Keynes Kalecki Research Method

Journal of Post Keynesian Economics
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Keynes against Kalecki on economic method
Anna Maria Carabelli & Mario Aldo Cedrini
To cite this article: Anna Maria Carabelli & Mario Aldo Cedrini (2017) Keynes against
Kalecki on economic method, Journal of Post Keynesian Economics, 40:3, 349-375, DOI:
10.1080/01603477.2017.1331317
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JOURNAL OF POST KEYNESIAN ECONOMICS
2017, VOL. 40, NO. 3, 349–375
https://doi.org/10.1080/01603477.2017.1331317
none defined
Keynes against Kalecki on economic method

Anna Maria Carabelli and Mario Aldo Cedrini
ABSTRACT KEYWORDS
In the past twenty years, there has been considerable debate on Complexity; economic
the “coherence” of post Keynesian economics, in view of post methodology; formal
Keynesian economists’ ambitions to develop a paradigmatic modeling; John Maynard
Keynes; Michal Kalecki; post
alternative to neoclassical economics. Given the growing
Keynesian economics
importance of methodological aspects in this discussion, this
article addresses the differences of approach to economic JEL CLASSIFICATIONS
theory between the fathers of the two most important strands B31; B40; B5; C0
in post Keynesian economics. We thus focus on Keynes’s
criticism of Kalecki’s theory of the business cycle and the
tensions between Keynes’s logical approach and Kaleki’s formal
modeling. We show that in criticizing Kalecki’s theory, Keynes
made use of the same methodological criticism (based on
detecting logical fallacies in reasoning) he had employed to
attack both the classical theory and contemporary “pseudo-
mathematical” models. After illustrating these fundamental
differences between Keynes and Kalecki about the proper way
of doing economics, we draw some conclusions on the possible
future evolution of post Keynesian economics.
In the past twenty years, there has been considerable debate on the possibility
that what some perceive as “a looser association of some non-mainstream
opponents of [the] orthodoxy” (Walters and Young, 1997, p. 347), that is, post
Keynesian economics, come to represent a paradigmatic alternative to
neoclassicism. Earlier optimism in this regard (Hamouda and Harcourt
1988) has recently vanished, it has been argued (Hart and Kriesler, 2014;
see also King, 2002), due to unsettled disputes between the various post
Keynesian strands (in Lavoie’s [2014] taxonomy, and in Keynes fundamental-
ists, Sraffians, institutionalists, Kaldorians, and Kaleckians). Even the
Keynesian–Kaleckian “alliance” (Hart and Kriesler, 2014; on Sraffians’
“difference, see Dequech 2007) seems less firm than as usually portrayed.
The leader of Keynes fundamentalists, Paul Davidson (2000, 2003–2004),
has never considered Kalecki a founder of the school, owing to the relatively
minor attention the latter devoted to money and uncertainty, as Kaleckians
themselves recognize (e.g., Sawyer, 1985). Relying also on other responses
to Davidson (2000) (Kriesler, 2002; López, 2002) as well as on Dymski’s
(1996) and Sawyer’s (2001) contributions on Kalecki’s “monetary” economics,
Anna Maria Carabelli, Dipartimento di Studi per l’Economia e l’Impresa, Università del Piemonte Orientale,
“A. Avogadro.”
Mario Aldo Cedrini, Dipartimento di Economia e Statistica “Cognetti de Martiis”, Università di Torino.
© 2017 Taylor & Francis Group, LLC
350 A. M. CARABELLI AND M. A. CEDRINI
Lavoie wants conversely to emphasize the greater relevance of Kalecki’s

approach to today’s world. As Joan Robinson (1977, p. 15) observed, “Kalecki
was free from the remnants of old-fashioned theory which Keynes had failed
to throw off.” It is held that the use of “Marshallian tools” (see Kriesler, 1997;
Sardoni, 2001) led Keynes to accept the neoclassical production function and
the assumption of decreasing returns.
To discuss the issue of post Keynesian “coherence,” one should consider
the work of post Keynesians themselves, and discover the noyaux dur of
post Keynesian economics. The literature cannot dispense, however, with
addressing the problem of strands that identify themselves as post Keynesians
despite radical differences—even mutual “hostility” (Hart and Kriesler,
2014, p. 1)—in the approach to economic theory, each nonetheless with “its
advantages and drawbacks” (Lavoie, 2015, p. 58). Examinations of the
“pantheon” of post Keynesian economists—agreeing with Arestis, Dunn,
and Sawyer (1999) on the uselessness of any possible claims of (one or the
other father’s) superiority—might help to throw light on such dissimilarities
and provide a guide, however rough, to the alternative routes followed by
the post Keynesian strands in their development. Furthermore, in view of
the importance of “method” in the history of post Keynesian economics (once
it came to be considered in the 1980s, as not only a theoretical but also a
methodological alternative to neoclassical economics, divisions within the
camp became more evident: see Dow [2013] and Fontana [2009]), the present
contribution focuses on some methodological differences between Keynes’s
and Kalecki’s economics.
A consolidated tradition identifies post Keynesian methodology with
understanding the complexity of both reality and knowledge about it as an
“open system”—as opposed to Cartesian/Euclidean thinking of mainstream
economics—drawing inspiration from Keynes’s use of fluid categories and
organic interactions (Chick and Dow, 2005; Dow, 2013). According to Dunn
(2008, p. 42), “Commitment to open-system theorising is the methodological
glue that binds post Keynesians together,” and it is on an open-system logic
that Lawson’s (1997) proposal to reunify the post Keynesian strands using
the ontological perspective of “critical realism” as unifying trait is based.
The aim of this article is to contribute to the discussion on the possibility
of raising open-system theorizing to the status of a general methodological
framework for post Keynesian economics, by retracing potential “unifying”
origins or inescapable dissimilarities in the work of the two recognized
theoretical fathers, Keynes and Kalecki. While believing in the possibility of
“positive cross-fertilization” invoked by Sawyer (1985; see also Robinson,
1966), we shed light on the problems that Keynes perceived in Kalecki’s
economics. precisely due to Keynes’s firm commitment to open-system
methodology—“method” here is method à la Keynes, meaning the way of
reasoning in economics.
JOURNAL OF POST KEYNESIAN ECONOMICS 351
The discussion that follows is based mainly on Keynes’s reactions to articles

Kalecki had submitted to the Economic Journal—Keynes’s critical reactions,
expressed in his capacity as editor of the journal, to Kalecki’s economics, with
much of which he broadly agreed. One might reasonably argue that Keynes’s
remarks on Kalecki’s articles are strictly (or mainly) of an editorial character,
and express reservations about drawing conclusions on what Keynes
considered the proper way of doing economics from such remarks. Still,
Keynes’s insistence on methodological concerns in handling Kalecki’s papers
holds a certain interest, precisely because Keynes—“not … exactly the ideal
editor … one who has no ideas of his own and a great respect for those of
other people,” wrote Edwin Cannan (cited in Moggridge, 1990, p. 152)—
did not give the impression of being unfair toward critics of his revolution
(except, perhaps, for the Pigou affair illustrated by Aslanbeigui and Oakes
[2007]) or, in general, toward the other (“all,” reported in Moggridge, 1990,
p. 153) schools of thought he had proudly defended in his first issue as editor
(see Cord, 2013). It is highly significant that some of the criticisms Keynes
directed toward Kalecki’s submitted articles (as well as the work of other
scholars who were certainly favorably inclined toward Keynes’s revolution)
were similar to those he had used to attack classical economists in The General
Theory (Keynes [1936] 1973).
No dispute can arise about Keynes’s positive attitude concerning the
strongly anticlassical contents of Kalecki’s theory, which clearly refused
the money-wage argument attacked by Keynes in chapter 19 of The General
Theory, and rather stressed the utmost importance of aggregate demand and
particularly investment (hence the much debated question of Kalecki’s
“anticipation” of Keynes). The notable differences between the theoretical
works of the two economists, well illustrated by Kalecki (1936) himself in
his review of The General Theory (see also Szymborska and Toporowski,
2013), cannot prevent the perception of a “family air” between the two
approaches. A final caveat, which follows logically, is therefore that the
article investigates Keynes’s observations on Kalecki’s work without express-
ing concern for the asymmetry—Keynes himself may have fallen victim to
reductionism regarding Kalecki’s method—so that scarce attention is given
to Kalecki’s revision of his own approach as time passed. There are also
objective reasons that indirectly contribute to explaining the asymmetry,
as recently pointed out by Cord (2013): Kalecki made no attempt to estab-
lish a research school, in view of the absence of a historical tradition of
economic analysis in his own country, Poland; his preference for publishing
journal articles instead of books; the fact that many of his most valuable
contributions appeared in Polish; and as Toporowski (2013) argues, his
failure to engage with other economists’ ideas on aspects that, unlike the
business cycle, were not at the forefront of his concerns, are also important
factors in this regard. But our ultimate focus is on interpreting Keynes’s,
criticism of Kalecki’s economics as motivated by the ambition to avoid the

