A general theory of Michał Kalecki
John Maynard Keynes has been celebrated as the father, but could a self-taught economist from Łódź be the true pioneer of macroeconomic theory?
It’s the dead of winter in Stockholm, most likely late February 1936. Michał Kalecki, 36 years old, lies sick in bed. This is the first leg of his Rockefeller Travelling Fellowship through Europe. Not exactly the start he had hoped for. He reaches for his briefcase and retrieves a gift his Swedish colleague had handed him the day before. He unwraps the parcel to reveal a sturdy hardback still smelling of fresh ink. The author is a certain economist from Cambridge named John Maynard Keynes. And the title: ‘The General Theory of Employment, Interest and Money’.
Kalecki sits up in bed, thumbing through the pages. The material is very familiar. In fact, he had himself devised and published a selection of the main tenets in a paper three years earlier. Though unknown at the time, these are the very macroeconomic principles that will form the basis of the economic wonder years to follow in post-war Europe and America.
Kalecki contemplates his predicament. Plagiarism or coincidence? What should he do? “Then I thought – Keynes is more known than I am,” Kalecki would later recount. “These ideas will get across much quicker with him and then we can get on to the interesting question, which is their application. Then I got up.”
Made in Łódź
Every great theory begins with a foundation and Kalecki’s starts in Łódź, Congress Poland. Here he was born on 22 June 1899 into an assimilated Jewish family with petty bourgeois pretensions. His father Abram owned a small spinning mill in the city, which at the time was the bustling and grimy heart of Poland’s textile industry. In many ways, Kalecki’s Łódź was very similar to Friedrich Engels’s Manchester, both in the dire industrial conditions surrounding them and the lens through which they were observed.
Kalecki never spent a day in university studying the Marshall Curve, the Marginal Cost Curve or indeed any curve in economics. He was instead drawn to mathematics and physics, beginning and abandoning two engineering degrees: first at the Warsaw University of Technology in 1917 and then at Gdańsk Polytechnic from 1921 to 1925. While his first exmatriculation was brought on by war, his second came as a result of an acute failure of capital, with the bankruptcy of his uncle’s shipping business forcing Kalecki to seek gainful employment in Warsaw.
It was around this time, while working as a credit appraiser, that he was introduced to economics. He was particularly taken by the ‘unorthodox’ literature of Mikhail Tugan-Baranovsky and Rosa Luxemburg. It did not take long before he began to contribute articles himself to various economic periodicals in Poland. His output ended up earning him a job at the Research Institute of Business Cycles and Prices in 1929, just in time to observe the unfolding Great Depression.
Here Kalecki made two key contributions. First, he and the economist Ludwik Landau managed to estimate the national income of Poland for the key years of 1929 and 1933 – which was one of the first attempts to calculate what now is considered a country’s GDP. And then in January 1933, the 33-year-old self-taught economist published Próba teorii koniunktury (An Essay on the Theory of Business Cycles), which mathematically proved his theory of effective demand. Published three years before Keynes’s General Theory, this seminal work laid out the theoretical foundations behind macroeconomics, a paradigm shift that would dominate economic thought and policy-making for the next 40 years.
Kalecki continued to develop his theory on capital accumulation cycles through a series of essays before assembling all the parts in an article published in the journal Polska Gospodarcza (Polish Economics) in 1935. “He opens by attacking the orthodox theory at the most vital point,” wrote Joan Robinson, a leading macroeconomist who worked closely with Kalecki in Cambridge. “The view that employment could be reduced by cutting money wage rates.” Instead, he showed how an increase in investment in technology or infrastructure by a private enterprise could increase overall employment.
“A better introduction to the general theory of employment, interest and money than any that has yet been produced.”
A keen observer of the mass infrastructure programme occurring in Nazi Germany at the time, he extended this logic to posit that unemployment could also be reduced through deliberate government policy, which would, in turn, lead to an increase in overall consumption. It was not quite as polished as Keynes’s Multiplier, but the framework was there. “Its sharp and concentrated statement,” Robinson reflected some 33 years later, “provides a better introduction to the general theory of employment, interest and money than any that has yet been produced.”
But status, language, nationality and even ethnicity would conspire against Kalecki in the mid-1930s. His theory was not met with the same enthusiasm as Keynes’s world-changing opus, although his 1933 presentation to the Econometric Society in Leyden contributed to his winning the Rockefeller Scholarship. Nazi Germany threatened from across the border, while at home, his closest colleagues at the institute were censured by the authoritarian ‘Sanacja’ regime in Warsaw. Kalecki resigned out of protest and left in January 1936 for Stockholm with his wife Ada.
Two different peas in a Cambridge pod
After his epiphany in Stockholm, Kalecki boarded the next ship to England. He arrived in Cambridge almost out of the blue. No one had heard of him. But he was quick to make an impression with his quirky ways. “He cared little for party manners or small talk and plunged directly into the subject,” Robinson wrote. “As we talked, I felt like a character in a Pirandello play, I could not tell whether it was I who was speaking or he.”
