prices and, as such, about the process whereby prices of productionwere reached, not about the position of these prices of production themselves. Therelationship this bears to the explanation of investment could then be that inexplaining how this price of production is reached, there must be a simultaneousexplanation of how the average rate of profits is reached .The account of market pric

marx and kalecki

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