If we are to take journal citations as the measure of academic influence, then Michał Kalecki was not immediately recognised as one of the most important economists of his time. In his study of Ralph Hawtrey, Patrick Deutscher included a calculation of citations in the literature of macroeconomics and monetary theory in the inter-war period and during the Second World War. Obviously before 1936 the English-speaking world had no knowledge of the obscure Pole, since Kalecki had not published in English until 1936. Even after this, between 1936 and 1939, Kalecki’s work was not cited significantly. It was only during the Second World War that his work came to be more commonly referred to in the macroeconomics discussion. Deutscher has him ranked, by number of citations, as sixth after John Maynard Keynes, J.R. Hicks, Gottfried Haberler, Dennis Robertson, and Ralph Hawtrey.1 Kalecki appears in the ranking with the same number of citations as Keynes’s Austrian-American rival, Joseph Schumpeter, whose voluminous alternative explanation of the 1930s depression, Business Cycles was published in 1939.2 Much of Kalecki’s distinction was due to Keynes’s public acknowledgement that Kalecki’s wages theory was the one clearly implied in his General Theory.
Arguments over his statistical work changed Kalecki’s relationship with Keynes’s circle. It never recovered the intimacy that it had in 1938, in the campaign to get a job for Kalecki.3 For a while, the only friendships he seems to have retained were with Maurice Dobb and Piero Sraffa, who had been on the margins of the critique of Kalecki. This suggests an ironic significance to Kalecki’s later joke that in England he had met only two English gentlemen, one an Italian and the other a Communist.4 However, the falling out with the Cambridge Keynesians does not seem to have affected Keynes’s attitude towards Kalecki. Keynes remained a rather aloof figure in London, in recovery from his 1937 heart attack and otherwise busy with his business and political interests in London, his academic interests in the Royal Economic Society and the editing of its journal, the Economic Journal.5
Kalecki was keen to use his connections with the Keynes circle to improve his chances of earning supplementary income. In 1938 he started preparations to translate Keynes’s General Theory into Polish. In July that year he wrote to the Polish Society of Economists and Statisticians (Towarzystwo Ekonomistów i Statystyków Polskich) proposing a Polish edition of the book. In November he received a commission from the Society for his translation of the work, in exchange for an honorarium of złoty3750 (£145 at the exchange rate of the time: Kalecki’s annual salary in his Cambridge job as a ‘statistician’ was £3506). The commission was signed by the Chairman of the Society, Kalecki’s erstwhile employer Edward Lipiński.7 Kalecki wrote to Keynes to request permission to publish the Polish translation. On 23 November 1938, Keynes wrote to Kalecki assigning to him the Polish rights of the General Theory without charge.8 Kalecki started work on his translation, but never completed it.
The Polish edition finally came out in 1956, with the translation completed by Stanisław Rączkowski.9 Kalecki’s work on the translation stopped at the end of Chap. 18, just short of Book V of Keynes’s work, the section on Money-Wages and Prices.
1.1 Real and Money Wages According to Keynes
Keynes may have been dismayed by the theoretical uses to which Kalecki was putting his gathering of statistics in Cambridge. But Keynes was decidedly taken with Kalecki’s ability to draw theoretical conclusions from his statistics on an aspect of Keynes’s argument in the General Theory that even its author admitted was unclear and even confused. This was Keynes’s explanation of the relationship between real and money wages, in Chap. 19 of his book. As Kalecki had pointed out (in Polish, so Keynes would not have been aware of this criticism), the chapter itself fits uneasily into an analysis in which the basic unit of analysis is given as the ‘wage-unit,’ which should, by definition, stay constant if money wages change.10 In that chapter, Keynes set out to challenge the doctrine commonly held among economists and, in the ‘Treasury View’ expounded by Ralph Hawtrey, the foundation of government policy in the inter-war period (and since the 1980s) that a fall in money wages would result in increased employment. Behind this doctrine, Keynes rightly pointed out, was an assumption that money wages could be reduced without affecting total demand in the economy. In Keynes’s view this was wrong because ‘in the short period, falling money wages and rising real wages are each, for independent reasons, likely to accompany decreasing employment; labour being readier to accept wage-cuts when employment is falling off, yet real wages inevitably rising in the same circumstances on account of the increasing marginal return to a given capital equipment when output is diminished.’11 Soon after the publication of Keynes’s book, John T. Dunlop and Lorie Tarshis published articles pointing out that, historically, real wages tend to rise with employment.
