Contributions to Political Economy (1997) 16, 23-47

MARX AND KALECKI
PRUE KERR*
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University of Notre Dame, Freemantle, USA
This paper aims to make explicit what Kalecki often left as understood in the more abstract presentations of his analysis. In particular, it identifies the starting point of his theories in the work of Marx and the classical economists. The first step in this demonstration is to establish the contribution to Marx' analysis of a capitalist mode of production to Kalecki's theories, both their analytical framework and content. The second is to consider the particular implications of Marx for Kalecki's theories of investment, pricing and technological change, and their interaction.

It is not unusual to acknowledge the Marxist background to Kalecki's theories.1 Sometimes the impact of this is compared to that of Keynes's Marshallian background, and the differences between the two are identified in Kalecki's use of class, his political sympathies and his incorporation of imperfect competition, a more contemporary stage of capitalism, into his analysis. But rarely are the implications of Kalecki's Marxism for his spare models pursued. There are two steps in this task. The first is to establish the contribution of Marx's analysis of a capitalist mode of production to Kalecki's approach to theory, both its analytical framework and its content. The second is to consider the particular implications for his theories of investment, pricing and technological change, and their interaction, and so to illustrate the classical and Marxist framework which underlies Kalecki's models.2 Section I of this paper establishes certain features of the classical framework which Marx and Kalecki share as a basis for certain of these relationships. Section II examines 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. Pasinetti and G. Vaggi. 1 Joan Robinson, for example, acknowledges Marx's contribution to Kalecki's thought, but with her limited view of Marx's work as Keynes without the labour theory of value (see Robinson, 1942) she fails to appreciate just what this contribution might be. Sawyer (1986 Ch. 8) reviews more systematically similarities and 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 capitalism using Marx's ideas. 2 The main source of statements concerning Kalecki's ideas is the 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 to CW, Vols I and II. References to Marx are to Capital, Vol. III.

© Cambridge Political Economy Society 1997

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with particular reference to their explanations of pricing. It is argued that Kalecki's prices are prices of production and it is shown how he follows Marx's description of their formation. Section III discusses the relationship between these two parts of the overall account of the capitalist economy, demonstrating their analytical separability in Kalecki's work. This means that his account explains the capitalist process in such a way that changes in its historically specific form can be accommodated in Marx's corresponding theory without changing the fundamental framework or structure of the overall account, i.e. while retaining the basic social relations and their analytic form which comprise, for Marx, the capitalist mode of production. The remaining sections consider some of the implications of the preceding arguments.

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I. THE CLASSICAL FORM OF MARX'S RELATIONSHIPS OF CAPITALISM Kalecki's theories of investment and pricing are considered here in the context of the structure of classical political economy and of Marx's discussion of these issues. The relationship between the theories of investment and of pricing, on the one hand, and the relationship, 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 of capitalist dynamics. (b) A distinction is made between 'long-period' decisions and 'short-period' decisions. The former are decisions based on more permanent aspects of, or relationships fundamental to, the capitalist social structure and, because they are outcomes of more permanent relationships, theories can be built up about them. 'Short period' refers to immediate causes which are situation-specific such that their transitory nature precludes generalisations being made about their behaviour with regard to other situations. The investment and the pricing decisions in this classical framework are both long period. (c) There are the developments respectively of theories of investment and pricing, which link these two activities together in the theoretical framework, so that in Kalecki's theory the mark-up and subsequently the price are related to the level of planned investment. Simultaneously, at the more aggregate level, the price decision enters into the determination of the distribution of income so that the resulting distribution, employment and activity confirm the initial investment decision. (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 in the economy to adjust towards some sustainable position (even if it were never at this position). In the case of Kalecki's account of capitalist economies, this is to be the adjustment, via investment decisions, towards the position in the economy at which expected rates of profits are equal in all sectors, as are realised rates of profits. Clearly, this position will be defined partly by new technology introduced

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in successive investment periods. The pricing or mark-up decisions, however, confirm that particular portions of output will be the surplus, hence the rate of profits depends on these decisions. Whereas (a) and (b) refer to the relationship between two separable theories, of pricing and investment respectively, which together form independent parts of an overall theoretical framework, (c) and (d) refer to the linking of these two separable components 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 position regarding the overall structure of theory. Concerning the former, Kalecki, referring to the theory of business cycles, says it requires that two relations be established: that based 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 and the prices. On the short period, Kalecki states:
In fact, the long-run trend is but a slowly changing component of a chain of short-period situations; it has no independent entity, and the two basic relations . . . should be formulated in such a way as to yield die trend cum business-cycles phenomenon . . . By this earlier separation of short-period and long-run influences I missed certain repercussions of technical progress which affect the dynamic process as a whole (ibid., p. 435).

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The long period allows time for income to adjust to the investment decisions. Prices and distribution adjust independently of the investment decision itself. The level of investment determines the long-run level of output. But the investment decision via a price decision determines distribution. At the same time, interventions over the long run such as technical progress link investment to deviations of the rate of profits away from the standard (or average) rate of profits, but also lead to an increase in incomes. The considerations (a) to (d) above with reference to Kalecki's theories of investment 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 time period but rather to a theoretical abstraction depicting a position to which the economy tends to move as the outcome of persistent relationships. Whether this position moves as a stable growth path (which Kalecki disputes — see e.g. Kalecki, 1962B, 1991) or is a position which, without external stimuli is static or in decline—as Kalecki maintains in his arguments concerning the tendency to stagnation—is one issue in classical political economy and whether, on the other hand, thefluctuationsin output converge on this path or move around it, is another (ibid.; see also Garegnani and responses by Harcourt and Roncaglia in Bharadwaj and Schefold, 1990). Marx's discussion of the process of investment arises out of his basic propositions about the nature of capitalism: the antagonism between labour and capital and the alienation of the surplus from the direct producers; the competition and the coexistent interdependency between capitals; and the need for capitals to accumulate. He

