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Kalecki’s Profit Equation after 80 Years

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  • Kazimierz Laski
  • Herbert Walther

Abstract

Keynes and Kalecki both assume that private investment determines (but is not determined by) private savings. For Keynes, the desired level of saving is an increasing function of GDP, somehow related to the psychology of the society; ‘autonomous’ shifts of investment are determined by the state of long-term expectations. For Kalecki, the saving propensity depends on the income distribution in a capitalist society, while investment expenditures are determined by past investment decisions. The causality link between investment and saving runs through profits. We take a look at short-run and long-run aspects of Kalecki’s fundamental profit equation (1) We argue that the short lag between investment decisions and expenditures is an essential element of any meaningful interpretation of Kalecki’s profit equation. This lag has critical implications for the interpretation of the multiplier, for the story of ‘wage-led versus profit-led growth’ and for the various tax paradoxes related to the Kaleckian profit equation. (2) We argue that an excess of desired long-term saving over investment, which might be caused by demographic ageing in Western economies, can only be eliminated by accepting the necessity of a permanent primary public deficit and/or active redistributive policies.

Suggested Citation

  • Kazimierz Laski & Herbert Walther, 2013. "Kalecki’s Profit Equation after 80 Years," wiiw Working Papers 100, The Vienna Institute for International Economic Studies, wiiw.
    • Handle: RePEc:wii:wpaper:100
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    References listed on IDEAS

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    1. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 14(4), pages 375-393, December.
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    4. Blecker, Robert A, 1989. "International Competition, Income Distribution and Economic Growth," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 13(3), pages 395-412, September.
    5. Amit Bhaduri & Kazimierz Laski & Martin Riese, 2006. "A Model Of Interaction Between The Virtual And The Real Economy," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 412-427, July.
    6. A. Bhaduri & K. Laski & M. Riese, 1999. "Effective demand versus profit maximization in aggregate demand/supply analysis: a dynamic perspective," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 52(210), pages 281-293.
    7. Kazimierz Laski & Jerzy Osiatynski & Jolanta Zieba, 2010. "The Government Expenditure Multiplier and its Estimates for Poland in 2006-2009," wiiw Working Papers 63, The Vienna Institute for International Economic Studies, wiiw.
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    Cited by:

    1. Giovanni Covi, 2020. "Euro area growth differentials: diverging and reinforcing factors in a Kaleckian SVAR approach," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(1), pages 147-180, February.
    2. Trofimov, Ivan D., 2022. "Determinants of the profit rates in the OECD economies: A panel data analysis of the Kalecki's profit equation," Structural Change and Economic Dynamics, Elsevier, vol. 61(C), pages 380-397.

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    More about this item

    Keywords

    profit equation; wage-led and profit-led growth; Kalecki;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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