invalidation of its achievements by the occurrence of fallacies in logical
reasoning, and more precisely by shortcuts of reductionism applied to
complex economic material—as Keynes’s remarks on Kalecki’s use of
formalism should also make evident.
The proper way of doing economics: Generality of theories and

role of assumptions
Toporowski (2013) describes the Keynes–Kalecki relationship as shaped by
“shared ideas” but also “mutual incomprehensions,” reflecting the conflict
between the Marshallian, “standard Cambridge method of reasoning”
(Toporowski, 2013, p. 139) and the “continental European economics from
which Kalecki had emerged” (p. 142). Of Keynes’s “general methodological
position,” the tendency is emphasized “to forgo analytical rigour in pursuit
of increased realism,” Marshall’s partial analysis serving the need “to reduce
the complexities of time and uncertain knowledge in economics to
manageable proportions” (Hart and Kriesler, 2014, p. 6). Whereas, it is held,
belonging to a tradition of thought identifiable with the logical scheme of a
circular flow of income that integrates prices and economic decisions
(reminiscent of Quesnay’s tableaux économiques and later revived by the
debate centered on volume 2 of Marx’s Capital), Kalecki considered capitalist
societies in terms of changing variables rather than equilibrium (Toporowski,
2013).
Toporowski (2013, p. 141) reports a letter from Keynes to Kahn of April 30,
1938, on Kalecki’s (1938) latest Econometrica article as evidence of Keynes’s
“failure to understand Kalecki”:
I have been greatly interested by his article in the latest Econometrica … the idea
itself seems to me an extraordinarily interesting and pregnant one … (I only wish
he would not adopt such an appalling method of exposition. His Mathematics
seems to be largely devoted to covering up the premises and making it extremely
difficult to bring one’s intuition to bear. If only he would stake his premises in
the most illuminating possible manner and be perfunctory over his mathematics,
instead of the other way around, one would have a better idea of what he is driving
at). (cited in Marcuzzo and Rosselli, 2005, p. 26)
While praising the virtues of Kalecki’s attempt to explain the stability of the
wage rate in the cycle by positing an assumption of imperfect competition,
Keynes opposed his own “method” to the Polish economist’s “appalling
method of exposition”: “to disentangle painfully exactly what the assumptions
amount to and then consider whether the conclusion appears to be correct,
not bothering much about the proof which, in spite of the appearance to
the contrary, obviously contains endless loopholes for introducing fresh
assumptions” (Marcuzzo and Rosselli, 2005, p. 26).
The “Keynes philosophy” literature that has developed since the 1980s with
the rediscovery of A Treatise on Probability ([1921] 1973) has challenged the
“purely Marshallian origins” view of Keynes’s methodological approach,
directing attention toward the specificities of Keynes’s “method.” In this light,
the abovementioned correspondence appears as the expression of a substan-
tial disappointment with Kalecki’s way of doing economics. Keynes’s letter to
Kahn focused on the logical role of assumptions and the (related) use of math-
ematics (as against intuition). As De Vecchi (2008) points out, the correspon-
dence on Kalecki’s 1937 article “The Commodity Tax, Income Tax, and
Capital Tax in the Light of the Keynesian Theory,” which he submitted to
the Economic Journal, bears exactly on Keynes’s reservations about Kalecki’s
use of assumptions. Having significant “practical importance” (Kalecki,
1937, p. 444), the analysis aimed at investigating the effects of the three alter-
natives taxes on employment in the light of Keynes’s General Theory. Kalecki
found the tax on wage goods (always assuming that revenues are entirely
spent for the unemployed) to have no effect on employment, but only on
the prices of goods taxed (since the increase in purchases made by the unem-
ployed compensates the lower quantities purchased by workers). With a tax
on capitalists’ income, conversely, producers would not raise the prices of
goods offered to dole receivers, fearing that they could lose market shares.
They would rather increase production, and capitalists’ profits with it,
compensating the initial effect of the income tax. But a capital tax could do
even better, in that it would not incentivize lenders to shift its burden onto
entrepreneurs (thereby reducing the profitability of new investment).
In commenting on the article, Keynes distinguished between three kinds of
assumptions made by Kalecki: simplifying assumptions that can be removed at
no (theoretical) cost; unrealistic assumptions, running the risk of invalidating
the policy prescriptions one could derive from the analysis; and assumptions
of (logical) independence between variables. Keynes first reacted by asking
Kalecki to “make quite explicit,” very early in the article, the “very unrealistic”
(The Collected Writings of John Maynard Keynes [hereafter: CW] 12, p. 790)—
“hopelessly unrealistic” (p. 792) at second glance—assumption whereby
capitalists consume only goods other than wage goods. He then suggested
two reasons to remove it directly. First, the assumption carried another, equally
unrealistic one with it: the factors of production employed in the production of
capitalists’ consumption goods should be distinct from those required to pro-
duce wage goods. The paradoxical result—in Keynes’s words, “workers spend
what they earn, capitalists earn what they spend”—contained “an element of
truth” when it is “applied to the real world. But your conclusions purport to
be applicable to affairs,” Keynes continued, so that Kalecki “ought to make
more emphatic the peculiarities of the assumptions” (CW 12, p. 792). Second,
while “technically convenient for the particular method of exposition …
adopted” (CW 12, p. 792), the assumption is not necessary, unless Kalecki also
wanted readers to concentrate on the “secondary,” though important problem

of the distribution of real income between the two classes.
Much more worrying, in Keynes’s view, were the two assumptions of inde-
pendence. In Kalecki’s analysis, capitalists do not adapt their investment and
consumption behavior in the short period to income and capital taxation:
investment “is the result of previous investment decisions which require a
certain time to be completed” (CW 12, p. 794), while consumption is sensitive
to actual income decline only. Before reading Kalecki’s detailed explanation
on the point (letter of April4), Keynes (March 30) had observed that these
presumptions amounted to assuming that capitalists “have read your article
and are convinced by it that their profit will rise by the amount of the tax that
they will maintain their spending as before” (CW 12, p. 791). Two further
points are worth noting. First, Keynes specified that even simplifying assump-
tions “brought in to facilitate the exposition” only, may “very much impair the
generality of the argument.” Second, to Kalecki’s remark about the necessity
“for the whole of The General Theory” (CW 12, p. 794) that capitalists do not
modify their consumption behavior on expectations of income decline,
Keynes responded by denying that The General Theory “depends on an assump-
tion that the immediate reaction of a capitalist is of a particular kind” (CW 12,
p. 797). In chapter 19 of the General Theory, Keynes assumed only that this
reaction can be the “most unfavourable” (CW 12, p. 797) to his conclusions.
I regard behaviour as arrived at by trial and error, and no theory can be regarded as
sound which depends on the initial reaction being of a particular kind. One must
assume that the initial reaction may be anything in the world, but that the process
of trial and error will eventually arrive at the conclusion which one is predicting.
(CW 12, p. 797)
The main problem with assuming invariance of capitalists’ spending on both