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pursues the implications of the increases in the ratio of constant to variable capital for a given capital outlay embodied in the new technology, whereby the wage bill is certainly reduced relative to the fixed capital outlay, but so, too, in the capacity to generate surplus value. He sees the competitive process as one in which the rate of profits on all capitals tends towards equality (either through redistributing capital through investment to sectors where the rate of profits is above average or through redistributing an already produced surplus by way of pricing decisions). Marx also established a framework for discussing the possibilities of crises, or interruptions in the circular flow of capital, using the classical schema of reproduction. Kalecki assumes, following Marx, that the relevant relationships for understanding these 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 theoretical system. The relationships of antagonism, for example, Kalecki discussed in 'Class Struggle and the Distribution of National Income' (1971A, 1991) and also in 'Political Aspects of Full Employment' (1943A, 1990), and he shows how these basic relationships may have implications for income distribution, for levels of output and for work organisation. His theory of pricing, however, directly expresses one form of competition between capitalists, showing the consequences of this relationship for the distribution of income. This competitive relationship also finds expression in the discussion of investment decisions (which confirm the income distribution at the aggregate level). The interdependency between capitalists is expressed in his theory of effective demand using the classical schema, and in his conclusion, a demonstration that 'capitalists get what they spend'. Kalecki sees new investment as one element in the competitive struggle between capitalists as it generally embodies technical change. It also has the result of concentrating capital, increasing the degree of oligopoly, and hence increasing the potential mark-up and so affecting the distribution of income between individual capitalists 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 of capitalism. Kalecki takes certain of Marx's more abstract propositions about these relationships 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 other social relations of capitalist production: he then selects and represents those elements of this behaviour appropriate to abstract models.1
1 Kalecki's ideas about the role of abstraction are reflected in the following statement where he distinguishes between the singular use of models and his own base in an historical materialist method:

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the econometric model and historical materialism constitute two different approaches to the development of a society. The former is based on functional relations between the econometric variables in the period as well as between these variables and the same variables in past periods. The relationships are assumed to be given and are not subject to change. In this way a definite dynamic process is established which, however, footnote continued overleaf

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II. MARX AND KALECKI ON INVESTMENT Marx sees investment in the 'capitalist mode of production [as] . . . a historical means of developing the material forces of production' (Marx, p. 250). This investment and development 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 expand capital 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 general competitive struggle and the need to improve production and expand its scale merely as a means of self-preservation and under penalty of ruin, (ibid, p. 244) The scope of technical change ranges from new machines to reorganisations of production. Marx argues that: the fall in prices and the competitive struggle would have driven every capitalist to lower the individual value of his total product below its general value by means of new machines, new and improved working methods, new combinations, i.e. to increase the productivity of a given quantity of labour, to lower the proportion of variable to constant capital, and thereby to release some labourers, (ibid., p. 255) Despite its need for accumulation and indeed partly due to technical change, which generally embodies more constant than variable capital, the capitalist mode of production has a tendency to stagnation and crises. Marx comments that the 'development of the productivity of labour creates out of the falling rate of profit a law which at a certain point comes into antagonistic conflict with this development and must be overcome constantly through crises' (ibid. p. 258). The actual mechanism of a level of effective demand leading to a certain level of output 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 the classical circulation schema and as such do not in themselves constitute theories of output so much as provide frameworks which demonstrate the essential interdependency between capitalists and the importance of accumulation for the survival of capitalists as a class. Marx clearly uses the notion of effective demand as understood by a Kaleckian (and Keynesian) use of the concept, for example, in the following passages, 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 different classes and their respective economic position, notably therefore to, firstly, the ratio of
footnote 1 continued from previous page

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corresponds to actual developments only in the case where the basic assumption of invariability of functional relationships... is fulfilled. Historical materialism considers the process of the development of a society as that of productive forces and productive relations . . . which shape all the other social phenomena such as government, culture, science and technology . . . There is a feedback effect... 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 into the Nature and Cause! of the Wealth of Nations, I. vii., vol. 1, p. 49) But his markets expand with the labour employed because increased accumulation tends to lead to labour-intensive technological change.

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total surplus value to wages, and, secondly, to the relation of the various parts into which surplus value is split up' (ibid.). And the 'problem of a lack of effective demand arises because in this specific capitalist interrelation the surplus-product assumes a form in which its owner cannot offer it for consumption, unless it first reconverts itself into capital for him' (ibid., p. 257). The imperative of realising surplus-value to the overall process of reproduction is described:
[TJhis production of surplus-value completes but the first act of the capitalist process of production—the direct production process . . . Now comes the second act of the process. The entire mass of commodities, i.e. the total product.. . must be sold, (ibid., p. 244)
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These were not particularly profound observations as earlier writers had made similar remarks (e.g. the debate over 'General Gluts'). But Marx goes on to suggest, still at the abstract level of basic social relationships of capitalist production, a reason for the emergence of this problem of inappropriate or insufficient effective demand for enabling uninterrupted accumulation to continue.
The conditions of direct exploitation and those of realising it, are not identical. They diverge not only in place and time, but also logically. The first are only limited by the productive power of society, the latter by the proportional relation of the various branches of production and the consumer power of society. And this last-named is not determined either by the consumer power based on antagonistic conditions of distribution. . . . It is . . . restricted by the tendency to accumulate, 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 the conditions 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 as capitalist production develops, it 'intensifies] the contradiction between the conditions under which this surplus-value is produced and those under which it is realised' (ibid. p. 245). The contradiction to which Marx refers here is that resulting from the tendency for the organic composition of capital to rise with the development of the productive forces, so that out of the profits an increasing proportion must be used for constant rather than variable capital, while at the same time it is from the latter that further surplus-value can be produced. Thus, although a certain amount of surplus-value might be produced, the resultant accumulation will depend on what portion of it is reconverted to capital, and, out of this, to variable capital. This latter will be affected by the further introduction of new technology. The new technology tends to incorporate a higher ratio of constant to variable capital, of machines to labour. Yet it is the total wage bill, the variable capital, which provides the funds for purchasing 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 distribution theory, seeing these as simplistic misinterpretations, and for his comment: as I indicated time and again in my previous work the relative share of labour prime costs in the national income depends on the mark-ups over prime costs . . . " (Kalecki, (1968A, 1991 p. 438). For a discussion on this issue with early critics, see Kalecki (CH71991, pp. 485-92) and also Kriesler (1987, pp. 40-42).

