Kalecki’s notes on Robinson’s Essay on Marxian Economic

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Kalecki’s notes on Robinson’s Essay on Marxian Economics Jan Toporowski*, This essay presents Kalecki’s notes on Joan Robinson’s Essay on Marxian Economics, (hitherto published only in a Polish translation) introduced by an explanation of the part that Kalecki’s work played in Robinson’s reconsideration of Marx in the light of the new ideas coming from Keynes and Kalecki. Kalecki defended Marx against Robinson’s more extreme accusations of inconsistency. Kalecki’s notes are given in an appendix to this essay. Keywords: Kalecki, Joan Robinson, Marxian Economics JEL classifications: B24, E11, E12, P16

1. Introduction Joan Robinson’s departure from the orthodox economics of Alfred Marshall may be said to have occurred in two stages. The first was her engagement with John Maynard Keynes in the development and interpretation of his General Theory of Employment, Interest and Money (Keynes, 1936). The elucidation of the General Theory and the drawing out of its implications for economic theory and policy brought her into close discussions with Michał Kalecki. These activities then led on to the next and perhaps boldest stage of her shift away from neoclassical economics, the writing of her Essay on Marxian Economics in 1941 (Harcourt and Kerr, 2009, chapters 3 and 4). Kalecki may have played a part in that latter shift by his apparent familiarity with what seemed to Joan Robinson to be the essence of Marx’s rejection of Say’s Law. In his Essays in the Theory of Economic Fluctuations (1939) Kalecki had added an essay on ‘Investment and Income’ intended, according to Kalecki, ‘to clear up some questions arising out of the Keynesian theory of the Multiplier’. The first part of this essay was to ‘…deal with the equation between the expenditure on investment I and value of savings S which has been so much discussed since The General Theory’. Kalecki went on to show how, in a closed economy with no government, the equality between saving and investment was Manuscript received 22 April 2022; final version received 7 April 2023 Address for correspondence: Jan Toporowski, Economics Department, SOAS University of London, Thornhaugh Street, London WC1H 0XG; email: [email protected] * SOAS, University of London, London, UK. The permission of King’s College Archive Centre and the literary executor of Michał Kalecki, the late Jerzy Osiatyński and Elżbieta Osiatyńska, for the publication of these letters is gratefully acknowledged, along with my gratitude to the late Jerzy Osiatyński for many years of informal discussions of Kalecki’s ideas. Thanks are also due to anonymous referees of this journal for helpful comments on an earlier draft of my Introduction and to the Leverhulme Trust and the Institute for New Economic Thinking for financial support for my research on Kalecki. © The Author(s) 2023. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

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Cambridge Journal of Economics 2023, 1 of 8 https://doi.org/10.1093/cje/bead031

