The Improbability of Stable Capitalism An Essay to Mark the 100th Anniversary of the Birth of Michal Kalecki

This paper discusses effective demand, the rate of profit and the profound contribution of Michal Kalecki to our understanding of capitalist economies. It argues that the Kaleckian position on the causal link between investment spending and profit and between the rate of profit and the stability of capitalism has not been surpassed. A model, using Australian national accounting concepts and data, is developed as a logical device to explore contentious issues in macroeconomics. Contrary to prevailing opinion it is demonstrated that, on their own account, neither increased nor falling wages affect the level of business profits, which are a direct function principally of the levels of investment spending, capitalists' and rentiers' consumption, the public sector borrowing requirement and net exports. The paper asks: what level of investment demand will ensure that rate of profit does not fall? What are the implications such a level for production and productivity? Is this realistic? It concludes by agreeing with Kalecki that, while 'capitalists, as a whole, determine their own profits by the extent of their investment and personal consumption', but how they do so is 'determined by objective factors, so that fluctuations of profits appear after all to be unavoidable' (Kalecki 1933, p. 13). Hence the idea of a stable capitalism over time is unlikely.