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before will depend on whether the technological change cheapened wage goods by more than it reduced total employment. III. KALECKI'S MARXISM The contention that Kalecki's investment and pricing theories are extensions of Marx's theories at a less abstract level can be seen in the context of the considerations listed in section I concerning the relationship between investment and pricing in classical political economy. The objective is to clarify the implications of Kalecki's work relevant to the answering of questions such as how does the theory of investment express capitalist competitive relations, and what relation does pricing have to this? Marx's work provides a reference point for understanding the implications of Kalecki's theories. The problem of effective demand is one outcome of the antagonistic social relation between capital and labour. Kalecki criticised Keynesian growth theory (see, e.g., 1951; also 1992, pp. 197, 593 for brief notes). Keynesian theories of stagnation tend to develop from this point, and interpret the antagonism in the context of the struggle over the final distribution of income rather than, as above, in the context of a redistribution resulting from the type of technology which evolves under capitalism. The outcome is a theory of stagnation based on 'under-consumption' and the inability of the working class to absorb their output owing to their low real wages relative to the value of this output. The implication of this former kind of analysis is that stagnation can be resolved by a simple redistribution of income. Theories of'disproportionality' imply similar possibilities for intervention to maintain the desired balance between the composition of demand and output. Another possible solution to the problem of lack of effective demand and consequent stagnation might appear to be an expansion of capitalists' luxury consumption. Marx points out, however, that 'the entire nature of the capitalist mode of production is lost sight of; and also forgotten is the fact that it is a matter of expanding the value of capital, not consuming it' (Marx, p. 257). Kalecki makes the same point. Accumulation, or expanded reproduction, is a crucial aspect of the competition between capitalists and of the survival of capital as a whole; to maintain a certain mass of profit in the face of a falling rate of profit (in Marx's model), requires expanded reproduction. Kalecki, following Marx, uses the same classical scheme to demonstrate the technical and social interdependencies of capitalist production and exchange and thus to develop a model of effective demand.1 Keynes had no such underlying model.
1

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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. The former do not save at all and the latter spend on the products of sectors I and II. footnote continued overleaf

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[The schema] represent. . . the gist of the modern theory of effective demand . . . this theory may be derived in full from the Marxian equation . . . representing the exchange between Departments 1 and 2 on the one hand and Department 3 on the other, if this equation is considered 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 accumulation of capital and a given relationship between productive capacity and the stock of capital goods, the problem of effective demand does not arise. 'It is this approach that is inherent in many contemporary theories of economic growth' (ibid., p. 463). But if capitalists decide to invest at a lower rate there will be a decline in effective demand and a further effect on the degree of utilisation of capacity. Some economists tend to consider this phenomenon as the downswing phase of the business cycle which takes place around the initial path of growth. . . . [But] why cannot a capitalist system, once it has deviated downwards from the path of expanded reproduction, find itself in a position 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 the development of capitalism which does not encounter the problem of effective demand, even if it is possible, is unstable' (1967, 1991, pp. 454-5. Having demonstrated the possibilities of sustained lack of effective demand with this model, he then devotes his attention to the main component of effective demand, investment. Kalecki's explanation of both effective demand and of distribution are logical and historical developments of the basic relations of a capitalist mode of production. The importance which Kalecki attached to these issues and his historical approach are reflected in his criticism of orthodox and Keynesian growth theory, which is worth quoting at length: [T]he central problem of the laisser-faire capitalist system . . . is that of effective demand. . . . But from the time the discussion of economic dynamics has concentrated on problems of growth the factor of effective demand was . . . disregarded. Either it was simply assumed that in the long run the problem of effective demand does not matter . . . apart from the business cycle
footnote 1 continuedfromprevious page L K Y I Wl + PI = Yl II WII + PII VII

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m

wm

=

PHI

=

nil

Since the surplus in the wage goods sector must provide for the workers in the two other sectors, II and

ni: PI = wa + win

Then PI + PII + PHI = H I + VTH Total capitalist income is equal to their total spending on investment goods and luxury consumption goods. Kalecki illustrates the notion of circulation in production and distribution to demonstrate that while workers receive a total wage bill determined by political forces and the total level of employment and output, capitalists as a group receive as income an amount exactly equal to what they spend on productive and "unproductive' goods. Since these two latter variables are the independent ones they also determine the level of total output (see 1964B). Hence the interdependence of capitalists on each other for markets also becomes clear.

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. . .; or . . . the problem was approached in two alternative fashions: (a) The growth is at an equilibrium (Harrodian) rate, so that the increase in investment is just sufficient to generate effective 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-run priceflexibility:prices are pushed in the long run in relation to wages up to the point where the real income of labour and thus its consumption is adequate to cause the absorption of full employment national product. I do not believe . . . in . . . neglect [ing] . . . the problem of finding markets for the national product at full utilisation of resources either in (a) or (b) fashion.... [T] he trend represented by the (a) case is unstable. . . . The belief that such disturbance creates merely a downswing followed by an upswing in relation to the growth proceeding at an equilibrium, i.e., that it yields a trend cum business cycle is mathematically indefensible. . . . Nor do I subscribe to the longrun priceflexibilityunderlying theories of the (b) type. The monopolistic and semi-monopolistic factors involved infixingprices cannot be characterised as temporary short-periodrigiditiesbut affect the relation of prices and wage costs both in the course of the business cycle and in the long run. (Kalecki, 1970, pp. 311-12). The pricing behaviour expresses the competitive relations between individual capitalists: the model of effective demand governing the level of output illustrates the dependency of individual capitalists on the aggregate accumulation of capital—other firms are the market for the investment-goods outputs of each individual firm—and therefore 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 is medium-term recessionary phases of the business cycle which are subject to solution within the framework of the capitalist system and the other is the structural crises of capitalism which cannot be so 'statically' resolved.)1 Kalecki states: [A]n expanded reproduction will take place if there exist factors that simply do not permit the system to remain in the state of simple reproduction . . . [this state] leads to a level of gross investment exceeding depreciation. Such a factor may be first and foremost the influence of technological innovations, . . . which opens before the capitalists new perspectives. The technical progress appears in this approach not merely as depreciating old plant, which leads to their replacement by new ones; it is also a stimulus 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 technical novelties that have reached them (1967, 1991, pp. 454-5). The above should not be construed in the sense that such a possibility of expanded reproduction—without 'external markets'—is tantament to the elimination of influence of inadequate effective demand. Indeed, the rate of expanded reproduction
1

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Pasinetti (1981) outlines the fundamental relations which must exist between technological change and

effective demand. Pasinetti (Ch. 4) develops a method of approaching the expanded reproduction of the classical system with the added complexity of uneven rates of technical progress and the associated changes in the structure of final demand. This approach could also be an appropriate guide for developing Kalecki's theory as he presents it in the form of the schema, as it shares many of the basic features of this classical structure.