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not a tautology, but the outcome of the process of exchange between the investment goods sector and the consumption goods sector (Kalecki, 1939, pp. 42–43). He attributed the equation between saving and investment originally to Marx. According to Kalecki, the equality between saving and investment is ‘contained in the famous Marxian scheme of “extended reproduction”’ in Volume II of Capital. ‘Marx even considers the questions of how to provide the “means” for increased expenditure on investment’. However, Kalecki pointed out that ‘the problems discussed here’, namely how a given level of investment generates savings equivalent to that investment, ‘are treated by Marx from a rather special point of view. He is interested in finding out, with the help of exchange equations, the pace of investment in investment and consumption goods industries respectively, which is necessary in order to secure a steady expansion of output… He does not pay attention to the problem of what happens if investment is inadequate to secure the moving equilibrium, and therefore does not approach the idea of the key position of investment in the determination of the level of total output and employment’ (Kalecki, 1939, p. 45). ‘Exactly the reverse attitude is represented by one of his eminent pupils, Rosa Luxemburg. In her Akkumulation des Kapitals she stressed the point that, if capitalists are saving, their profits can be “realized” only if a corresponding amount is spent by them on investment’. But Luxemburg overlooked the possibility of ‘the persistence of net investment (at least in the long run) in a closed economy; thus, according to her, it is only the existence of exports to the non-capitalist countries which allows for the expansion of a capitalist system. The theory cannot be accepted as a whole, but the necessity of covering the “gap of saving” by home investment or exports was outlined by her perhaps more clearly than anywhere else before the publication of Mr. Keynes’s General Theory’ (Kalecki, 1939, pp. 45–46). Joan Robinson must have been deeply impressed by Kalecki’s uncovering of the link between Keynes’s theory and that of Marx. Following the publication of Kalecki’s book of essays, in 1939, she ran a discussion group in Cambridge on the Essays. At the time, her closest associates in Cambridge were Maurice Dobb and Piero Sraffa. Brian Tew, who was studying for his PhD at that time under the informal supervision of Kalecki, was later to recall in conversation with this author that, along with Kalecki, Dobb, and Sraffa were Joan Robinson’s closest companions. Harcourt and Kerr, in their authoritative book on Robinson, confirm that Dobb and Sraffa were her closest advisers on Marx (Harcourt and Kerr, 2009, chapter 4). But the extension of her understanding of Keynes in the direction of Marx came from Kalecki. This perhaps gives a new meaning to the remark by Sraffa that she was later to quote ‘Piero Sraffa teased me, saying that I treated Marx like a little-known forerunner of Kalecki’ (Robinson, 1966). In her Essay there are three points at which Joan Robinson quotes Kalecki. On pages 47–48, there is a discussion of the upper turning-point of the cycle, and the demand constraint that, in Kalecki’s theory, causes excess capacity to emerge, causing a falling of investment, and hence profits. By contrast, she found Marx’s explanation for a tendency of the rate of profit to fall, independently of demand, to be vague, so that ‘his explanation of the falling tendency of profits explains nothing at all’. (Robinson, 1942, p. 49). The second point at which Kalecki is cited is over the question of the distribution of income between wages and profits. She noted as a useful simplification Marx’s assumption that capital is employed at full capacity, thus eliminating capacity utilisation

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2.  Kalecki’s response Kalecki received a copy of Robinson’s Essay after it was published and read it, as he was later to write, ‘thoroughly’. He responded with a page and half of type-written notes on her work, a veritable outpouring of eloquence by his summary standards. As usual (with rare exceptions) Kalecki did not keep copies of his correspondence, and his notes on Joan Robinson’s Essay were eventually found among her papers. At some time in the 1980s, Jerzy Osiatyński found them and translated them into Polish for the Polish edition of Kalecki’s Collected Works (Kalecki,1988, pp. 780–781). Curiously Kalecki’s notes on Joan Robinson’s Essay were not included in the English edition of Kalecki’s collected works that Osiatyński edited for Oxford University Press in the 1990s. In his covering letter, Kalecki praised her effort in demonstrating that a ‘quite consistent’ theory may be found in his writings, whereas his followers who had sought to show that ‘everything is right and consistent’ in those writings, had failed to prove

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as a factor influencing the rate of profit. But she considered the rate of exploitation to be ‘merely a summary method of representing the result of all various forces that are at work upon the distribution of the product between labour and capital. Neither is an independent force in itself, and neither yields any simple and coherent law of distribution’ (Robinson, 1942, p. 97). In the absence of such a theory of distribution, Robinson put forward ‘an empirical law of distribution’ which she wrote ‘is better established than most economic generalisations. In a wide variety of times and places statisticians have found a remarkable constancy in the proportionate share of labour in output as a whole’. In a footnote here she pointed out that ‘The evidence for Great Britain and the USA is summarised by Mr. Kalecki, Essays [in the Theory of Economic Fluctuations] pp. 14–18’. She went on: ‘The variations which both the academic economists and Marx would expect a priori, between boom and slump, and over the long run with technical change, fail to appear’ (Robinson, 1942, pp. 97–98). A Marxian theory, she thought, ‘might yield the explanation that the development of trade-union power has been just sufficiently rapid to prevent the rate of exploitation [the ratio of surplus to wages, or the share of labour in net output] from rising with the productivity of labour’. But ‘academic theory suggests that a secular rise in monopoly has been just off-set by a rise relative fall in raw material prices’. The reference for the ‘academic theory’ was again Kalecki’s Essays, page 33 (Robinson, 1942, p. 98). Finally, on pages 108 and 109, Robinson mentioned two further arguments from the Essays. One is the familiar Keynesian idea that the propensity to consume out of profits is lower than the share of wages that is consumed, so that ‘a transfer of purchasing power from capitalists to workers stimulates the demand for consumption goods and so tends to increase employment’ (Robinson, 1942, p. 109). But a complication is introduced by the distribution of income between capitalist entrepreneurs, who invest in real production, and rentiers, who own the financial obligations of entrepreneurs. A rise in prices, due to higher wages, may stimulate the investment of entrepreneurs because it devalues the real value of their obligations. But the rentiers have a higher propensity to consume and may reduce consumption if their real incomes are squeezed. The effect on employment of the redistribution from capitalists to workers may depend on the balance between the rentiers’ reduction in consumption and entrepreneurs’ increase in investment. Kalecki’s Essays (1939) pp. 84, and 106 are cited in support.