investment and consumption, notwithstanding expectations of changes in
income, was that this was precisely the kind of assumption that motivated
Keynes’s methodological attack, in the General Theory, to the classical
“citadel” (De Vecchi 2008; see Carabelli 1991). The classical theory shows
admirable concern for logical consistency; its main fault rather lies “in a lack
of clearness and generality of the premisses” (CW 7, p. xxi). Classical
economists, in Keynes’s view, were not willing to make explicit the tacit
assumptions of independence and universality upon which their theory rests:
neutrality of money (changes in its value can thus be neglected), Say’s law
(independence from the level of output), and independence from changes
in the level of community income when passing from the individual to the
general level. The classical theory pretends to be, but is not, a general theory,
which would not extend “to the system as a whole conclusions which have
been correctly arrived at in respect of a part of it taken in isolation”
(CW 7, p. xxxii), as is the case with the classical money-wage argument
(independence of aggregate demand from variations in money-wages). By

making the hypothesis explicit, Keynes established that the classical theory
was but a special case. His methodological “difference” with respect to Marshall
is detectable exactly in his treatment of the classical money-wage argument:
Let us, then, apply our own method of analysis to answering the problem. It falls
into two parts.
(1) Does a reduction in money-wages have a direct tendency, cet. par., to
increase employment, “cet. par.” being taken to mean that the propensity to
consume, the schedule of the marginal efficiency of capital and the rate of interest
are the same as before for the community as a whole?
And (2) does a reduction in money-wages have a certain or probable tendency to
affect employment in a particular direction through its certain or probable
repercussions on these three factors? (CW 7, p. 260)
This “method” consists in adopting a two-stage methodology (see Carabelli

and Cedrini 2014), whereby “after we have reached a provisional conclusion
by isolating the complicating factors one by one, we then have to go back on
ourselves and allow, as well as we can, for the probable interactions of the
factors amongst themselves” (CW 7, p. 297).
Assumptions of “independence from,” or more precisely of logical irrel-
evance, introduced in the first stage of the analysis allow the economist to
operate without considering the “complexities and interdependencies of
the real world” (CW 7, p. 298) that must, however, occupy the forefront
of the analysis once such limitations are removed (and necessarily so) in
the second stage. “This is the nature of economic thinking,” adds Keynes
(CW 7, p. 297), since economics is “a method rather than a doctrine, an
apparatus of the mind, a technique of thinking which helps the possessor
to draw correct conclusions” (CW 12, p. 151). The same antipositivist position
is expressed in A Treatise on Probability of 1921 (see Carabelli, 1988),
where Keynes inscribes probability into the realm of logic, a logic of
nondemonstrative and nonconclusive arguments. Logical analysis is thus
contingent on contexts of shifting realities. Similarly, economics is an
apparatus of probable reasoning. It is “a branch of logic, a way of thinking”
(CW 14, p. 296) about material evidently and inherently showing the attri-
butes of complexity Keynes listed in his 1926 “Essay on Edgeworth”: organic
unity, discreteness, discontinuity, fallacy of composition, unmeasurability and
incomparability, snowball effects, lack of proportionality, heterogeneity (see
CW 10, p. 262).
In his article, Kalecki was implicitly making an assumption of
“‘independence from’ expectations of the capitalists’ propensity to consume”
(De Vecchi, 2008, p. 178), which is one of the three variables (the other two
being liquidity preference and marginal efficiency of capital) taken as
independent—taken, since they are not truly independent, in the light of
Keynes’s method—in the taxonomy of variables presented in chapter 18 of
the General Theory. He thus bypassed the relevant problem of detecting the
indirect influence taxation could have on employment by influencing the
three factors. Keynes’s point about Kalecki’s article is therefore not that it is
not the General Theory, but that it is not a general theory. An antipositivist
conception of economics as probable reasoning makes it simply impossible
to detect “ultimate atomic independent elements” (CW 7, p. 247): economists
must declare if and what peculiar assumptions of independence they have
introduced, and then illustrate the “probable repercussions” between factors
temporarily taken as independent. Independence is a question of logical irrel-
evance: it is “independence for knowledge,” and the notion itself of “cause”
has a logical nature: it is “causa cognoscendi,” again in the terminology of
A Treatise on Probability, not (the material) “causa essendi.” Economists com-
mitted to open-system theorizing must continue the potentially endless study
of the economic system by removing simplifying assumptions and temporary
closures, knowing that the list of possible repercussions is infinite: which is
also why a truly general theory simply cannot provide “settled conclusions”
(CW 12, p. 856), let alone “infallible answers” (CW 7, p. 297).
Remarkably, Keynes expressed his hope that Kalecki would “preface [the
article] with a catalogue of [his] assumptions. For it is not fair to the reader
that he should be forced to disentangle them for himself and then wonder
whether or not you really are making them” (CW 12, p. 798).
The catalog that can be inferred from Keynes’s comments would be long
indeed. This is not surprising because, to have “practical importance,” a
theory must specify a precise series of scenarios that can derive from the
general complexity of the economic material under consideration. Whereas
by failing to make his assumptions explicit, Kalecki would end up with
reducing ad unum exactly this “variety of scenarios,” which follow from
the “general framework” in the words of Asimakopulos (1990, p. 53), of
his analysis. In so doing, he also runs the risk of confusing tools and aims
of the analysis, without concern for the methodological difference between
theory and policy (see Carabelli and Cedrini, 2015). Despite his enthusiastic
support for the theory of functional finance, Keynes strongly criticized Abba
Lerner’s attempt to transform this “splendid intellectual idea” into a policy
suggestion “crudely” putting it into force while “refusing to look in the face
all the practical difficulties” (cited in Aspromourgos, 2014, p. 420).
As Keynes observed in a letter to Machlup, “functional finance is an idea
and not a policy; part of one’s apparatus of thought but not, except highly
diluted under considerable clothing of qualification, an apparatus of action.
Economists have to try to be very careful, I think, to distinguish the two
(cited in Aspromourgos, 2014, p. 420). While theory has to be general, pol-
icy belongs to the political realm, and is the domain of specific assumptions;
assumptions that the economist who wants to draw policy recommendations
from his theory must necessarily make explicit.
Suggestions for the “cure” are “on a different plane from the diagnosis”;
they “are not meant to be definitive; they are subject to all sorts of special
assumptions and are necessarily related to the particular conditions of the
time” (CW 14, pp. 121–122). Passing from theory to policy means passing
from the realm of generality to one of peculiar assumptions, from logical to
empirical relevance, from science (probable inference) to practice. As seen,
Keynes criticized Kalecki for introducing “latent and tacit” assumptions of
independence and ad hoc hypotheses (words taken from Keynes’s review of
Kalecki’s “A Theorem on Technical Progress” of 1941) in a theory that
“purports to be applicable to affairs” (CW 12, p. 792). The ambition to furnish
policy suggestions should compel Kalecki to make “the peculiarities of the
assumptions” (CW 12, p. 792) explicit, and “emphatically” so. And realism
can then (and actually ought to) become a relevant issue: as Keynes told Frank
Ramsey on receiving “A Mathematical Theory of Saving” for the Economic
Journal, “for [the effect of taxation] being a practical problem, it is essential
that the assumptions should be in reasonable accordance with the facts”
(CW 12, p. 786).
Keynes’s comments on Kalecki’s (1942) article “A Theory of Profits”
(see Asimakopulos, 1990) clarify the point. Keynes reported his “suspicion
that a good many more assumptions are involved than [Kalecki] have
explicitly stated” (CW 12, p. 837). He thus asked Kalecki whether (besides
assuming balanced government budget) he was implicitly assuming invar-
iance of prices, the necessity of assimilating doles to capitalists’ consumption,
and, in general, independence of factors. In his words: “by the time you have
got to the end of the article you seem to have persuaded yourself that you are
dealing with the real world. This makes it all the more important to emphasize
the assumptions you are making which distinguish your model from reality”
(CW 12, p. 838).
Models should run no risk of being mistaken for reality. Keynes believed
that “Marshall often confused his models, for the devising of which he had
great genius, by wanting to be realistic and by being unnecessarily ashamed
of lean and abstract outlines.” Models must be “relevant to the contemporary
world” (CW 14, p. 296), but they serve to “segregate the semi-permanent or
relatively constant factors from those which are transitory or fluctuating so as
to develop a logical way of thinking about the latter and of understanding
the time sequences to which they give rise in particular cases” (CW 14,
pp. 296–297).
Like theories, models are logical, and must be general: “it is the essence of a
model that one does not fill in real values for the variable functions. To do so
would make it useless as a model. For as soon as this is done, the model loses
its generality and its value as a mode of thought” (CW 14, p. 296).
Another issue is at stake here. Keynes’s writings always include numerous
references to his readers, and his editorial comments on Kalecki’s article on
profits are no exception. Readers, Keynes observed, can discover tacit