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resulting from this factor is by no means necessarily adequate to secure the full utilisation of equipment or even to keep the degree of this utilisation at a constant level. Innovations break the impasse of a simple reproduction only to some extent. For Kalecki, it is via the model of effective demand that the importance of an adequate level of investment for the reproduction of the material (and social) conditions of production is introduced; commodities must be sold if finance is to continue to be forthcoming. Furthermore, it is the tendency for net investment to be positive in response to the competitive advantages of new technology. At the aggregate level, the implication is that the individual firms' investment plans will depend for their actualisation on the rate of accumulation of all capitalists. The aggregate rate of accumulation, explained through the theory of effective demand, therefore poses a limit (together with the distribution of income) to investment. While the model of the schema, the mechanism whereby effective demand generates a certain mass of profit, demonstrates the interdependency between capitalists, and the reliance for their survival on the reinvestment of profits so that each provides a market for the other, the explanation of the decisions about investment itself derives from the competitive relation between individual capitals. In the work of both of Marx and Kalecki investment is one of the activities which expresses the competitive nature of capitalist production. Furthermore, investment has a number of less direct connections with the competitive conditions of production. For example, net investment is the means by which accumulation proceeds, and accumulation of capital is essential for a certain mass of profit to be maintained in the face of a postulated tendency for the rate of profits to fall with the development of capitalist production. Investment in new technology can temporarily raise the individual's rate of profit above the standard rate, thus giving that capitalist a competitive edge. The general proposition that investment is one resolution of the competitive nature of capitalist production, which acts as one vehicle for moving towards a uniform rate of profits, is stated by Marx repeatedly. For example, in discussing the formation of prices of production, prices which imply a uniform rate of profits, capital withdraws from a sphere with a low rate of profit and invades others, which yields a higher profit. Through this incessant outflow and influx . . . which depends on how the rate of profit falls here andrisesthere, it creates such a ratio of supply to demand that the average profit in the various spheres of production becomes the same (Marx, p. 195) Marx qualifies this generalisation insofar as ' [c] apital succeeds in this equalisation, to a greater or lesser degree, depending on the extent of capitalist development in the given nation' (ibid.). For example, this equilibration will be achieved more quickly, 'the more mobile the capital i.e. the more easily it can be shifted from one sphere and from one place to another. . . . It implies . . . the development of the credit system, which concentrates the . . . mass of disposable social capital vis-a-vis the individual capitalist' (ibid., p. 196). These statements illustrate a process by which the rate of profits tends to its average

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by the activity of investment.1 Competition between capitalists means that capital will tend to move to areas of production where the rate of profits is highest: this form of competition requires mobility of capital; the reallocation of capital will be better effected through a developed credit system. Kalecki's theory presumes Marx's observations to be an appropriate basis on which to proceed with an account of this competitive process in investment. Kalecki follows through the process whereby investment decisions take place. At the basis of his argument is the proposition that investment decisions are made by reference to a 'standard rate of profit'—they are based on the profits expected in relation to this standard rate (see 1968A, 1991, pp. 438-40). The investment decisions will also depend on the availability of finance—which implies the mobility of capital between spheres—and also on the perceived risk in borrowing relative to the expected rate of profit. He specifies that investment decisions will be made when entrepreneurs have access to internal finance but will be constrained by limited capital markets and by increasing risk involved in using various types of external finance. If entrepreneurs are confident that the new investment will return a rate of profits in excess of the standard (and therefore of the cost of borrowing), then they are more likely to use this external source. The mobility of capital must depend on the degree of organisation of the financial system and, therefore, on the margin between the cost of borrowed funds and the expected return on new investment. Access to external funds also depends on the degree of accumulation already attained. The gross savings of firms thus extend the boundaries set to investment plans by the limited capital market and the factor of 'increasing risk' (1937, 1990, pp. 285 et seq.) The direct link with Marx's construction of the 'capitalist mode of production' is evident in observations such as Kalecki's concluding remarks to the essay 'Entrepreneurial Capital', in which he states: Many economists assume, at least in their abstract theories, a state of business democracy where anybody 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 for becoming 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 of capital 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 lower the mark-up and bring down the rate of profits, thereby reducing the incentive to invest further in that sector. This does not contradict that effect of a decline in the rate
1 Although note that Steedman (1992) argues that if everything is measured in market prices, such a convergence may not occur. 2 This observation is also made by Smith (1775) and later Kaldor (e.g., 1972), in their respective versions of materialist history. For Smith the social division of labour and consequent production for exchange, the prelude to the development of capitalism, required a stock of goods to have been accumulated by an individual. For Kaldor the development of capitalism required that someone hold a stock of goods to use as capital.

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of profits—the need to accumulate in order to maintain a mass of profits. This reduced incentive applies to individual capitalists in competition with each other. In Kalecki's model, the expansion of capacity brought about by new capitalists entering the field, can reduce individual capitalists' capacity utilisation and rate of profits. But the redistribution to wages will generate demand, and if capacity levels are maintained in aggregate, profits will be unchanged. Kalecki's method is to represent these various factors in a simple model so that the interaction between them—the possibilities of interaction between the various forms which capitalist relations have taken in this specific historical phase—can be more easily seen, as can the relative importance of different factors depending on other specified circumstances. Marx presents several arguments about the influences of technological change. First new technology gives first users the advantage of a surplus profit, by selling their products at the same market price but producing them with higher-productivity labour (and, therefore, at a lower individual value with less socially necessary labour). Second, the introduction of new technology hastens the depreciation of existing capital equipment and therefore hastens the accumulation of capital by the competitive need for all firms to introduce the new technique. Third, the depreciation of existing capitals checks the tendency for the rate of profits to fall as the new capital tends to take a form in which its value composition is decreasing. Fourth, new technology which is more productive and acting to increase the rate of profits can increase that portion of output available for reconversion into capital. And, fifth, if the new technology reduces the value of constant capital, cheapens the elements of production (either those directly involved in production or those which comprise wage-goods), then the same capital value can produce an expanded mass of commodities. The contradiction here is that although the depreciation of existing capitals brings with it a corresponding expansion in the mass of capital values, the new technology introduced can embody a higher rate of profits while also tending to embody a higher composition 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 fundamental to understanding both growth (or stagnation) and the cycle. The main implication from Marx's more general statement was that competition ensures that capitalists invest in new capital, with the technology yielding the highest expected rate of profits and lowest cost for a given distribution of income. Kalecki incorporates both aspects of Marx's argument. He describes both 'ordinary' investment and investment which introduces the new technology (in a way which is suggestive of Salter's [1960] more complete, though neoclassical, exploration of this aspect of investment):
We assume that innovations, in the sense of gradual adjustments of the equipment of a firm to the current state of technology, are part and parcel of'ordinary' investment. (Kalecki, 1954A, 1991, p. 114).