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1  Kalecki’s letter to Joan Robinson, and his notes on the Essay on Marxian Economics are in the Joan Robinson Papers at the Archive Centre of King’s College Cambridge, in the file number JVR/viii/232/9–12. 2  The trend was what Kalecki’s thought of as the ‘long run’. The business cycle, principally driven by fluctuations in investment, was his idea of the ‘short run’. Much of the confusion that arose in his discussions with Keynes, Joan Robinson and their Cambridge milieu came about because in that milieu, the long run was the period when the capital stock varied with net investment or dis-investment, whereas their Marshallian short-run was the period when the capital stock was constant. See Toporowski (2013, chapter 14).

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this. Despite the Essay’s simple language, Kalecki did not think that there was ‘much hope of its being understood by marxists’. (Letter of Michał Kalecki to Joan Robinson, dated 30 July 1942, Joan Robinson Papers, JVR/vii/232/9. See Appendix A for letter and notes text.).1 In her Essay, Joan Robinson had reproached Marx for failing to provide an explanation of profit, beyond presenting the rate of exploitation (the ratio of surplus to wages) and defining profit as what is left over after the payment of wages (Robinson, 1942, p. 40). A subsequent chapter is devoted to criticising ‘The Orthodox Theory of Profit’ that attributes profit to the ‘scarcity’ of capital, or is justified by the willingness to take ‘risks’ in discounting future returns to capital. The introduction of such subjective factors (which she found too ‘in more kindly language’ in Keynes’s General Theory) undermines any notion of an objective ‘supply price of capital’. ‘Thus, with the notion of the supply price of capital, the moral justification of profit as a necessary cost of production disappears, and the whole structure of the orthodox apology falls to the ground’ (Robinson, 1942, pp. 73 and 74). Despite this Joan Robinson did not herself advance any explanation for profit. She referred again to ‘the mystery of constant relative shares’ of returns to labour and capital (Robinson, 1942, p. 112) and suggested that ‘problems of effective demand may be examined under the Keynesian categories of the propensity to consume and the inducement to invest’ to elucidate the mystery. The inducement to invest would come from a comparison of interest rates and the relationship between indebtedness and current and expected rates of interest (Robinson, 1942, pp. 113–114). At the time when he read her Essay, Kalecki had just sent off for publication in the Economic Journal his paper ‘A Theory of Profits’, after an exchange of letters with the editor, Keynes, largely over Kalecki’s assumptions about prices and taxation. The paper presented the macroeconomic analysis of profits, based on aggregate monetary flows, from Kalecki’s original 1933 Essay on The Business Cycle Theory, demonstrating how capitalists’ expenditures, on investment and their own consumption, minus workers’ saving, plus the government’s fiscal deficit and the foreign trade surplus, gave rise to the net inflow of profits to business. He combined this with an analysis of how the relationship between the resulting rate of profit and the rate of interest would affect the ‘trend’ from which the business cycle caused the economy to diverge2 (Kalecki, 1933, 1942). Not surprisingly, therefore, his comments concentrated on this aspect of Joan Robinson’s Essay which she had not quite drawn to any conclusion, other than to say that effective demand may resolve the ambiguities in Marx’s theory of profit. Kalecki’s first, and main, point was that Marx presents the elements of a ‘complete’ theory of profits. What is wrong with that theory are its underlying assumptions, in particular, the ‘peculiar’ assumption of a constant rate of (full) capacity utilisation. But granted that assumption, and the supporting assumptions of constant prices and with money wages determined inversely by the rate of unemployment, it is possible to find a