Keynes responded to the Dunlop and Tarshis with a paper that came out, with the Tarshis paper, in the March 1939 issue of the Economic Journal. The article marks the high point of Keynes’s regard for Kalecki.12 In the paper, Keynes sought to recover his essential argument about wages and employment by distinguishing between changes in real wages that are associated with changes in output and changes in real wages that are the outcome of changes in prices. He wanted to show that the latter are unimportant in determining the level of employment: ‘The conclusion, that changes in real wages are not usually an important factor in short-period fluctuations until the point of full employment is approaching, is one which has already been reached by Dr. Kalecki on the basis of his own investigations.’13
The whole issue, in Keynes’s view, turned on the question of whether ‘marginal real costs,’ that is the real cost of producing additional output with a given productive apparatus, increase or decrease. For if they decrease, then increasing output with that given productive apparatus should result in rising profit per unit of output. Here, Keynes stated, ‘Dr Kalecki is inclined to infer approximately constant marginal real cost,’ that is, that the resource cost of increasing output is constant when productive capacity is underutilised. Kalecki inferred from this that real profits too would not decrease (or increase) in response to changes in output. This would be reflected in a fairly constant share of labour income relative to profits. The ‘undisputed facts’ seem to confirm this. Keynes put forward figures showing the share of manual labour in the national income of Great Britain (figures for 1911, and then 1924–1935) and then the same share in the United States (1919–1934). In both countries fluctuations in this share were small and apparently random. But there was no evidence of any reduction in the share of labour in years when output increased.
Keynes therefore concluded that ‘these facts do not support the recently prevailing assumptions as to the relative movement of real wages and output, and are inconsistent with the idea of there being any marked tendency to increasing unit-profit with increasing output.’ That tendency was essential if falling wages were to result in higher employment, as the conventional view supposed. For Keynes the absence of any marked change in the share of labour income ‘remains a bit of a miracle’ that implies that changes in prices almost exactly offset increases in marginal costs.
The only solution was offered by Dr. Kalecki in the brilliant article which has been published in Econometrica. Dr. Kalecki here employs a highly original technique of analysis into the distributional problem between the factors of production in conditions of imperfect competition, which may prove to be an important piece of pioneer work… His own explanation is based on the assumptions that marginal real costs are constant, that the degree of imperfection of the market changes in the opposite direction to output, but that this change is precisely offset by the fact that the prices of basic raw materials (purchased by the system from outside) relatively to money wages increase and decrease with output. Yet there is no obvious reason why these changes should so nearly offset one another… It may be noticed that Dr. Kalecki’s argument assumes the existence of an opposite change in the degree of the imperfection of competition (or in the degree to which producers are taking advantage of it) when output increases from that expected by Mr. R.F. Harrod in his study on The Trade Cycle. There Mr. Harrod expects an increase; here constancy or a decrease seems to be indicated. Since Mr. Harrod gives grounds for his conclusions which are prima facie plausible, this is a further reason for an attempt to put the issue to a more decisive statistical test.14
Harrod’s ‘prima facie plausible’ grounds were that consumers and firms become much more selective in their buying in a slump, and less so in a boom. The demand that firms face therefore becomes much more price-elastic, and this would make markets more competitive in a slump. Kalecki’s reasoning about competition was not based on the variable scruples of consumers and firms, but on the pricing policy of firms. He had argued in his Econometrica article that firms try to hold prices stable and form cartels in a slump, when they have less fear that new producers will enter the market while in a boom cartels are more likely to be dissolved, and new firms enter the market so that competition increases.15
Keynes was therefore unconvinced by Kalecki, but he knew what he wanted out of the discussion: pending more statistical work
it is evident that Mr. Dunlop, Mr. Tarshis and Dr. Kalecki have given us much to think about, and have seriously shaken the fundamental assumptions on which the short-period theory of distribution has been based hitherto … Meanwhile I am comforted by the fact that their conclusions tend to confirm the idea that the causes of short-period fluctuation are to be found in changes in the demand for labour, and not in changes in its real-supply price…
Thus aggregate demand determined employment, in the short run, and not the wage rate.16
1.2 Kalecki on Wages, Real and Money
Kalecki’s approach to the subject was much clearer, and free of Marshallian dilemmas applied to historical data. The wage share year by year that Keynes was using as evidence for his conclusions about the short period indicated the phase of the business cycle rather than changes in output with the capital stock held constant. Until May 1939, when he saw, and was disconcerted by, the results of the industrial studies in the Cambridge Research Scheme, Keynes would not have been aware of the evidence underlying Kalecki’s reasoning.17 The circulation of Kalecki’s evidence, and his interpretation of that data, occurred at around the same time that Kalecki’s detailed analysis of the wages question appeared not in England but in the country from which he was trying to distance himself, Poland and, of course, in Polish rather than English. The English-speaking world had to wait three decades before Kalecki’s translation into English appeared with a volume of his earliest essays.18
In January 1939, Kalecki wrote to Joan Robinson referring to
some work for the Polish Ministry...