Kalecki Economics
The aphorism “capitalists earn what they spend while workers spend what they earn” was coined to show the class nature that exists in a capitalist society, and the difference between capitalist investors and workers. The difference is noted by the saving tendencies of the capitalists and workers. The economy is basically unequal in relation to economic power in a capitalist class. The noted differences are derived from the fact that capitalists’ investments determine how many profits they own, while on the workers spend the residual that capitalists use to pay wages for the labor.
Since investors are part of the larger capitalist group which comes up with investment decisions, they form part of the innovation and volatility in a capitalist system. This means they determine income level and its distribution, and Kalecki’s model of income distribution helps in explaining the general capitalist system. This model for income and expenditure distribution involves a closed economy with no government interference, where profits of an investment total is equal to what was spent by the capitalists. This is a simple model different from others which have to include trade surplus and government deficit for them to be complete (King, 2014). This also means that employment that is normally generated by the investors as capitalists is normally a residual of what they have earned in terms of profit. It basically shows the relationship between distribution and accumulation, a relationship that was reinforced by Kalecki through a modernization of the modern scheme of production. If there is an increase in demand, the short term effect is the redistribution of income in the capitalist’s favor with little in workers favor (King, 2014).
In a closed economy that does not involve the government, workers will not have funds to save, and their aggregate income will depend on the willingness of the capitalists to invest and spend on consumption (King, 2014). The capitalist society is such that investors control and own production means, can easily access finance while the workers do not own anything but just their labor. Workers will spend all their income in consumption of goods or even services and by so doing, they only reproduce themselves. However, capitalists spend on a small part of their income in consuming goods or services, while saving the rest which they will later use in various investments. Given how spending habits of the capitalist are, they will get back what they spent in consumption of goods in terms of profits. By so doing their will restore the conditions that ensured they remain capitalists (King, 2014). In this argument, some workers may save part of their income, but the number of such individuals who would result to saving is very few in comparison with the large number of workers.
Moreover, the amount saved by such workers was so inconsequential in comparison with amount saved by the capitalists that he perceived the workers savings that they did not require to be included in the equation (King, 2014). The aforementioned phrase seems to portray Kalecki as trying to answer the question of whether consumption and investment by capitalists is determined by profits or vice versa. Capitalists have the power to determine how much they consume and invest while they are not able to make the decision of earning more. However, workers consume what they have and have to power to spend more.
Kalecki argued that the major obstacle to the employment of the whole workforce is investors or capitalists’ resistance to political changes that may result after full employment has been achieved and sustained with time. If full employment is achieved, it would lead to political and social changes that would offer a new momentum to the opposition of the capitalists. As such, sacking someone workers would no longer play the function as measure of instilling discipline. The capitalists’ social position would be undermined, while there would be growth of class-consciousness and self-assurance of the working class. Political tension would be created by industrial actions aimed at advocating for higher wages and improved working conditions (King, 2014). To the business leaders, political stability and discipline in the working places or factories hold more importance than increased profits. Hence, even though it is possible for full employment to be achieved, maintaining such a situation is likely to face big problems. Despite his optimism about the effectiveness of fiscal policy in reaching of full employment, Kalecki believed that these political problems make employment of the whole work force to be unsuited for a capitalism environment. In fact, his argument held that the doctrine of full employment is opposed a political background, and outlined various reasons why the industrial leaders are opposed to the achievement of full employment through government spending(King, 2014).
These reasons include government intervention being generally disliked, especially in relation to creation of employment. In absence of such intervention, the industry has much power over the government and the economic activity level and employment depend largely on the leaders in the industry giving them much power over that would be controlled by the government intervention. Another obstacle arises from dislike of certain elements of government expenditure especially in relation subsidizing mass consumption and public investment (In Halevi et. al 2016). In addition, the dislike of political and social impact of employment for the whole workforce is a major reason as aforementioned. After the above considerations, Kalecki sees a situation of full employment as being against the spirit of capitalism, unless there are fundamental changes to relevant institutions. In the case of full employment, new political and social institutions will have to be developed as a reflection of more power that is obtained by the working class (In Halevi et. al 2016).
If capitalism system is able adjust and accommodate full employment, there will be required an incorporation of a fundamental reform in this system. As such, using fiscal reform to enable government intervention will offer a short-term solution (King, 2014). What are required are more basic changes to the political and social-economic structure in a capitalist society. This explanation emphasizes the perception of the capitalists. The outlined incompatibility is as a result of more basic aspect of relationship between the capitalist and the workers, since unemployment served as way of capitalists asserting their power and control over a given working class. Moreover, there will always be significant employment and income fluctuations and governments will result to reacting during the time of depression but pursuing stable conditions for full employment will be impossible to achieve especially due to resistance for leaders in the businesses and industries (In Halevi et. al 2016).
References
King, J. E. (2014). Advanced introduction to Post Keynesian Economics. Cheltenham: Edward Elgar.
In Halevi, J., In Harcourt, G. C., In Kriesler, P., & In Nevile, J. W. (2016). Post-Keynesian essays from down under: Theory and policy in an historical context.