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In an earlier article on new technology, Kalecki (1941) lists the effects of this investment. Technological change has a tendency to: (i) . . . increase the productivity of labour; (ii) . . . change the ratio of maximum capacity of the plant to the amount of capital it contains; (iii) . . . increase the degree of oligopoly because it promotes concentration of industry, (iv) . . . lower the general level of prices . . . with a given wage rate the marginal labour cost (in money terms) corresponding to a given utilisation of plant, falls as a result of the rise in the productivity of labour; then tends to reduce prices corresponding to a given utilisation of an industry's equipment. This tendency is counteracted by the rise of the degree of oligopoly, but is not likely to be fully offset by it. (v) New inventions increase the prospective rate of investment decisions . . . is higher. (Kalecki, 1941, p. 109) He summarises the complexity of these effects of technical progress on productivity of labour and on the ratio of productive capacity to capital as effects which influence directly the volume of employment and the structure of capital equipment. The effects on the degree of oligopoly, general price level and inducement to invest are incidental side-effects of technical progress and influence economic development in a different way. The increase in the degree of oligopoly tends to decrease the relative share of wages in national income. The relative fall in the general price level tends to reduce the demand for cash and so reduce the interest rate: this tends to redistribute capitalists' income from entrepreneurs to rentiers.10 But the stimulus to investment coming from new inventions keeps the effective demand higher than it would be in the absence of inventions. After isolating the outcomes for individual features of technological progress and discussing likely institutional reactions to these Kalecki concludes that 'the significance of our theorem is to show that technical progress influences output only through channels of invention stimulus, oligopoly and the general price level (or by overcoming the scarcity of labour) (ibid., pp. 115). As it does in Marx's argument, the introduction of new technology acts to accelerate the rate of depreciation of the existing capital stock. The rate of depreciation is an important underlying factor in the trend rate of economic growth. It is also an important determinant of the 'standard
10 Kalecki, twice in this article, refers to the redistribution of income (profits) from entrepreneurs to rentiers in the context of falling interest rates. A possible explanation is that the rate of profits has fallen by more than the interest rate. This could occur if there is a rise in the capital intensity of production and the degree of utilisation falls so that the rate of profits also falls. The effect on capacity utilisation could be compounded by the fall in effective demand from the wage sector. To the extent that prices are falling and margins might also fall, the effect on the rate of profits will be exaggerated. As well, the expansion of investment in response to inventions will tend to reduce profit rates as capacity utilisation falls and the tendency towards concentration of industry with technological change will act on profit rates in the same direction.

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rate 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 on their new investment back to the 'standard rate' and base subsequent investment decisions on this. Entrepreneurs who are first to use a new technique will do better than this average but, when the class as a whole is considered, over more than one period of time, the advantage of the increase in productivity to the one group will be seen to be temporary. In putting his argument into model form (see ibid., 1968A, 1991), Kalecki specifies the transfer of profits from entrepreneurs using old equipment to those using new equipment which is of higher productivity. In this way, the competition is clearly between capitals and does not implicate any necessary change in the relation between capital and labour: the stimulus to adopt the new technique does not, in this case, therefore, arise out of re-addressing changes in the 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 a redistribution of profits between producers. The redistribution between profits and wages is an outcome of the capitalists' spending decisions and their power to set prices after money wages are settled. The conclusion from Kalecki's statements and his model is that technical change stimulates the rate of investment and via its impact on effective demand can generate an upturn in economic activity. Thus Kalecki relates deviations from a trend and the trend 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 certain repercussions of technical progress which affect the dynamic process as whole' (ibid., p. 435). When this argument is related back to Marx's general statement, that innovation is one essential outcome of the need for capital to accumulate and so of the competitive relations of production, Kalecki's description of trend and cycle no longer appear as a mechanistic accelerator model, but is located clearly in 'the social prerequisites on which the production process is based' (Marx, p. 196). The introduction of new methods of production therefore explains how competition between capitalists can be resolved to counteract a trend to stagnation and also to explain fluctuations in economic activity as 'technology booms' occur. At the level of individual firms, the adoption of new technology can explain a redistribution of the surplus between firms and the need for new techniques to be adopted in order that individual firms survive. It is a direct link, then, between Marx and 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 fall under 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 and over-production of capital originate from the same conditions. The part of [die change in capital stock] in the hands of old functioning capitalists would be allowed to remain more or less idle to prevent a depreciation of their own original capital and not to narrow its place in die field of production. Or they would employ it, even as a momentary loss, to shift the need of keeping additional capital idle on newcomers and on their competitors in general.

