Kalecki’s Profits Equation after 80 Years

Kazimierz Łaski and Herbert Walther

Chapter 9 in Michał Kalecki in the 21st Century, 2015, pp 131-156 from Palgrave Macmillan

Abstract: Abstract Keynes and Kalecki both assumed that private investment determines (but is not determined by) private saving. For Keynes, the desired level of saving is an increasing function of GDP, somehow related to the psychology of the society; ‘autonomous’ shifts of investment are determined by the state of long-term expectations. For Kalecki, the saving propensity depends on the income distribution in a capitalist society, while investment expenditures are determined by past investment decisions. The causality link between investment and saving runs through profits. We take a look at short-run and long-run aspects of Kalecki’s fundamental profit equation: (1) We argue that the short lag between investment decisions and expenditures is an essential element of any meaningful interpretation of Kalecki’s profit equation. This lag has critical implications for the interpretation of the multiplier, for the story of ‘wage-led versus profit-led growth’ and for the various tax paradoxes related to the Kaleckian profit equation. (2) We argue that an excess of desired long-term saving over investment, which might be caused by demographic ageing in Western economies, can only be eliminated by accepting the necessity of a permanent primary public deficit and/or active redistributive policies.

Keywords: Private Investment; Real Interest Rate; Public Debt; Aggregate Demand; Full Employment (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:pshchp:978-1-137-42828-8_10

Ordering information: This item can be ordered from
http://www.palgrave.com/9781137428288

DOI: 10.1057/9781137428288_10

Access Statistics for this chapter

More chapters in Palgrave Studies in the History of Economic Thought from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().