Profits and Investment: A Kaleckian Approach
Kalecki’s theories of effective demand and distribution are macroeconomic, but their development is very much affected by his views of the microeconomic arrangements in the economy. The economy to which these theories are applicable is a capitalist economy. A relatively small group of individuals (the ‘capitalists’) own the means of production, and they derive income from this ownership and from organising production. A much larger group of individuals (the ‘workers’) must sell their labour power to obtain an income. Kalecki‘s analysis of industrial production is based on the assumption that markets for manufactured goods are imperfectly competitive. In these markets changes in prices are characterised as being ‘cost-determined’, where ‘cost’ includes some provision for profits that depends on the degree of imperfection of competition or ‘degree of monopoly’. Markets for manufactured goods are contrasted with those for primary products, which are generally competitive, and where changes in prices are ‘demand determined’. This difference in microeconomic arrangements is an integral part of Kalecki’s approach to the development of capitalist economies.
KeywordsInvestment Decision Current Period Real Term Excess Demand Capitalist Economy
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