Kalecki's pure business cycle and the trend

Steindl, Josef

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Document type:: Works

Collection:: Josef Steindl Collection

Title:: Kalecki's pure business cycle and the trend

Author:: Steindl, Josef

Scope:: Typoskript, 2 Blätter

Year of publication:: 1990

Language:: English

Topic:: Growth,cycle and stagnation

JEL Classification:: E32 [Business Fluctuations, Cycles] E11 [General Aggregative Models: Marxian, Sraffian, Kaleckian]

Shelfmark:: S/M.77.4

DOI:: https://doi.org/10.48671/nls.js.AC14446397

KALECKI’S PURE BUSINESS CYCLE AND THE TREND. Kalecki grafted his revolutionary innovations in economic dynamics on a theory of the trade cycle, which was given as the explicit aim although it was in moving towards it that he created a new paradigm. The orientation towards the cycle shows that it was essentially a short run theory. In this it differed from the classics (Ricardo, Marx) who were interested in the big long run questions but who, by neglecting the short run view, lost something essential which it was left to Kalecki and Keynes to discover - the role of effective demand, which does not end with the short run. In view of his short run orientation Kalecki -until much later - left out the problems of long run development - the trend as he called it, and to simplify his task conceived the theory of a cycle embeded in a stationary economy. Incidentally, since these were the 1930s which saw the birth of the new theory the absence of long run growth would not seem far fetched. This concept of a pure business cycle, however, proved to be a hindrance when he later on tried to take account of the trend, because he stuck to the original view of a cycle and a trend as separate phenomena whithout direct influence on one another. As a matter of fact, Kalecki f s explanations of the trend, not very elaborate, were never quite convincing or satisfactory. I have come to the conclusion that this could not be otherwise because in actual fact the interdependence between the two is essential for an understanding of the whole thing. I always had trouble in understanding the concept of the pure cycle as anything but a formal concept. It assumes that the accumulation of the boom has to be "consumed" (by depreciation and scrapping) completely during the recession and depression before a new boom could start. But what kind of mechanism would bring this about in actual fact? The question is justified because Kalecki does show that there are forces which tend to destroy the accumulation of capital again: The accumulation of the boom is not sustainable. If you go behind his mechanism you find that the accumulation cannot be sustained because it is too quick. Either the boom reaches a ceiling in manpower or capacities, so that investment activity declines and eventually collapses, which produces recession; or the accumulation sooner or later creates surplus capacity which can not be absorbed at the rate at which the consumption increases (which is strictly limited in turn by the rate of investment). Now let me make a bold guess. These arguments hold of course in principle, but not necessarily so that the whole accumulation is again offset. For one thing there may be an increase in incomes during the course of the cycle which may be translated into consumption. Or else you may have consumers credit extended which increases consumtion. To the extent that such influences work a corresponding part of the accumulated capital will be maintained and the corresponding growth of output capacity will represent long run growth - the trend. We can see here that there is an inseparable connection between trend and cycle - one can f t deal with them one by one. Incidentally we have here a clear reason why an existing trend tends to perpetuate itself: An increase in income will necessarily make room for more capacity and therefore make some of the accumulation of the boom sustainable. Another observation: A boom if it is stopped by scarcity of manpower may be extended by immigration, and the accumulation may then procede a little further, although that will mean that even more excess capacity is created. Let us now pass to another question. Why does it ever happen that the accumulation gets too quick to be sustained? Why is it bunched together in this phenomenon "the boom" instead of being spread out evenly over time, at a rate which is sustainable? The customary answer is of course: There is a multiplier and an accerlerator and they are starting from a

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