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3. Conclusion There is no evidence that Joan Robinson took much notice of Kalecki’s observations on her Essay (Harcourt and Kerr, 2009, p 47). In their later correspondence there is no further mention of her Essay, although a Polish translation (under the title Szkice o ekonomii marksowskiej) appeared in 1960. A final remark on the Essay appeared in an entry on Joan Robinson that Kalecki wrote for the Wielka encyklopedia powszechna PWN (Great Encyclopaedia of Polish Scientific Publishers) in the mid-1960s. Kalecki described her as ‘an eminent progressive English economist who holds one of the top places in world economics; she is the first woman professor of economics at Cambridge University. The three main directions of her studies of the capitalist economy are: (i) the theory of imperfect competition, (ii) the theory of employment, and (iii) the theory of growth’. Kalecki listed her three main works as The Economics of Imperfect

3  ‘Neo-Kaleckian growth theory’ has in recent years given a rather different interpretation of the wage share. This is further discussed in Toporowski (2020).

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theory of profits in Marx. With time lags, a cycle may emerge. But there is no intrinsic reason why this should be longer than the investment or business cycle, as Robinson claimed. On page 42 of her Essay, Kalecki pointed out an error in her interpretation of Marx’s notation. She had written that ‘assuming constant periods of turnover… c + v measures the stock of capital’. His objection was that the periods of turnover are not constant, and that in any case c + v does not measure the stock of capital. It is of course the expenditure of capitalists on both equipment (c) and on labour (v). More positively, he agreed with her criticism of the prevailing assumption of ‘free’ or perfect competition in the determination of profit margins. But he also pointed out that the study of imperfect competition allows also for the analysis of changes in those profit margins, an aspect of imperfect competition that he had made a feature of his theory of the business cycle. Finally, Kalecki took issue with Robinson’s characterisation of his work on distribution as suggesting that the share of wages in total income is generally constant. He had argued in his Essays that any such constancy is the result of a number of factors, in particular prices of raw materials, off-setting changes in nominal wages (Kalecki, 1939, p. 36). He cited his paper ‘A Theory of Long-Run Distribution of the Product of Industry’ which had been published in the previous year in Oxford Economic Papers. On the basis of data on US manufacturing, Kalecki had concluded that the share of wages in the value added of industry ‘is a diminishing function of the utilisation of equipment u and an increasing one of the ratio of [the] average wage to material cost w, the shape of the function being subject to long-run changes chiefly owing to… the change … in the degree of market imperfection, degree of oligopoly, and the rates of prime selling costs’ (Kalecki, 1941, p. 89). Kalecki had found that the relative share of wages in the value added of US manufacturing had actually fallen, from an average of 45.3% in the last three decades of the nineteenth century to 37.6% over the eight years from 1929. This secular decline in the wage share he attributed to a long-term tendency towards industrial concentration, and the rise in costs of marketing (which he called ‘prime selling costs’) (Kalecki, 1941).3

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Bibliography Harcourt, G. C. and Kerr, P. 2009. Joan Robinson, Basingstoke, Palgrave Macmillan Kalecki, M. 1933. Essay on the business cycle theory, pp. 63–108 in Osiatyński, J. (ed.), Collected Works of Michał Kalecki Volume I Capitalism Business Cycles and Full Employment, Oxford, Clarendon Press, 1990 Kalecki, M. 1939. Essays in the Theory of Economic Fluctuations, London, George Allen and Unwin Kalecki, M. 1941. ‘A theory of long-run distribution of the product of industry’ Oxford Economic Papers NS, 5, pp. 31–41 in Osiatyński, J. (ed.), Collected Works of Michał Kalecki Volume II Capitalism Economic Dynamics, Oxford, Clarendon Press, 1990, pp. 79–89 Kalecki, M. 1942. A theory of profits, Economic Journal, vol. 52, no. 2, 258–267, reprinted with associated correspondence in J. Osiatyński (ed.) Collected Works of Michał Kalecki Volume II Capitalism Economic Dynamics Oxford: Clarendon Press, 1990, pp. 151–161 Kalecki, M. 1967. Joan Robinson, p. 334 in Osiatyński, J. (ed.), Collected Works of Michał Kalecki Volume II Capitalism Economic Dynamics, Oxford, Clarendon Press, 1990 Kalecki, M. 1988. Dzieła tom 6 Analizy gospodarcze Miscellanea (CollectedWorks volume 6 Economic analyses, Miscellanea), Warszawa, Państwowe Wydawnictwo Ekonomiczne Keynes, J. M. 1936. The General Theory of Employment Interest and Money, London, Macmillan Robinson, J. V. 1942. An Essay on Marxian Economics, London, Macmillan Robinson, J. V. 1966. Preface, in Essay on Marxian Economics, 2nd edition, London, Macmillan Toporowski, J. 2013. Michał Kalecki An Intellectual Biography Volume I Rendezvous in Cambridge 1899–1939, Basingstoke, Palgrave

