Full text: 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 
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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