The Neglected Wisdom of Michal Kalecki

by Rohan Shah | 8.2.18


hree decades and a major financial crisis on from Margaret Thatcher’s famous declaration that “there is no alternative,” collective assumptions about the economy are more of a political straitjacket than ever presenting neoliberal capitalism as unassailable common sense, snuffing out more ambitious ideas of politics before they can get off the ground. Even as leftist newcomers score victories against the odds in local races, they are met by a wall of instinctive resistance, often even from Democrats, that dismiss any platform too ambitious as naive fantasy. In doing so they point vaguely to trite economic realist arguments, asserting as Nancy Pelosi did a few months ago “that’s just the way it is.” The market-economy, they argue, is the object of technocratic expertise operating according to timeless laws and existing outside politics, yet paradoxically conditioning almost every aspect of democratic and civic life.

Is this the way it has always been? Decidedly not. In fact for the majority of the twentieth century the economics profession, as well as the public more broadly, not only accepted that there were indeed alternatives, but battled wholeheartedly over the political worth of vastly different economic philosophies. As much as many would like it to be so, and often act as if it is, economics is not physics. There is no one truth, and we would all benefit from a public discourse about the economy that was at minimum more candid about its political commitments, and at best more rigorous in interrogating how the core premises of theories either detract from or support these views. This was in fact the norm up until the 1980s, and looking back into the disciplinary skirmishes of the cold war can prove illuminating. When we think of economists that shaped the current fault lines of debate, certain figures occupy outsized roles. Friedrich Hayek and Milton Friedman provide intellectual fodder for the status quo, and John Maynard Keynes is the representative of a more measured regulatory capitalism.

Keynes, however, was far from alone in offering perspectives on the economy which departed from the neoclassical view. Among economists who have faded from historical memory, few deserve to be recovered more than polish economist Michal Kalecki. Kalecki is considered to have independently developed a number of Keynes’ propositions at a similar time, yet despite being championed by some renowned economists, like Joan Robinson, who referred to Kalecki as a neglected prophet  he never enjoyed the same acclaim as Keynes. Nonetheless, his life and work are demonstrative of the messy history of economic thought in the postwar period, and provide a window into the types of questions that are no longer asked of the economic orthodoxy frequently enough.    

Born in the industrial town of Lodz in 1899, Kalecki was part of a set of heterodox economists that came to intellectual maturity in the cauldron of interwar history. Living through an era of fascism, unprecedented monetary instability, and the rise of the first socialist superpower, these thinkers all appreciated and grappled with the precarious foundations of liberalism, and the tension between capitalism and democracy. They departed from benign conceptions of market-capitalism that assumed its naturalness and self-regulation, and strove to understand the social-relations that held the economy together.  

They departed from benign conceptions of market-capitalism that assumed its naturalness and self-regulation, and strove to understand the social-relations that held the economy together.

Like Keynes, Kalecki was unconvinced by certain foundational aspects of neoclassical economics, particularly the assumption of a natural tendency towards equilibrium in the free market. Instead they both pointed to the cyclical structure in economic relations - characterized by overaccumulation, crisis, and correction. In short, by capitalism’s tendency towards precarity and instability. In underscoring how money itself shapes business cycles, they pushed against the neoclassical idea of an economy of isolated and level-headed calculating actors - instead highlighting the incalculable ripple effects of fear, confidence, and speculation. These ideas are prominent in Keynes’ General Theory - which effectively launched the field of macroeconomics and dominated the economic mainstream during the so called embedded-liberal period from 1945 until the mid to late 1970s. Kalecki’s less well known trajectory, though, reveals something of the tumultuous nature of global economic history outside the advanced industrial nations.

After World War II Kalecki worked in the Department of Economic Affairs for the United Nations Secretariat. Although we now associate the UN with a restrained and non-confrontational vision of world order, in the early years of the organization the possibilities for its work seemed much grander. Thinkers like Kalecki saw the opportunity to make contributions to exciting new blueprints for global governance using the tools of economics. Rather than a single coherent philosophy, the origins of the UN were marked by a competition between an idea of the organization as a minimalist security organization to prevent a third world war versus a conception of the organization as an interventionary body committed to a bolder program of social and economic change. The latter was a vision that enjoyed wide support in the colonial world, with nations like India hoping that the UN might challenge the civilizational norms of colonial rule, and the hierarchy of an international order made in the vision of the great powers.

These loftier ambitions for the organization, however, collapsed in a suddenly glacialized Cold War rivalry  with a focus on domestic jurisdiction, favored by the great powers, thwarting more robust and transformative international programs. The United States was the only country that might conceivably have challenged this, but was just as worried as anyone about a UN with the ability to intervene within national borders. One principle fear was that an empowered UN might launch an international inquiry into the treatment of African-Americans in the Jim Crow South - something which American civil rights activists, including founder of the NAACP W.E.B DuBois, had in fact called for. Despite an internationally coordinated effort to make the organization more than a great power security organization, the UN that emerged was neither the one for which anticolonial forces nor the NAACP had hoped. It remained largely agnostic on what the international economy should look like, ceding power to the competing visions of the Cold War rivalry.