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That portion of [the change in the capital stock] which is in new hands would seek to assume a place for itself at the expense of the old capital, and would accomplish this in part by forcing a portion of the old capital to lie idle. (Marx, pp. 252-3) From this basis, Kalecki makes explicit the fact that the common feature of firms in the manufacturing industry is the underutilisation of capacity; this enables firms to respond quickly to a change in demand without necessarily changing prices (and with increased profit margins to the extent that overheads are an important component of costs) and therefore to act as a barrier to entry to new firms. The way the competitive conflict is settled, for Marx, is through the depreciation of the old capital, and the distribution of the losses involved depends on the competitive position of the individual capitalists. Again, this is the starting point for Kalecki, and he develops the argument for the competitive advantage of new techniques for individual capitalists while maintaining the position that ultimately utilisation will decline and profits in general will fall. This is compounded by the argument that the rate of profits will fall as accumulation proceeds (e.g., 1954, 1991, p. 283). His construction of a model of investment decisions which determine investment activity is then extended to explain fluctuations in activity and trends and the insights of this model are easily obscured unless reference is made back to its basis in specific social relations. Referring to technological change, Kalecki states: The cost-price relations . . . were based on short-run considerations. However, the only parameters which enter the equations in question are the coefficients . . . reflecting the degree of monopoly. 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 between prices and unit prime costs can be affected by changes in equipment and technique only to the extent to which they influence the degree of monopoly. This, however, is qualified by the assumption . . . that the unit prime cost does not depend on the degree of utilization of equipment and that the limit of practical capacity is not reached, (Kalecki, 1954A, 1991, p. 217n.) And, in a passage closely resembling Marx's statements, he says: The above argument [for investment decisions] is based on the idea that entrepreneurs scrutinise how the new investment 'is doing' in terms of profitability, and on this basis form a decision whether just to reinvest their savings, to exceed their level or to fall short of it: this depends on whether the rate of profit on new actual investment proves to be equal, higher or lower than the 'standard rate'. An important element of how the new investment 'is doing' is the rise in productivity due to technical progress, which causes a transfer of profits from old to new equipment. But there is still another effect of innovations. In the year considered new inventions come within the compass of the entrepreneurs. Thus they expect to do better out of their investment than those whose investment materialised in the year considered. In fact, this will not prove true for the investing entrepreneurs as a body: if the increase in productivity is not accelerated the investment materialising in the next year will not be more profitable on the average than that in the present one. Nevertheless, those

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

For Marx, an important outcome of the competitive struggle was that it led, via a reduction in the rate of profits, to a concentration of capital. Marx characteristically develops the argument by stating the contradictory tendencies and their possible interactions. The process is that the fall in the rate of profits associated with accumulation, leads to the competitive struggle between capitalists becoming a dominant feature (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 firms with lower rates of profit, thus countering the trend to a decrease in the average rate of profits. Kalecki refers to this trend but does not develop it in much detail in his theory of investment. On the contrary, he refers to the likelihood of collusion between large firms who see it in their particular interests to act against other firms and prevent outside firms entering, particularly in a depression: but he also notes that the opposite may occur (1954B, 1991, p. 230). Furthermore, he observed that the degree of monopoly had shown a general tendency to increase in the long run and he examines the implications of this rather than the causes of it {ibid.). Kalecki could observe that trends in the new technology of production were not themselves sufficient to account for 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 growing concentration 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 to the collapse of capitalism, on the grounds that this concentration of capital into fewer and fewer activities removes the means whereby the tendency for the rate of profit to fall can be checked. But stagnation and concentration are both phases of the cycle. For Marx, capital can be stagnant and temporarily 'give up its characteristic quality as capital, 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 of effective demand—investment in particular. This can be further related to the tendency towards a concentration of capital. Another aspect of stagnation described by Marx, which Kalecki does not consistently pursue in his later work (although see 1941) is developed through the effect of a general decline in prices. The process of reproduction, Marx argues, is governed by definite price relations, meaning those of prices of production, which imply a uniform rate of profits on all capitals. Stagnation, by causing a depreciation in certain elements of fixed capital, thereby disrupts the process of reproduction by disrupting the function of money as a means of payment based on the appropriate price relations. Stagnation of production also entails unemployment and this can lead to a reduction of (real and money) wages. The apparent over-production of commodities is then to be understood as an over-production of those products which would serve as capital, a

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delay in the change of capital from its commodity form back to a more mobile or productive form. Thus the link emerges with effective demand. Kalecki states:
The main problem of a developed capitalist economy is the adequacy of effective demand . . . In fact, 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 between pricing and the tendency to stagnation) is considered below.
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IV. KALECKI'S THEORY OF PRICING Kalecki's theory of pricing, after some initial revisions to accommodate early allegations of its tautologous nature, was subject to fewer revisions and the criticisms of it were of less interest to him. He argued that since firms operate at less than full capacity, they can respond to transitory shifts in demand by expanding output with no necessary price change. (The extent of overheads in costs will affect the size of the realised profit margin if price is unchanged as output changes.) The main criticisms of Kalecki's theory were that its explanation of the 'degree of monopoly' was tautologous and that it relied on partial analysis to explain aggregate shares and prices. The first of these criticisms Kalecki answered by restating his explanation of the mark-up, arguing that it 'indicated' the degree of monopoly, the important point being that firms have some control over their prices but that this is exercised by reference to their perceived market power. That the explanation of the actual mark-up itself may be unsatisfactory is a separate issue from the usefulness of this depiction of pricing and its implications for relative shares as representing corporate behaviour. Nevertheless this theory of price, it could be argued, is compatible with Marx's theory of value, as it is neither demand-determined nor is profit a residual. This leads to the second criticism concerning the invalid procedure of partial analysis. Kalecki does not, in fact, assume independent firms. Crucial to his micro explanation is the interdependence of firms and decisions firms make about pricing. Their interdependence is important in expressing the competitive nature of capitalist production (which also demonstrates that Kalecki's notion of competition is in the classical mode, so that competition is the classical process by which the equalisation of rates of profit in all sectors is approached—it is not the state of the economy which lies along some continuum with competition-monopoly 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 of other firms producing similar products. The firm must make sure that the price does not become 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 it will not be assumed that the firm attempts to maximize its profits in any precise sort of manner' (ibid.). This interdependence is expressed formally in the reference each firm