assumptions only “by exercising intuition and trying to consider various
possible cases” (CW 12, p. 839). Kalecki equated gross net profits to the
sum of private investment and capitalists’ consumption, with balanced
government budget and no workers’ saving. To probe “the general signifi-
cance” of Kalecki’s equations, Keynes invited him to suppose “a system of
E[xcess] P[rofits] T[ax] which keeps profits constant in terms of money, no
doubt your equations regarded as truisms would hold good, but the practical
conclusions one could draw from them would be widely different” (CW 12,
p. 839). With an EPT system, capitalists’ consumption would indeed be
influenced by investment. But readers “would naturally assume [the two
variables] to be independent factors … I believe that your conclusions are
valid relative to some particular situation, but to decide exactly what that
particular situation is you do not make one reader at least feel that he has full
guidance” (CW 12, p. 839).
Notably, Kalecki replied by introducing a further assumption: “the
Government cannot collect E.P.T. and spend the proceeds (which is required
by my assumption of a balanced budget) in the same period in which the
profits accrue” (CW 12, p. 839). Keynes then asked him to consider “the more
realistic assumption, that all the bulk of the saving is done by the wage earning
and salary earning class” (CW 12, p. 840). Kalecki was thus obliged to admit
that his theory was “definitely not applicable to a war economy, not only
because of my assumption that workers do not save, but also because I
postulate a balance budget and [because of the implausibility of capitalists’
consumption equations]” (CW 12, p. 841). Keynes’s final remarks are
lapidary: after recognizing that the theory can hold under special assumptions,
he criticized Kalecki’s “technique” again for failure to warn readers about
what peculiar assumptions had been introduced. “And when the conclusion
is reached there is an atmosphere as though it had some application to the real
world” (CW 12, p. 841). In conclusion, he stated:
I regard it as a very interesting schematism and a useful tool of thought and I

cannot but feel that the article would be a great deal better if it was presented
like that. But there is also the point that, even regarded as a schematism, it is
not much use unless the reader knows precisely just what the assumptions are.
(CW 12, p. 841)
Reader’s involvement is a fundamental characteristic of a conception of

economics as a (correct) way of reasoning (see Carabelli and Cedrini, 2014,
2014b). Chapter 20 of the (first, theoretical volume of the) Treatise on Money
invites readers to read the “Exercise in the Pure Theory of the Credit Cycle”
proposed there (illustrating his arguments about credit cycles) and then to
continue by themselves, making use of “the general system of thought”
exemplified there (CW 5, p. 292):
The possible varieties of the paths which a credit cycle can follow and its possible
complications are so numerous that it is impracticable to outline all of them. One
can describe the rules of chess and the nature of the game, work out the leading
openings and play through a few characteristic end-games; but one cannot possibly
catalogue all the games which can be played. So it is with the credit cycle. (CW 5, p.
253)
A peculiar type of credit cycle is presented, along with a catalog of eight

“simplifying assumptions” required “to rule out the various complexities
which are usually present in actual life” (CW 5, p. 274). Anomalies generated
by the removal of some assumptions would not “lend themselves to a
generalised description” (CW 5, p. 288); in some cases, the removal of a single
limitation obliges the economist to make other assumptions as to the “exact
character” of the credit cycle thus generated (CW 5, p. 285). Simplifying
assumptions, in fact, are not independent one from another. Having obtained
eight provisional conclusions about the simplified problem, Keynes asks the
reader to repeat the exercise by removing the simplifying assumptions, and
to apply this system of thought “for himself to any further interesting cases
which may occur to him” (CW 5, p. 292).
The contrast with the theoretical limitations of Kalecki’s economics as
pictured by Keynes is striking. Keynes wants the economist “to disentangle
painfully exactly what the assumptions amount to” (cited in Marcuzzo and
Rosselli, 2005, p. 26), whereas Kalecki’s “esoteric abracadabra” (thus Keynes
on Kalecki’s 1941 article on technical progress; CW 12, p. 831) forces the
reader “to disentangle them for himself and then wonder whether or not
[the economist] really [is] making them” (CW 12, p. 798). Keynes’s exercise
instructs readers about the limitations of the analysis, and avoids any unquali-
fied assault on the real world. It is rather the task of the second volume of the
Treatise on Money to “apply” the “pure theory” exposed in the first one. Spe-
cific knowledge of facts, with distinctive historical and institutional features, is
thus required to pass from “a qualitative study of the characteristics of a sys-
tem of representative money” to “a quantitative study of the facts as they exist
in the leading monetary systems of today, chiefly in Great Britain and in the
United States” (CW 6, p. 3). And economists must be ready to correct their
“judgment by intimate and messy acquaintance with the facts to which [their]
model has to be applied” (CW 14, p. 299).
How to approach the economic material: Logical analysis and

formal modeling
Distinguished economists have focused on Kalecki’s “anticipation” of the
General Theory, although in the end, Nuti (2013, p. 120) aptly remarks that
“stressing the relatively small overlapping of their demand-determined theory
of employment and income—no matter how important—unnecessarily
detracts from their greatness” (see also Asimakopulos 1990; Besomi 2006;
Kriesler 1997). In reviewing the book, Kalecki (1936) accepted Keynes’s
determination of short-term equilibrium, with a given level of investment,
but was less satisfied with the determination of investment (see Kriesler
1997; Szymborska and Toporowski 2013). Reasoning in terms of classes,
and consequently focusing on income distribution, Kalecki considered invest-
ment as an inherently dynamic issue (as opposed to Keynes’s static approach)
and the main determinant of the cycle, while the rate of interest is relegated to
a role of secondary importance. Finance enters in terms of availability of
credit, in an endogenous-money framework: differently from Keynes, Kalecki
focused on product markets, and famously rejected the assumption of perfect
competition.
Kalecki does not allow any significant role to expectations. Rather, he
was concerned with objective factors in explaining decline in investment and

employment. This stands in sharp contrast with Keynes, who stressed the subjective
and hence less straightforward aspects, such as expectations and uncertainty.
Furthermore, while Keynes was largely averse to the use of technical tools, Kalecki
possessed a good command of mathematics and statistics. (Szymborska and
Toporowski, 2013, p. 113)
As to the realism of the two analyses:
Kalecki aimed at thoroughly understand the determinants and mechanisms

of economic processes, while Keynes was motivated by his “desperate desire to
influence policy” (Moggridge, 1993, p. 23). Paradoxically, it is Kalecki’s analysis
which relies more on the interplay of socio-political and economic factors than
Keynes, providing a more realistic dimension to his exposition. (Szymborska and
Toporowski, 2013, p. 113)
In Kalecki’s economics, investment involves a paradoxical aspect. While

