Kalecki's Theory of Income Determination and Modern Macroeconomics

The paper, written for the centennial celebration of Kalecki's birth, considers the legacy for modern macroeconomics of Kalecki's theory of income determination. This is notable for having been the first to be built, unlike Keynes' but alike the contemporary New-Keynesian macroeconomic models, in an imperfectly competitive framework and, at the same time, for linking the theory of distribution, on the one side, and the theory of income determination, on the other. Important pieces of Kalecki's theoretical construction, such as the basic idea of building the theory of income determination in an imperfectly competitive framework, the implicit assumption of the isoelastic transposition of demand curves, his use of the notion of the degree of monopoly in the framework of macroeconomic models, have been a lasting legacy to the toolkit of modern economics in general and modern macroeconomics in particular. Unlike part of contemporary macroeconomic theorizing, which takes place in the framework of abstract models, following an intrinsic logical development with a momentum of its own, Kalecki was always much concerned, in his theoretical constructions, with real world data and burning real world policy issues. Yet his basic message, dating back to his early contributions in the early thirties, that demand creation by governments could provide the basic solution to the unemployment issue, a solution which in capitalist economies would remain unimplemented in practice for the political difficulties it implies, has proved of non-lasting value, aside from its continuing ideological impact.