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makes to the existing industry average price when it sets its own price, and by demonstrating how the new average industry price is thereby formed. It must be assumed that for the short period each firm's market share is stable. There appear, therefore, to be several ways in which the expression of competition can lead to or have a tendency towards the equalisation of the rate of profits. The pricing behaviour is the result of within-industry competition and serves to equalise the rates of profit between firms in an industry. The investment behaviour expresses the outcome of competition within but also between various sectors and its expression is the allocation of new investment expenditure to areas in which the expected rate of profit exceeds the 'standard' rate. Thus, for Kalecki, the distribution of income was not central to the explanation of the process of accumulation. The distribution reflected the resolution of the competitive relationship between capitalists, and its main implication for accumulation was that it imposed a limit on the resources available for investment. The necessary funds for investment come from saving out of realised profits. Thus expansion plans and actual accumulation are directly related to the competitive nature of the economy and to (exchange) relations between firms both within the manufacturing sector and between sectors (since the profit margin is also affected by the ratio of raw material to wage costs). V. THE RELATIONSHIP BETWEEN THE THEORY OF PRICE AND THE THEORY OF INVESTMENT The remaining problem is that of clarifying the meaning of this 'price' and its relationship to investment. Insofar as it is based on a given capacity, it seems that it is relevant for a particular set of investment decisions. Ultimately, these investment decisions express competition between capitalists and the movement of capital to its most profitable ventures: profitability in Kalecki's model depends on this price decision (made subject to all the capitalist relationships of production.) In other words, the investment decision is relevant to a particular result of the distribution of income and in fact depends on this. In this sense, the two theories—the theory of investment and the theory of pricing—appear not to be independent or separable. Consider two of the implications of such inseparability. On the one hand, this could mean that the result of competition between capitalists, expressed in investment behaviour in terms of the sectoral allocation of their investment, depends on the outcome of their competition within an industry. Their competitive strength is ultimately expressed by their ability to raise their relative price, this perceived ability being 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 is implicit 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 underlying fundamental relationships of capitalist dynamics and price decisions which are tied to

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a 'short period', insofar as they relate to a given productive capacity and perceived competitive position (although not short period in the sense that they are outcomes of transitory events and are situation-specific). The problem here is whether the two 'time periods' can be legitimately linked? A connection between them would seem to contradict the structuring of the theory as a whole in the classical manner outiined above in Section I. In classical theory each component of the overall account constitutes a separable theory to be argued independently of other component theories. By tying the investment theory to the value theory, there is an element of circularity in the causative process. The relationship between the theory of investment and the theory of pricing requires separate consideration as there is a strong body of theory apparently derived from Kalecki's theory of pricing which argues from the position that mark-ups and hence prices are governed by the need to generate finance for investment (e.g., see Harcourt and Kenyon, 1976; Wood, 1975). This approach appears to abandon the classical framework and the separability of the theory of value and distribution from the determinants of effective demand. The possibility of a relationship between the two theories raises the following questions. Does the attempt to construct an interrelation between investment and pricing decisions confuse the problem of theorising two different expressions of the competitive aspects of capitalist production, a confusion created by stating it as a problem of a micro theory being compatible with a macro theory? Furthermore, by stating it in this way, is it that there is a fusion of the theory of effective demand with a theory of value and its implications for investment? The interest here, in constructing a theory of pricing and investment decisionmaking at the level of individual capital, which is compatible with the macro-level theories of value and distribution and of effective demand, raises several points. First, it should be made clear that this search for the micro basis of the macro theory is not an issue for Kalecki's account of capitalist economics. By stating the problem in these terms, the importance of the capitalist social relations to the understanding of these decisions is obscured. In Kalecki's theory, pricing decisions are based on the perceived market power of individual capitalists—the extent to which they can raise their profit margin, hence prices, in relation to the 'average industry price'. It is at first the competition between capitalists in a particular industry and not between capitals in different sectors. And this pricing behaviour is not a response to market demand and supply pressures, as Kalecki's assumption of less than full capacity utilisation enables the 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 output increases). 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 and hence price of production for the industry concerned, showing how this is an average and therefore how there can exist within any industry a hierarchy of different cost structures and profit margins.

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However, if the problem is considered in terms of a 'micro-macro synthesis', the meaning of pricing and investment activities, respectively, for capitalist dynamics becomes obscured. The need for there to be expanded reproduction is lost. The separate aspects of competition become fused so that the inter-capitalist competition is aggregated into one form at the 'micro level', with the resultant explanations for price decisions and investment decisions of individual firms apparently part of the same theory. These theories make price or profit margins determined by investment decisions insofar as they based on the financial requirements of those investment decisions. Such theories derive from the 'widow's cruse; conclusions of Keynes and Kalecki, that 'capitalists get what they spend', which follow their demonstrations that capitalists' spending generates its own profits. However, these conclusions are 'macro' conclusions. The result for individual capitalists of their investment outlays depend on the competitive outcome of their individual strategies vis-d-vis each other. For a given level of investment, it is a matter of distributing the mass of profit between individual capitals and their competitive strength will determine to what extent the individual covers 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 aspect encompasses the theory of effective demand and output and the theory of distribution. The requirement is of logical (deductive) consistency given the 'vision' of the economy described: the macro theory of distribution and the theory of output must be logical extensions of the micro theory of pricing and investment. The problem of logical consistency mainly arises as a problem of aggregating from theories which are based on partial equilibrium assumptions. The link that is made at the micro level between prices and investment therefore imposes, at the macro level, a unity between the 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 one theory. Although post-Keynesian mark-up pricing theory could be seen as an extension of the market-price relation to realisation, so bringing together investment and price decisions 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 is talking about prices of production, clearly presuming Marx's notion of a capitalist mode of production and the relationships it entails, where both the long-run prices of production and the market prices are consistent with and even require the problematic and often central issue of his associated labour theory of value. The Keynesian theories could be located within this theoretical structure were they seen as theories about market prices and, as such, about the process whereby prices of production were reached, not about the position of these prices of production themselves. The relationship this bears to the explanation of investment could then be that in explaining how this price of production is reached, there must be a simultaneous explanation of how the average rate of profits is reached. The account of market prices is integral to the description of the realisation process,

