Collected Works of Michal Kalecki, 2 vols. - book reviews

Monthly Review, June, 1992 by Joseph Halevi

By contrast, the economy with a cartelized sector will behave roughly as follows. Cartels do not compete through prices but via the buildup of productive capacity, which is the main instrument for capturing the largest possible market share. In a boom, cartels engage in an "investment race" which, through its impact on the overall level of demand, will lift prices and profit margins in the competitive sector of the economy. However, this very investment race creates a situation in which at the beginning of the crisis the cartelized sector will already have a significant amount of excess capacity. In this context, stability in profit margins means that cartels will respond to a slowdown in demand by cutting the level of investment and of employment, causing additional unused capacity. Kalecki assumed that the competitive branches were concentrated mostly in the consumption- goods industries, a position which he changed after the war. As a consequence, the reduction in demand for consumption goods caused by the firing of workers in the cartelized industries will lead to a fall in the prices of consumption goods. Output in these industries will decline but not as much as the cartelized ones. On balance, the economy with a cartelized segment will show greater fluctuations in output than a wholly competitive system. Stability in profit margins does not mean, therefore, stability in the level of investment. On the contrary, capacity-based competition implies that the response to a slowdown in economic activity will come chiefly through a fall in investment levels.

From this brief presentation of Kalecki's early approach, it is easy to see how monopoly capital (cartels) and the problem of realization are connected via the role played by the degree of capacity utilization. In this way, both Lenin's and Rosa Luxembourg's preoccupations are unified in a novel theoretical framework reflecting the conditions of the 1930s. Following his theory, Kalecki developed a systematic criticism of the position expressed by the main economic thinker of the Communist International, Eugene Varga, concerning capitalism's ability to overcome the Great Depression.

In an article printed in the Internazionalle Presse Korrespondenz of February 1932, Varga argued that the fall in wages caused by the Depression would reduce unit costs of production, thereby favoring a recovery in the rate of surplus value and in the rate of accumulation. Furthermore, the fall in prices, by cheapening the cost of fixed capital, would help the recovery in the rate of profit and in the degree of capacity utilization. In Kalecki's eyes, the foundations of such an optimistic pronouncement were very shaky indeed ("Is a 'Capitalist' Overcoming of the Crisis Possible?", in Vol. I, part 2). He pointed out that a fall in wages, if accompanied by a proportional fall in prices, would not much affect the cost of production. If, on the other hand, wages fell more than prices because of the cartel policies, the likely outcome would be an increase in the level of unsold inventories in the consumption-goods sector. Also the rate of profit would not be increased by price deflation. In fact, a fall in profits resulting from a collapse in output greater than the fall in prices would increase the value of the stock of capital relative to the value of output. Consequently, the value of output per unit of capital would decline, pushing the rate of profit downward. If neither a fall in wages nor a decline in prices can contribute to a recovery in profitability, the system has very scant chances of finding its way out of the crisis, except in the case of a wartime boom. This is basically the position held by Kalecki throughout the 1930s. The capitalist world economy was seen as drifting helplessly toward war.