“The tea was good. Mrs Keynes was like a Cambridge don, and Mr Keynes like a prima ballerina.”
Keynes, on the other hand, was said to be less enamoured by Kalecki’s arrival. He would fuss over semantics in Kalecki’s methodology or prose. The feeling seemed to be mutual. At one stage, Kalecki and his wife were invited to tea at the Keyneses’ home in Bloomsbury, London. There they were charmed by Mrs Keynes, the renowned prima ballerina Lydia Lopokova. Afterwards, Kalecki purportedly described the meeting as follows: “The tea was good. Mrs Keynes was like a Cambridge don, and Mr Keynes like a prima ballerina.”
Perhaps, they were never destined to get on. They were, after all, very different personalities with completely different backgrounds. Keynes was a highly-educated, urbane Englishman from the upper tiers of society. Kalecki, a Polish Jew, had no formal economic education, but what he did study was largely Marxist theory. Although Keynes’s theory offered a departure from the orthodoxy, he still remained faithful to the fundamental levers behind laissez-faire capitalism. Kalecki, however, took a more political view. For most of his career, he maintained that political motives would always undermine and corrupt the free movement of capital. These philosophical differences seemed to also infuse their contrasting scholarly contributions.
And yet Keynes not only invited Kalecki into his Cambridge team but also supported his research. On Kalecki’s part, he never brought up his claim to first authorship or any other considerations of ego. “The interesting thing is that two thinkers, from completely different political and intellectual starting points, should come to the same conclusion,” added Robinson. “For us in Cambridge it was a great comfort.”
In this environment, surrounded by the sharpest minds in economics, Kalecki added the last touches to his theory in 1939. His book Essays in the Theory of Economic Fluctuations casts a dark shadow over his very own theory of capital accumulation cycles, namely its likelihood of sustaining endless economic growth. He all but concludes that prosperity can never last.
Too Red, Too Pink, Too Zionist
Kalecki saw out the war years at the Oxford University Institute of Statistics, helping out the war effort by researching war financing, rationing and the mobilisation of labour and matériel. Britain had provided the Kaleckis refuge, for had they remained in Poland, they would have almost certainly perished in the Holocaust.
After the war, Kalecki returned briefly to Poland before taking up the role of Assistant Director in the Economic Department of the UN Secretariat in New York. He held that position until 1954 when his supposed leftist leanings were questioned under the wave of McCarthyism. And so he left the American Dream for the revived communist experiment taking place in post-Stalin Poland.
He was appointed as an economic adviser to deputy Prime Minister Hilary Minc and held various posts in the Planning Commission until his resignation in 1963. He was forced out after criticizing the outrageous economic growth targets demanded by successive five-year plans. The final straw came when First Secretary Władysław Gomułka responded to his analysis on the Eighth Five-Year Plan (1966–1970) with an anti-intellectual rant: “Professors with titles, grown-up people, instead of conducting research, or helping, write nonsensical theses.”
He retreated to the School of Planning and Statistics in Warsaw (Szkoła Główna Planowania i Statystyki: SGPiS). But not necessarily to teach. “Kalecki was not a very good teacher,” says Prof. Jerzy Osiatyński, who studied under Kalecki at SGPiS. “Not being an academic, he would give courses only on what he had himself developed.”
Two lectures in the academic year were apparently too much of a distraction for the master economist. He compromised by filling half of his lectures with Q&A sessions. “In the course of the lectures, when he was asked a question, he would simply repeat what he had said before,” continues Osiatyński. “And if the person who asked said that they still did not understand, he would repeat the same a second time. However, in personal contact, he would go to great lengths to explain what he meant and why. Here, he was very patient and very committed.”
After a heart attack in 1965 and just when his health began to further deteriorate, he and his work came under fire during the student unrest in March 1968. His own students at SGPiS accused him of being non-Marxist and bourgeois. And when that was not enough, he was swept up by the ensuing anti-Semitic furore that was stoked by Interior Minister Moczar and Gomułka. Having been declared too ‘red’ for America and not ‘red’ enough for the Planning Commission, he had now become, it would appear, too Jewish for Gomułka’s Polish Republic of Poland.
Two years later he died on 18 April 1970. It was said to be his heart that failed him in the end.
Discussion and conclusion
On his 70th birthday, one year before his death, Kalecki received a letter from J. K. Galbraith, the eminent Canadian economist. “I wonder if you realise how much those of us in the world around have owed to the intellectual capital you have provided over these past decades,” Galbraith wrote. “I believe that your position in the world is unrepeatable.”
Perhaps, Kalecki himself better summed up his life and relationship with the world in the conclusion to his second major tome, Essays in the Theory of Economic Fluctuations. “Doubtless many people will consider this theory paradoxical. But it is not the theory which is paradoxical, but its subject – the capitalist economy.”