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showing, for example, how sustained shortfalls of market demand in relation to market supply eventually lead to the market prices in that sector being below the prices of production, or, the profit rates they imply being below the average rate: the consequent investment decisions are to reallocate capital to other areas. The market price does not therefore influence the price of production directly. Rather, it indicates the resolution of underlying forces: the theory of value can explain what the market values are based on and the relation of competition in conjunction with the labour theory of value explain prices of production. The underlying social relations can explain why, over a sustained period, market prices do not equal prices of production. The lack of effective demand implies a decline in the rate of profits, so that the reallocation of capital through investment, possibly initiated by technological change, as a response to this, can act to maintain the average rate of profits. In this latter way, market prices can influence prices of production by operating to relocate capital to more profitable areas and thus influence the average rate of profits. This is 1 1 quite clear from Kalecki's references to average industry price and standard rates of profits. Explanatory consistency is not a problem for Kalecki because his theories of pricing, investment, and of effective demand and output each begin from specified capitalist social relations and proceed to develop the 'specific character' of these relations concretely and in a contemporary context. The demonstration of the relation of effective demand to output, which elaborates the interdependency of capitalists for their survival as a class is separate from both the elaboration of their competition expressed by investment and their competition expressed through pricing, where the pricing consolidates these decisions in the resulting distribution between wages and profits consistent with the investment decision. Thus the 'specific character' of capitalism as it resolves social relations in one way simultaneously changes the conditions for which such a resolution is appropriate and therefore makes parts of the overall account inappropriate. If the specific features and basic relations of production are pursued in separable theories (which does not deny the interaction at more concrete levels of their expression), the outcomes of changes in their form can be recognised in a modified specification of the appropriate relations. Simultaneity makes this impossible. In summary, the relationship between pricing and investment in Kalecki derives from their common bases in the competitive nature of capitalist social relations. Their separability is clear from the different forms this competition takes between different levels of division of capitals (i.e. within a sector and between all capitals). In addition, the problem of reconciling micro with macro logic does not exist for Kalecki because he is not talking about market prices but about prices of production, the 'average industry price' formed independently of demand conditions. This Marxist basis for Kalecki's theories can be traced to certain passages in Capital concerning market prices, market values (and prices of production) and realisation and its implications for market prices. Marx argues that competition brings out the social character of production and consumption when it is expressed in the form of a confrontation of buyers in aggregate and sellers in aggregate. This expression of

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demand and supply for a commodity will determine, at any particular moment, the market price. However, the direction of the relationship that market price bears to the price of production is that it is partly determined by the price of production and not the reverse. Hence, Marx states that the 'ratio of supply to demand does not explain the market value, but conversely, the latter explains the fluctuations of supply and demand' (Marx, p. 192). These deviations play an important role in the competitive process of establishing a uniform rate of profits both within a sector of capital and in general. The fluctuations of market prices above prices of production provide the means for reallocating surplus-value from below-average to above-average profit sectors, thus equalising rates of profit. The actual prices of production are reached by competition between capital in all spheres so that the surplus value is redistributed between spheres by reallocating capital to new equipment through investment decisions. Kalecki's theories of pricing and investment draw on both of these themes. Competition within one sphere is a relation to the average industry price so that the theory of price is at the same time the theory of distribution, and thus appears to have implications for the problem of realisation.

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VI. KALECKI'S WORK AS 'APPLIED MARXISM' Superficially, Kalecki's theory of investment appears simply to relate investment decisions to expected rates of profit and to base these expected rates on actual rates. However, by seeing his work as an application of Marx's theory to contemporary capitalism, it presumes the contributions of Marx's 'capitalist mode of production'. Kalecki's work could be seen as developing, for example, from the following passage in Capital: Our analysis has revealed how the market-value . . . embraces a surplus-profit for those who produce in any particular sphere of production under the most favourable conditions. . . . For the market-price signifies that the same price is paid for commodities of the same kind, although they may have been produced under very different individual conditions and hence may have considerably different cost-prices (Marx, p. 198). Kalecki proceeds to analyse investment decisions from the incentive offered to earn above 'standard' profits, in particular by using new technology or by shifting capital to other sectors. And his theory of pricing starts from the same level of abstraction described by Marx above. Kalecki's argument closely resembles that of Marx, that '[t]his mode of determining market-values, which we have here outlined abstractly, is promoted in the real market by competition among the buyers, provided the demand is large enough to absorb the mass of commodities so fixed' (ibid., p. 185). If Kalecki's analysis presumes much of Marx's analytical structure and particular theories, it does so in order to develop the implications of the classical surplus analysis at a more concrete level and to study trends in pricing and in the distribution of income.

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Kalecki extends Marx's argument to accepting uncritically the social relationships which constitute a capitalist mode of production, i.e., by accepting Marx's conceptual framework and method and the ways in which Marx argues that these relationships initially are expressed. Kalecki 's resultant theories aim to develop new forms as resolutions to the contradictions between them. They try to explain the specific historical character of capitalist production and they develop from the proposition that the various forms which the conditions of production take may not be at all times mutually compatible. And, finally, there is Marx's comment: The contradiction between the general social power into which capital develops . . . and the private power of individual capitalists over these social conditions of production . . . contains the solution of the problem, because it implies at the same time the transformation of the conditions of production into general, common, social, conditions, (ibid. p. 264) Kalecki's use of the scheme to describe his theory of distribution and of effective demand encapsulates other features which distinguish his theories from 'Keynesian'. While Keynesian distribution theories are also built around a two-class vision of society, what distinguishes the classes is their saving behaviours. For Kalecki, these two classes can struggle over shares in output, but, since it is capitalists who make the spending decisions (as indeed it is in Kaldor's model), they also have the opportunity to create disproportional demands and inappropriate compositions of output—the classical scheme is a framework to demonstrate a range of manifestations of class relations which Kalecki has adopted from his Marxist basis. The disproportion can indicate shifts in profitability, movements of capital, including tendencies to concentration and to growth or stagnation. This array of possibilities underlies his theories, and gives them the coherent content which in Keynesian models is given in an unintegrated, individualistic or micro way. Kalecki's work, then, can be seen as an application of Marx's ideas to contemporary expressions of them, such as the tendency to stagnation and underutilised capacity and the growing gap between production and realisation, and of factors, particularly technological change, which act to offset these trends. Kalecki accepts Marx's formulation of the contradictions and attempts to explain them in their historically specific form. REFERENCES
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SAWYER, M. (1986). The Economics ofMichael Kalecki, London, Macmillan. SEBASTIANI, M. (ed.) (1989). Kalecki's Relevance Today, London, Macmillan. STEEDMAN, I. (1992), Questions for Kaleckians, Review of Political Economy, Vol. 4, No. 2. STEINDL, J. (1952). Maturity and Stagnation in American Capitalism, Oxford, Basil Blackwell. STEINDL, J. (1990). Economic Papers 1941-88, London, Macmillan. WOOD, A. (1975). A Theory of Profits, Cambridge, C.U.P.

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