investment as capitalists’ spending is a source of prosperity, stimulating econ-
omic activity, investment as expansion of capital equipment—competing with
older generations of this same equipment—can be a source of depression: the
tragedy of investment “is that it calls forth the crisis because it is useful”
(Kalecki, 1937b, p. 96). Given that investment decisions are made using the
current rate of profits to elaborate expectations of profitability, investment
increases aggregate profits, but at the same time, it puts them at risk. Besomi
(2006, p. 5) notes the analogy with physics: “almost any simple oscillating
system … is the result of a similar process (the movement of a pendulum,
for instance, is determined by the accelerating and decelerating action of mass
as potential energy turns into kinetic energy and vice versa).”
The second specific target of Keynes’s polemics with Kalecki in the letter to
Kahn is formal modeling, which evidently represented an important factor in
explaining the theoretical and historical distance between the two approaches.
Kalecki has always defined business fluctuations as “automatic,” believing it is
possible “to set out a mechanism which would explain the relative regularity
of business fluctuations” (Kalecki, [1933b] 1990, p. 66). This “regularity” is
“relative,” but a “pure” theory of the cycle can safely abstract from the series
of real-world “disturbing factors” ([1933a] 1990, p. 114) by explicit assump-
tion. To the extent that Kalecki felt confident in defining capitalist economies
as “at the mercy of the purely automatic forces of the mechanism of business
upswing” ([1933b] 1990, p. 164), and believed that only exogenous, “external”
factors, like inventions or waves of technological innovations, could set a
system that had stabilized itself at depressed levels of activity in motion again.
In Kalecki’s model, Besomi (2006) observes, consideration for institutional
elements and development factors like innovations is a main determinant
of the distinction between the short-term dynamics of the business cycle,
“determined fully by the coefficients of our equations” (Kalecki, [1968]
1991, p. 450), and its long-term counterpart.
Kalecki’s various models of the “mechanism of the business cycle” were all
structured around
a fundamental equation representing the factors affecting investment decisions …

coupled with other equations expressing the relationships between investment
decisions and actual outlay of capital goods, and between the other factors involved
(aggregate profits, the amount of capital, saving) in terms of present and past
investment or increase in investment. (Besomi, 2006, p. 9)
Such models easily tend toward the determinism implied in Ragnar Frisch’s
dynamic economics. His “Propagation Problems and Impulse Problems in
Dynamic Economics,” of 1933, was taken as evidence of how the cyclical “free
and damped oscillations desired by theoreticians” (Morgan, 1990, p. 92) could
be combined with the ambition to cope with the irregularities of cycles in the
real world. Wicksell was credited for first distinguishing between the two
problems of propagation and impulse, erratic shocks representing the “source
of energy” maintaining economic cycles. Centered on an equation considering
several magnitudes of several variables in different points of time, Frisch’s
(1933, p. 171) models explain “how one situation grows out of the foregoing,”
not differently from Yule’s harmonic disturbed function (a simple difference
equation with added disturbance). As early as 1926 Frisch had identified in
physics the model science for economics (see Bjerkholt, 1995): on coining
the term “econometrics,” Frisch spoke of an “intermediate” discipline
“between mathematics, statistics, and economics,” having “as its aim to sub-
ject abstract laws of theoretical political economy or ‘pure’ economics to
experimental and numerical verification, and thus to turn pure economics,
as far as possible, into a science in the strict sense of the word” (Frisch,
1971, p. 386).
Kalecki was one of the first supporters of Frisch’s macrodynamics
(Bjerkholt, 1995), and thus virtually all Kalecki’s models have roots in this
modeling philosophy, as Besomi (2006, p. 11) notes: “Most of Kalecki’s

models describe damped fluctuations around a line of stationary equilibrium
and rely for the persistence of fluctuations on exogenous shocks; moreover,
all of them crucially depend for cyclicality upon one or more reaction lags.”
Besomi finds evidence of a worrisome hiatus between Kalecki’s models of
“pure” business cycles and the author’s interpretation of cycles themselves as
illustration of the antagonistic character of capitalism. Steindl aptly made the
analogy with “the closed systems of physics,” which
always tend to come to a rest (an equilibrium) owing to the second law of
thermodynamics. To evolve a system and keep it moving it must be stimulated
from outside. The pure [trendless] business cycle, if it is damped, and as long as
no shocks are introduced, does indeed come to rest in a stationary state in the
same way as the closed systems of physics. To keep up the cycle random
shocks have to be introduced. To get evolution (a trend) in addition to the
latter more systematic influences from outside have to be brought in. (Steindl,
1981, p. 132)
But then, the “erratic component … instead of summarizing the factors one
cannot take into account in the explanation of the basic mechanism, becomes
the complex of causes of movement” (Besomi, 2006, p. 13), leaving the
movement unexplained. Kalecki is thus obliged to introduce a series of
(unsupported) assumptions to justify the persistence of fluctuations, with lags
as frictions that force the system out of equilibrium, and the impossibility to
cope with the real-world asymmetry of upward and downward fluctuations
other than by embracing nonlinearity and letting coefficients vary over time,
which Kalecki never did.
Still, Kalecki himself was disposed to theoretically drop the assumption of
linearity already in his 1943 model, by considering the long-term components
of factors assumed to be stable and rather invariant in the short run (like
capitalists’ consumption, rentiers’ saving, effects of innovation). In his 1964
article “Econometric Model and Historical Materialism,” Kalecki even came
to expose his doubts about the analytical power of econometrics. While in
the 1920s and early 1930s Kalecki believed that “economic laws could be
formulated similar to laws in thermodynamics” (Osiatynski, 1999, p. 262;
see Cord, 2013), he was now aware that in the long run, changes in
institutions, productive relationships, and availability of natural resources
could alter the functional relations between variables. The latter was a
“phenomenon rooted in past economic, social and technological develop-
ments rather than determined fully by the coefficients of our equations as
is the case with the business cycle,” Kalecki (1968, p. 276) sought to introduce
institutions as semi-autonomous factor. That Besomi (2006, p. 27) can argue
that the Polish economist substantially failed to incorporate such factors fully
into his model—history “is only superimposed on it,” he observes—is a
measure of the difficulty intrinsic to the task itself.
Kalecki certainly came to repudiate his previously “physicalist” conception

of economic models. Still, his second thoughts about this approach help to
detect the not negligible series of implications of physicalism for economic
theory. It can be argued that if Kalecki’s analysis of investment had never left
room for expectations (other than adaptive) as understood by Keynes, in any
case, this is also because of their being nonobjective, physically measurable
magnitudes; expectations (approximated by recorded profit rate) are treated
in a “mechanistic” (Besomi, 2006, p. 35) manner, with no consideration for
their change. As Keynes remarks on criticizing Kalecki’s 1937 taxation article,
capitalists not only elaborate future predictions on the bases of past events,
but they do so because they are already persuaded of the correctness
of Kalecki’s theory. But models that are “intended to seriously incorporate
the existence of Keynesian uncertainty regarding the future … should not
assume that agents unconditionally adhere to one particular way of forming
expectations” (Dequech, 2012. p. 359).
In his review of the General Theory, Kalecki could, however, blame Keynes
for applying a static analysis to an intrinsically dynamic element, investment,
and lament the absence of a sequential approach (see also Termini, 1981).
Still, Chick (2006) reminds us that Keynes tended to assume short-term
expectations as fulfilled because he wanted readers not to infer from his
analysis that unemployment could derive from producers’ incorrect
expectations. There are in fact, according to Keynes, “more fundamental
forces which determine what the equilibrium position is” (CW 14, p. 182),
namely, uncertainty and long-term expectations (see Carabelli and Cedrini,
2013). These latter depend on the nonnumerical estimation of probabilistic
values, as well as on the confidence with which these expectations are held,
and more in general on agents’ “practical theory of the future” (CW 14, p.
114), uncertainty favoring the dominance of habit and conventions. As to
time, Kalecki’s formal modeling failed to escape the trap Joan Robinson
attributed to “logical” time: the past and the future are determined by the
present. Contrary to Marshall and Kalecki, Keynes de facto dematerializes
time (Carabelli and Cedrini, 2016; Hayes, 2012). This is because time
represents change, in Keynes’s economics, and is indissolubly connected with
the notion of expectation: it is the future to influence the present via
expectations, and “life and history are made up of short runs” (CW 28, p. 62).
In light of all this, Kalecki nevertheless seems right in denouncing Keynes’s
logical approach to economics as unsatisfactory when it comes to the
treatment of time. But Keynes’s approach to time reflects difficulties of
measurement (addressed in the famous but neglected chapter 4 of the General
Theory) concerning “the choice of the units of quantity appropriate to the
problems of the economic system as a whole” (CW 7, p. 37). The logical
character of economic analysis is in fact dictated, as Keynes remarks in his
1937 correspondence with Ohlin on the ex ante–ex post distinction, also by
the impossibility “to establish any definite unit of time” (CW 14, p. 184)
allowing nonhomogeneous aggregates to be compared:
I used to speak of the period between expectation and result as “funnels of process”,
but the fact that the funnels are all of different lengths and overlap one another
meant that at any given time there was no aggregate realized result capable of
being compared with some aggregate expectation at some earlier date. (CW 14,
pp. 184–185)
Besomi (2006) argues that while Kalecki’s theory rejects the idea that
economic systems are self-adjusting, his formal modeling would force Kalecki
with the classics and, more generally, with economists, in Keynes’s words,
who believe that the existing economic system is, in the long-run, a self-adjusting
system, though with creaks and groans and jerks, and interrupted by time lags, out-
side interference and mistakes. These authorities do not, of course, believe that the
system is automatically or immediately self-adjusting. But they do believe that it has
an inherent tendency towards self-adjustment, if it is not interfered with and if the
action of change is not too rapid. On the other side of the gulf are those who reject
the idea that the existing economic system is, in any significant sense, self-adjusting.
They believe that the failure of effective demand to reach the full potentialities of
supply, in spite of human psychological demand being immensely far from satisfied
for the vast majority of individuals, is due to much more fundamental causes. (CW
13, pp. 486–487)
In Keynes’s view, economics is a “moral” rather than “natural” science: it