Michal Kalecki with India’s first Prime Minister Jawaharlal Nehru

Kalecki was caught in the pincers of this Cold War politics, and resigned from the UN after McCarthyist attacks on his work for its orientation toward planned economy. He moved on to participate in a series of development projects, including work in Mexico, India, and Cuba. Even if attempts to challenge the Eurocentric terms of international society in the UN had been met with disappointment, various global South nations were still intent on pushing against the free-market orthodoxy that governed the international economy which was considered deeply linked to strategies of Western power and a cycle of dependence that trapped them in unfavorable trading relationships. Industrial development and national self-sufficiency were touted as ways for these economies to change the terms of the order, leading for example to the mixed economic framework that became popular in India. Kalecki offered intellectual support, writing on ways to finance development and secure foreign loans without abandoning policy autonomy. In doing so he advocated methods like capital controls - which having been considered heretical since the collapse of the Bretton Woods order, are now once again becoming a topic of creeping debate. His work as an advisor to these economies is testament to the diversity of approaches which a number of nations took to economic policy in the years after WWII. Economists, who at this point did not occupy the privileged policy making positions which we now take for granted, forged alliances with a range of political actors, and proposed bold new visions for the world economy. The diverse commitments in Kalecki’s work is testament to these struggles to recast the economic order.

Kalecki died in 1970. By the end of that decade the world would see a rapid reversal in the trends that had dominated postwar life until then. In the industrialized world the influence of Keynesian economics began to corrode in light of high inflation and unemployment, facilitating the rise of the monetarists and their exclusive focus on the money-supply. This culminated in the brutal Volcker shock in 1979, definitively restoring the value of money by raising interest rates at the cost of massive unemployment, and establishing an enduring focus on price stability above all else. The focus on stable money permitted the widespread financialization that has dominated an increasing share of economic life since then, with the vast majority of that new wealth going to the richest households.  

Kalecki had argued that focusing exclusively on the money-supply missed the point. For him the root cause of inflation was not just the quantity of money in the system, which was merely the symptom, but a deeper embodiment of social conflict an expression of class warfare. As labor struggled for a larger piece of the economic pie through wage increases, capital countered by raising prices, creating a bidding war where each tried to outdo each other with no net effect on production and in so doing devalued the currency. Preoccupation with the money-supply, he noted, obscured the real workplace struggles over distribution of the pie which generated inflationary pressure in the first place. By the 1980s insights of this variety were nowhere to be found in an economics discipline that governed more and more of the policy making process, and reduced inflation (and almost every other phenomenon) to its mere quantitative expression. Meanwhile across the global South, the same nations that had previously been intent on forging a new international economic consensus began to acquiesce to the forces of economic liberalization. As UN agencies like the International Labor Organization faded into obscurity, the World Bank and the IMF, with different interests in mind, launched one-dimensional “structural adjustment programs”, requiring aggressive deregulation and privatization of major industry and services. Economists like Kalecki, who attempted to pick apart the actually existing social and political struggles that lay behind the ostensibly neutral premises of neoclassical economics, found themselves increasingly out of favour. Instead bland and uncritical trumpeting of economic growth became the answer to almost every political question.

In his most widely read work - the 1943 article “Political Aspects of Full Employment” Kalecki showed that although objections to progressive policies are frequently made in the language of economics, the real objection may well be anchored in more basic ideas about power and control. Most famously, he argued that business’ opposition to a program of full-employment and wage rises was rooted primarily in a socio-political rationale. Kalecki noted that a regime of full-employment was likely to produce higher overall profits in the economy for capitalists. In light of this, he claimed, the real objections to this policy were rooted in the higher bargaining power that it would accord labor, rather than a fear of diminishing profits. Full-employment would limit the coercive power of the sack as a tool of disciplinary control. A worker that was guaranteed a job was much less likely to tolerate exploitation and much less amenable to inter-worker competition - and therein lies the real objection to full-employment. The obvious lesson is that economic rationality is often marshaled in the cause of power and stability - and any understanding of this fact requires that we account for the social complexity of economic relationships.

Even though there were tremors close to the disciplinary mainstream in the wake of the financial crisis, much of the economics discipline remains committed to analysis which descends deeper into economic modeling and mathematical axioms. This in itself is not problematic, but there is limited questioning of the fundamental principles upon which the enterprise, so to speak, is built. This perpetuates the damaging idea that the economy should not be subject to democratic will. No doubt this trend is showing cracks since 2008. Thomas Piketty’s bestselling Capital in the Twentieth Century is just one indication of the appetite for analysis which actually resonates with the majority of people’s experience of economic life. There is still much work to be done, however, in terms of explanations which takes seriously the complex social worlds of economic actors, and the role of political power and history in the operation of the market.

As contemporary observers have pointed out, the neoliberal turn hasn’t been especially effective at resolving the larger capital accumulation crises of the 1970s, but it has been profoundly successful as a technique of upward redistribution, and in consolidating the political power of financial elites. Inefficiencies are built into the operation of the current economic system from “bullshit jobs” to the increasing toleration of monopolies. These are precisely the sorts of resource distribution problems from which Capitalism promises to save us. Explaining these developments requires that we grapple seriously with the social and political anchors of neoliberalism, and the role of the state, which after all most neoliberal thinkers themselves did in generating these ideas in the first place. Without this we won’t reach an understanding of the political foundations of an ostensibly neutral order. Kalecki’s work compels us to ask what really lies behind the economic orthodoxy uncritically considered so natural and unassailable since the 1980s.



About the Author

Rohan Shah is a PhD Student in History at Columbia University and a founding editor of Refraction.