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

state with plenty of unused reserves so that a self-accelerating movement leads to unsustainable growth. There is no reason to doubt these relations and their importance but there may be some doubt whether this chain reaction works quick enough to explain the pattern of the trade cycle, comparatively short as it is. I wonder why we do not appeal in this connection to the force of imitation which is so strong in the working of our society? If we do the boom gets the features of an epidemic which carries with it the movements of stocks, of investment activity, of consumers credit ( more generally, purchase of durable goods ) and of bank credit (behaviour of the banks ). We can then understand how the multiplier works so quickly and that the chain reactions are telescoped into a relatively short time. To take account of this innovation it may not be necessary to change very much in the algebraic model of the cycle; all that has to be expressed is that the reaction of investment (in stocks or durables) to a stimulus is stronger and a little more stretched out - since it is a whole bunch of activities which will be stimulated. Another question which commands attention is that of the nature of the decumulation process which takes place in the depression. Kalecki assumed at first that it resulted from non-replacement which he measured by the depreciation not made good. But it is quite implausible that the amount of obsolescence in the cycle is really important; it must be considered that in practice most obsoolescence is technological, in other words equipment is eliminated only if it becomes useless because it can not compete any more with newer equipment. Thus the process of decumulation is inseparably intertwined with technological change: The equipment which was built up in the boom and the one which is withdrawn in the depression is technologically not the same, but there has been a replacement of old by new techniques. This would seem to imply also that there has been an increase in real wages, because it is that which explains the inviability of the old equipment. Again we see here that the trend and cycle are conceptually linked: The overcapacity of the depression could never be cleared away and room for new investment could never be created if there were not innovations which make some of the old equipment redundant. There is no doubt that the intuition of Schumpeter was right: That the cycles are the form in which long run growth and technological development is taking place. At the same time it must be said that the abstract and precise model of Kalecki was necessary, we could not miss it. The historical intuition of Schumpeter has grasped a very essential element but his explanation remains so vague that you can not come to grips with it. Another question concerns the long run character of investment and the apparent contradiction to its role in the cycle which is a short run phenomenon. Investment in fixed capital is made in view of its use in future years which usually stretch beyond the term of an ordinary boom. That is in most cases investment will not be decided mainly with a view to the situation in the cycle. Richard Goodwin has drawn the conclusion that the boom is dominated by investment in inventories. They may indeed play in many cases a decisive role in starting off the boom, but it seems hardly deniable that investment in fixed capital carries the boom along on its shoulders. The contradiction might perhaps be resolved if we consider separately the decision on an investment project in principle, and the choice of the timing of its execution; in other words it is not necessary to assume that an investment project once it has been approved must necessarily be carried out forthwith. The decision on the project as such is dependent on long run and technological considerations and procedes therefore independently of the business cycle. The execution on the other hand may have to wait for a convenient occasion. One possible consideration may be the abundant and cheap availability of credit. This would explain then the bunching of investment activities.

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