employs “introspection and judgments of value” (CW 14, p. 295), and its fun-
damental forces are “motives, expectations, psychological uncertainties” (CW
14, p. 300). Being “in too many respects, not homogeneous through time”
(CW 14, p. 296), this material has nothing to do with the forces of classical
mechanics moving homogeneous bodies. Any “attempts à la Schultz to turn
[economics] into a pseudo-natural science”—the reference is to the pioneer-
ing approach in econometrics developed by the author of The Theory and
Measurement of Demand—should be resisted. Statistical studies can be used
to “test the relevance and validity of the model,” but not to “fill in missing
variables with a view to predicting” (CW 14, p. 296). As Keynes wrote to
Richard Stone, dealing with “the influence of expectations and of transitory
experiences,” economics is “outside the realm of the formally exact” (CW
14, p. 2).
Keynes’s criticism of Frisch’s approach rested on detection of “unstated
special assumptions,” as he pointed out in a letter to Frisch himself of Novem-
ber 28, 1935: “I am unfamiliar with the methods involved and it may be that
my impression that nothing emerges at the end which has not been intro-
duced expressly or tacitly at the beginning is quite wrong” (cited in Louçã,
2007, p. 336).
This critique exhibits similarities to the one Keynes directed toward Kalecki’s
article (finally rejected) on technical progress in 1941. Keynes accused Kalecki
“of being at one of his old tricks in an extreme form, namely, of taking artificial
assumptions which have no possible relation to reality or any merit except that
they happen to lead to the needed result” (CW 12, p. 831).
Kalecki revised the article, making tacit assumptions explicit, and Keynes
withdrew his criticisms. But he also observed that the conclusions of the arti-
cle were now “obvious from the start,” and were de facto undermined by the
use of “a highly dangerous and fallible method since it makes unsupported
assumptions as to the legitimacy of superimposing one fact on another with-
out any interaction” (CW 12, p. 831). Jan Tinbergen’s 1931 “beautiful”
(Kalecki, 1933c, p. 68) econometric model of an endogenous cycle in ship-
building (which the author wanted to generalize, so as to develop a general
theory of business cycles) was a major influence on Kalecki (see Kalecki,
1990). There, Kalecki found the method required to analyze cyclical changes
in macroeconomic variables such as investments, profits, production, and
employment (see Boumans, 2005). Keynes’s famous debate with Tinbergen
in the late 1930s (see Garrone and Marchionatti, 2009) offers indispensable
insights into the method of Keynes’s economic writings, and his dissatis-
faction with an incorrect interpretation of economic theory (see Carabelli,
1988). In contrast to Tinbergen, Keynes believed that causal explanations
must be expressed first in qualitative terms, before proceeding to measure-
ment, statistical analysis serving the purpose of “checking and verifying the
theory so as to discover the order of magnitude of various factors” (CW 14,
p. 302). Whereas “to convert a model into a quantitative formula,” one that
can have “general validity” only after equating quantitative correlations
between events to causal explanations, à la Frisch and Schultz, is to destroy
its usefulness as an instrument of thought” (CW 14, p. 299). The passing from
statistical description to inductive inference is highly problematic for the
author of A Treatise on Probability, who sees inductive generalization as “a
question of logic, and not of experience, of formal and not of material laws”
(CW 8, p. 245). Tinbergen’s econometrics had no consideration for the
required correspondence between the characteristics of the economic material
and the approach to adopt in investigating it:
There is first of all the central question of methodology—the logic of applying the
method of multiple correlation to unanalysed economic material, which we know to
be non-homogeneous through time. If we are dealing with the action of numerically
measurable, independent forces, adequately analyzed so that we were dealing with
independent atomic factors and between them completely comprehensive, acting
with fluctuating relative strength on material constant and homogeneous through
time, we might be able to use the method of multiple correlation with some
confidence for disentangling the laws of their action. (CW 14, pp. 285–286)
Keynes found Tinbergen’s use of time lags in sequence analysis, in particular,

profoundly unconvincing. The condition of homogeneity through time
requires prior acceptance of Mill’s law of uniformity of nature and universal
causality, which is a combination of irrelevance of time and space with the con-
ception of absolute time. Lags were “invented” through an ad hoc process of
“trial and error,” with a view to identifying one which “does not fit in too badly
with theory he is testing and with the general presuppositions of his method”
(CW 14, p. 314). Moreover, the requirement of measurability excludes from
the study a priori qualitative factors such as inventions, politics, wars, financial
crises, tensions on the labor markets, and the main determinant of investment
and therefore of business cycles, expectations and confidence. It is worth
remembering that Keynes was not against econometrics per se. Econometrics
can be useful “as an aid to more theoretical enquiries,” in the presence of an
“adequate degree of uniformity in the environment” (CW 14, p. 316). But
business cycles are characterized by complexity, variability, and nonnumerical
influences (CW 14, pp. 294–295). From Tinbergen’s strong, specific assump-
tions about the economic material, including an environmental situation
of perfect knowledge or the tacit use of a frequentist, physical conception of
probability, it is an easy step to “cook” the data, as Keynes argued in a letter
of August 23, 1938to R. Tyler of the League of Nations:
If you have a fair number of variables and can play about at will with the coefficients
and time lags, is it or is it not the case that more than one equally plausible
result can be obtained? In short, how far are the results mechanically and uniquely
obtainable from the data, and how far do they depend on the way the cook chooses
to go to work. (CW 14, p. 288)
All this does not lead one to too easily conclude—but Keynes’s positive
appreciation of the contents of Kalecki’s articles provides compelling evidence
in this regard—that Kalecki’s economics suffers from the same vices Keynes
attributed to Tinbergen’s econometrics. As Toporowski (2012) observes,
Keynes could even try to recruit Kalecki while thinking of preparing a more
technical criticism of Tinbergen’s analysis of business cycles. Kalecki declined,
for various reasons. But the episode acquires a certain importance, as
indirectly shown in the following section, for evaluating the nature of
Keynes’s critical comments on Kalecki’s analytical methods.
The issues at stake