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Competition, Essays in the Theory of Employment, and The Accumulation of Capital and then added: ‘In addition to this, Joan Robinson is the author of many other works, inter alia, an essay on Marxist economics, in which she emphasises both the contradictions of the capitalist system and the contribution of Marx to the development of political economy. This essay played a big role in making the works of Marx properly appreciated among Western economists’ (Kalecki, 1967).

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Appendix A: Kalecki’s Letter and Notes on Joan Robinson’s Essay on Marxian Economics Kalecki’s Letter: 312, Banbury Road Oxford July 30, 1942 Dear Joan, I am very sorry not to have answered your letter earlier. I wanted to read your book thoroughly before replying and this was difficult because I was really hard pressed. I think that your analysis of Marx is very valuable because it has showed that one conception in his writings is a quite consistent theory; while marxists who wanted to show that everything is right and consistent failed to show even that.* The book although written in a simple language does not make easy reading; and I do not think there is much hope of its being understood by marxists. I enclose a comment on a few points. Yours Michal

*Toporowski: The following text had been crossed out in the letter: ‘at least a part of the doctrine is consistent’. Kalecki’s Typed Notes p. 40 (and p. 97) On Marx’s assumptions as you put them one can construct a complete theory of profits. The assumptions are: (1) the capital equipment is always fully employed, (2) prices are stable when money wages change, (3) money wages are an increasing (sic**) function of the unemployment percentage. From those assumptions then follows the determination of profits. Wages are at such a level that the resulting profits involve an accumulation of capital which keeps pace with the increase in population after allowing for the falling ratio of labour to capital employed. If wages are, for instance, above this level, capital accumulation will not be sufficient to absorb the increasing population, and the percentage unemployment will rise, which causes a fall of wages to the ‘equilibrium’ level. If time lags are involved the long run development

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Toporowski, J. 2020. Kaleckian reflections on the wage share in recent Post-Keynesian controversies, pp. 52–60 in MacLean, Brian K., Bougrine, Hassan and Rochon, Louis-Philippe (eds.), Aggregate Demand and Employment International Perspectives, Cheltenham, Edward Elgar

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p. 95 By analysing the profit margin in terms of imperfect competition and oligopoly we gain the advantage of being able to say something about its changes. p. 98 I do not think that you are right in assuming that the relative share of wages was generally constant. In my Essays I emphasised the fact that this may be a kind of historical coincidence. In my Theory of the Long Run Distribution of the Product of Industry in O.E.P. I showed that it was not constant in the U.S.A. manufacturing industries. ** Toporowski: I think this should be ‘decreasing’. *** Toporowski: This last sentence replaces ‘This period will really depend on the length of the time lags and may be quite short’.

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may be accompanied by the Marxian cycle as you describe it. True the peculiar feature of this cycle is that output varies proportionately to the capacity of the capital equipment, but from this it does not follow that (as you say on page 103) its period must be larger than that of the ‘business cycle’.*** Marx’s assumptions are of course wrong; but if accepted they do provide us with a theory of profits. p. 42 c + v doesn’t measure the stop (sic) of capital equipment even if the periods of turnover are constant because fixed capital has a different period of turnover from circulating capital and the proportion between them will vary. But this does not affect your argument.