The expression “shared ideas amid mutual incomprehension” to summarize
the salient points of the relationship between Keynes’s and Kalecki’s econom-
ics may be correct, provided certain qualifications are made. De Vecchi and
Asimakopulos are the two authors who most directly addressed the potential
conflict between the two economists on the proper way of conducting
research in economics. Remarkably, they both conclude their analyses of
the Keynes–Kalecki correspondence by stressing that compatibility can finally
triumph. This is despite Keynes’s strong effort in trying to convince Kalecki of
the relevance of his methodological criticisms, the latter being engaged in

defending the novelty of his approach and at the same time the legitimacy
of his writing “in the light” of Keynes’s theory. De Vecchi finds that in “Three
Ways to Full Employment” (1944), Kalecki abstains from assumptions of
“independence from” and insists on the variety of possible “initial reactions”
by capitalists when evaluating different proposals of policy intervention.
Likewise, on scrutinizing Keynes’s (favorable) judgment of Kalecki’s article,
Asimakopulos suggests that “there is no question of Keynes’s acceptance of
Kalecki’s analytical approach as a useful way of examining the operation of
capitalist economies,” although he adds that Keynes “had difficulties with
aspects of Kalecki’s presentation and with the special nature of some of the
conclusions” (Asimakopulos, 1990, p. 61). But he also notes that Keynes did
not abuse the power conferred on him in his position as editor of the Economic
Journal, so that “when Kalecki decided he did not want to go any further with
revisions in the three articles discussed here [in Asimakopulos’s own article],
Keynes went ahead and published them as they stood” (Asimakopulos, 1990,
p. 62). In so doing, Asimakopulos indirectly but correctly claims that some
structural tensions between the two approaches were left unsolved. “Mutual
incomprehension” derived from the path chosen: Kalecki’s direct approach
to the business cycle included “special assumptions that allowed him to trace
out cycles over time using the same function in each of the unit time periods”
(Asimakopulos, 1990, pp. 61–62), with little if any consideration for both
expectations and changes in the rate of investment and interest in the short
run. The influence of such factors “could not be captured by some unchanging
function with constant parameters in which different values for profits and
productive capacity are introduced. Keynes’s editorial suggestions naturally
reflected his own approach” (Asimakopulos, 1990, p. 62).
Keynes’s criticisms of Kalecki’s business cycle analysis show traces of his
own general approach to formalism. We think that when disparaging
Kalecki’s (“appalling”) “method of exposition” in the letter to Kahn, Keynes
is not invoking stylistic considerations. He is rather (indirectly) pointing at
the concrete risk run by Kalecki of making “uncorrect” economic analysis
by the introduction of unstated assumptions (not dissimilar from those
impairing Tinbergen’s work) about the economic material. In chapter 19 of
the General Theory, Keynes saw a fallacy of argument at work in the classical
theory, one of the thirteen types of fallacies listed by Aristotle in Sophistical
Refutations, “ignoratio elenchi” (CW 7, p. 259). In extending by analogy
the conclusions obtained in regard to a part (a particular industry, in the
money-wage argument) of the system as a whole (industry as a whole), the
classical theory occurs in an informal fallacy of relevance: the premises of
the argument are irrelevant (and thus unable) to establishing the truth of
the conclusion of the argument itself. Here we have shown how Kalecki’s
use of particular assumptions prevented him, according to Keynes, from
establishing the truth of the conclusions that can be derived from his
arguments. Keynes’s criticism of Kalecki’s theory is in this respect equivalent
to his condemnation of the classical theory, which rests, first and expressly, on
logical bases. In a way, it is the same criticism. Theories must be logically
correct: to allow “drawing correct conclusions” (CW 12, p. 151), they must
avoid logical fallacies.
Coming to formalism, Keynes saw mathematical instruments (equations, in
Keynes’s lectures of 1933 from which the quote comes) as “merely a means of
exposition, and not a productive tool. The real tool is thought, and they are
not a substitute for it, but at most a guide, or embodiment” (cited in
Rymes, 1989, p. G35). It is now well established in the literature that
Keynes was not against formalism per se, despite his critical remarks on
“pseudo-mathematical” (CW 7, p. 297) methods in the General Theory. Yet
Keynes truly believed that thought, logical analysis, is the “real tool” to be
used in economics: hence the importance of “general” theories and “general”
models. If mathematics is (or “seems to be”) “largely devoted to covering up
the premises and making it extremely difficult to bring one’s intuition to
bear,” as in Kalecki’s economics, it functions, de facto, as a substitute for
thought (reported in Marcuzzo and Rosselli, 2005, p. 26). All the more so
since it invalidly affects the choice of premises—which must (they make no
exception to the rule) be general, if the theory has to have general validity.
Still, when mathematical reasoning can “cover up” (instead of being an
“embodiment”) premises, this might signify that these latter have been elabo-
rated without adequate concern for the logical foundations of analogy and
inductive reasoning, a problem Keynes dealt with in A Treatise on Probability.
As Chick and Dow (2001) aptly put it, formalism is nonneutral: its unqualified
use engenders problems in the open-system perspective often used to throw
light on Keynes’s approach to the complexity of the economic material.
Analogical reasoning is possible only when the premises of an argument
belong to a finite system of facts; mathematical reasoning presupposes “the
atomic character of natural law,” that is a world of
legal atoms, such that each of them exercises its own separate, independent and
invariable effect … which does not change with changing circumstances … . Each
atom can, according to this theory, be treated as a separate cause and does not enter
into different organic combinations in each of which it is regulated by different
laws. (CW 8, pp. 276–277)
As Keynes famously wrote in the General Theory,
it is a great fault of symbolic pseudo-mathematical methods of formalising a system

of economic analysis … that they expressly assume strict independence between the
factors involved and lose all their cogency and authority if this hypothesis is
disallowed … . Too large a proportion of recent ‘mathematical’ economics are
merely concoctions, as imprecise as the initial assumptions they rest on, which
allow the author to lose sight of the complexities and interdependencies of the real
world in a maze of pretentious and unhelpful symbols. (CW 7, pp. 297–298)
Even the wording is reminiscent of Keynes’s comment on Kalecki: “If only he

would stake his premises in the most illuminating possible manner and be
perfunctory over his mathematics, instead of the other way around, one would
have a better idea of what he is driving at.” The problem here is that in
Keynes’s conception of economics, “logical analysis necessarily precedes
formal analysis” (O’Donnell, 1997, p. 156). Logical analysis must control for
the applicability of formalism to specific topics by verifying if, and what kind
of, ordering relationships between variables under investigation are involved,
as well as by reflecting on the nature of the economic material available to the
analyst. Logical analysis (and verbal thought) proposes “general relationships
between variables prior to detailed investigation of functional forms”
(O’Donnell, 1997, p. 112); formalism “may be a legitimate and effective tool
to express” such relationships, and—when its use is permitted by the nature
of the material under consideration—be helpful to ‘disclose gaps and imper-
fections in your thought’ (CW 8, p. 305). Formalism’s usefulness comes thus
towards the end, when “checking on intuitions arrived at by other means”
(O’Donnell, 1997, p. 112).
This methodological sequence does not necessarily require, in any case, a “1
to 1” correspondence with the visible structure of an economic work. Keynes
even applauded, in a 1939 comment (to Joan Robinson) on Kalecki’s Essays in
the Theory of Economic Fluctuations (1939)
his device of making bold, and perhaps precarious, simplifications in his assump-
tions on the basis of alleged statistics and there beginning his theory (instead of
working a theory on generalities and making simplifying assumptions afterwards)
is very interesting and, if one minds one’s step and remembers where one is, useful
and illuminating. (cited in Marcuzzo and Rosselli, 2005, p. 188)
But the logical sequence must be respected: “if one minds one’s step and remem-
bers where one is” is evidently the caveat Keynes chose to stress the necessity of
logical reasoning preceding formalism. If Pigou’s “pseudo-mathematical
method, which can make no progress except by making everything a function
of a single variable and assuming that all the partial differentials vanish,” is on
the contrary to be discarded, this is also because “it is no good to admit later
on that there are in fact other variables, yet to proceed without re-writing
everything that has been written up to that point” (CW 7, pp. 275–276).
Conclusions
What does this reconstruction of the relationships between Keynes’s and
Kalecki’s way of doing economics tell us about the coherence of post
Keynesianism? In addressing Keynes’s methodological critique of the work
of another most important father of post Keynesianism, we did not detect

substantial evidence of similarity of approach that might be used in favor
of “coherence.” Where we found coherence is in Keynes’s methodology of
criticism: a leitmotif of this article is that his criticism of Kalecki is not in truth
tailored to the Polish economist, nor to his intellectual European continental
tradition. In general, Keynes devoted his efforts to attacking the classical
citadel, but he did not spare criticisms of Kalecki’s theory of the business cycle
after noting logical fallacies at work of the same kind as those condemning the
classical theory to be a very special case. We can conclude, however, that
historians of economic thought are hardly the specialists who can provide
the needed answer. Post Keynesianism will become what post Keynesian
economists (however their school is defined) will do in the future: which
might signify that progress will occur, somehow, despite growing distance
from the “pantheon” of—what will be more aptly described as—precursors.
The post Keynesianism of the future will perhaps resemble an “open club”
and no longer have a “granting credentials” procedure.
We agree with Walters and Young’s (1999) criticism of critical realism as a
philosophical basis for (reunifying) post Keynesianism. In truth, it is our belief
that any attempt to reunify the various post Keynesian strands under a
“synthesis,” whatever specific form this can take (i.e., with a focus on contents,
approach, method, etc.), is doomed to failure, and—somehow in line with
Walters and Young (1999)—likely unnecessary. The recent discussion on
Kalecki as “critical realist” is highly instructive: Jefferson and King (2011)
make a strenuous effort to demonstrate that Kalecki’s economics can be com-
patible with a critical realist approach. In truth, at least to a Keynes scholar,
the argument seems, in the end, unconvincing. That “Kalecki was never the
man to agonize over methodological issues,” as Laramie, Mai, and Miller
(2007, p. 182) observe and Jefferson and King report, adds to the difficulty
of describing the good reasons that Kalecki should appear in the contempor-
ary discussion on critical realism. Remarkably, if Jefferson and King are right
in claiming for Kalecki the fulfillment of the six criteria for defining a peculiar
perspective as consistent with the basic tenets of critical realism, this would
probably—as this article has tried to show—exclude Keynes from the “critical
realist post Keynesian club.” For if it seems difficult to reconcile Kalecki’s
“Comtean” positivism with the antipositivist essence of critical realism, it
appears impossible to put Kalecki and Keynes on the same side of the fence.
Kalecki was not a “naïve empiricist” (Jefferson and King, 2011, p. 962), but
Keynes was radically against empiricism. Kalecki may indirectly invoke
deep-structure unobserved but real underlying causal mechanisms, in line
with critical realism, but Jefferson and King use as evidence his positions
on the affinity between physics and economics, affinity that would horrify
Keynes. Or, with the same aim, they refer to Kalecki’s use of “contingent”
causal processes like “unchanged consumption by capitalists” (Jefferson and
King, 2011, p. 964), which, as seen, is the point on which the biggest tensions
developed between Keynes and Kalecki. In general, the authors’ defense of
Kalecki from Keynes’s criticisms implicitly considers Keynes as a realist
who condemns some peculiar assumptions tacitly or expressly introduced
by Kalecki in his analysis of the business cycle, whereas what we have tried
to show is that the real target of Keynes’s critique is the specificity itself of such
assumptions.
Hyman Minsky once observed:
The question of Kalecki’s priority over Keynes with respect to the construction
of useable macroeconomics is of secondary importance. What is important is that
both Kalecki and Keynes provide elements that are essential components for
understanding the behavior of economies with complex financial structures. This
is the measure of Kalecki’s greatness. (Minsky, [1986] 2013, p. 106)
In spite of Keynes’s methodological criticism, this is certainly true—and

Keynes himself believed so, as evident also from this reconstruction. It is
undoubted that there are affinities (see, e.g., Dequech, 2012; Dow, 2013;
Kerr, 2005) between the various post Keynesian strands, which cannot be
disregarded. It is also true that many of these common features or concerns
are also, perhaps primarily, those that identify post Keynesianism as a body
of thought in opposition to neoclassical economics. Still, this dislike of
neoclassical economics as the only certain unifying trait, which many have
long regarded as an intrinsic weakness of the post Keynesian economics, is
not only “unduly severe,” as Dequech (2012, p. 355) writes, but probably
unnecessary. For there is no compelling reason to be strongly “united” in
an epoch when mainstream economics, also and probably mostly due to
decades of radical specialization in the discipline, is faced with unprecedented
fragmentation (Cedrini and Fontana, forthcoming).
As Dow (2010, p. 281) observes, “Keynes’s open-system approach seems to
fit better with a postmodern approach to economics.” The nonmonolithism of
post Keynesian economics—whether the unintended result of specialization as
in the case of mainstream economics or the explicit aim of different strands
nevertheless willing to establish an alliance that does not dissolve the parts
into a (strong) unitary project—might be the path to follow. A meta principle
or meta methodology like Dow’s “Babylonian method,” with the related
proposal of identifying Keynes as precursor of the open-system methodology,
can provide the basis for the alliance, provided that no specific method
(like critical realism) is superimposed as a unifying trait—the only unifying
meta principle must be a nonmetaphysic principle, like the open-system logic.
To take the postmodern challenge seriously, one could say that, as even this
article shows, the true foundations of (a postfoundational) post Keynesian
economics, do not lie in the few ideas that one can portray as unifying.
Rather, they are to be found in the idea itself that there can be a strategic,
continuously renewed alliance between the various strands on a variety of

shared concerns (neglected by mainstream economics), also to avoid being
obsessed by the “remaining tensions” and the risk of misrepresenting “fathers”
in the search for unity.
ORCID
Mario Aldo Cedrini http://orcid.org/0000-0003-1059-4458
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Journal of Post Keynesian Economics

ISSN: 0160-3477 (Print) 1557-7821 (Online) Journal homepage: http://www.tandfonline.com/loi/mpke20

Keynes against Kalecki on economic method

Anna Maria Carabelli & Mario Aldo Cedrini

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Keynes against Kalecki on economic method

Lavoie wants conversely to emphasize the greater relevance of Kalecki’s

The discussion that follows is based mainly on Keynes’s reactions to articles

criticism of Kalecki’s economics as motivated by the ambition to avoid the

The proper way of doing economics: Generality of theories and

wanted readers to concentrate on the “secondary,” though important problem

The main problem with assuming invariance of capitalists’ spending on both

(independence of aggregate demand from variations in money-wages). By

This “method” consists in adopting a two-stage methodology (see Carabelli

profits are no exception. Readers, Keynes observed, can discover tacit

I regard it as a very interesting schematism and a useful tool of thought and I

Reader’s involvement is a fundamental characteristic of a conception of

A peculiar type of credit cycle is presented, along with a catalog of eight

How to approach the economic material: Logical analysis and

was concerned with objective factors in explaining decline in investment and

As to the realism of the two analyses:

Kalecki aimed at thoroughly understand the determinants and mechanisms

In Kalecki’s economics, investment involves a paradoxical aspect. While

a fundamental equation representing the factors affecting investment decisions …

modeling philosophy, as Besomi (2006, p. 11) notes: “Most of Kalecki’s

Kalecki certainly came to repudiate his previously “physicalist” conception

In Keynes’s view, economics is a “moral” rather than “natural” science: it

Keynes found Tinbergen’s use of time lags in sequence analysis, in particular,

The issues at stake

the relevance of his methodological criticisms, the latter being engaged in

As Keynes famously wrote in the General Theory,

it is a great fault of symbolic pseudo-mathematical methods of formalising a system

Even the wording is reminiscent of Keynes’s comment on Kalecki: “If only he

of another most important father of post Keynesianism, we did not detect

In spite of Keynes’s methodological criticism, this is certainly true—and

continuously renewed alliance between the various strands on a variety of

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