Michal Kalecki was a Polish economist who arguably ‘discovered’ the principle of effective demand at the same time as Keynes in the 1930s. He was more left wing and less establishment than Keynes himself, as a relatively obscure émigré to England.
The economic ideas of Kalecki drew on Marx’s ‘schemes of reproduction’, and he also incorporated theories of imperfect competition, which contrasted with the assumption of perfect competition which Keynes used in his General Theory of 1936.
Kalecki had a strong influence on the Cambridge School of Keynesian, and latterly post-Keynesian, economics. In 1943 his article on the Political Aspects of Full Employment was published. Although brief, it was extraordinarily prescient, predicting as it did the strengthening of the working class under conditions of full employment, and the subsequent turn of business leaders, politicians and many economists against the policies which had ostensibly helped to create this situation.
It is certainly debatable whether it was purely demand management through monetary and fiscal policy that led to many years of full employment among the richest capitalist countries after World War II. But the breakdown of the political consensus and increased social conflict in many nations amidst the stagflationary 1970s was a turning point for economic policymaking. It ushered in the era of neo-liberalism and the pre-Keynesian doctrines of laissez-faire, at least in principle. Deflation and mass unemployment in practice accompanied monetarism and new classical economics in theory. Here is an excerpt from Kalecki’s 1943 article:
“This state of affairs is perhaps symptomatic of the future economic regime of capitalist democracies. In the slump, either under the pressure of the masses, or even without it, public investment financed by borrowing will be undertaken to prevent large-scale unemployment. But if attempts are made to apply this method in order to maintain the high level of employment reached in the subsequent boom a strong opposition of ‘business leaders’ is likely to be encountered. As has already been argued, lasting full employment is not at all to their liking. The workers would ‘get out of hand’ and the ‘captains of industry’ would be anxious to ‘teach them a lesson’. Moreover, the price increase in the up-swing is to the disadvantage of small and big rentiers and makes them ‘boom tired’.
In this situation a powerful block is likely to be formed between big business and the rentier interests, and they would probably find more than one economist to declare that the situation was manifestly unsound. The pressure of all these forces, and in particular of big business would most probably induce the Government to return to the orthodox policy of cutting down the budget deficit. A slump would follow in which Government spending policy would come again into its own.”
The post-war Keynesian consensus had not even been established when this was written, so Kalecki’s ideas about the sustainability of full employment under capitalism were remarkable.
Since the 1970s, policies to weaken the power of labour, including anti trade-union legislation and a reduced level and coverage of social welfare, have arguably been too successful. They have led in many countries to a slower growth in average wages relative to productivity and the necessity of periodic credit booms to sustain consumption. All this may well have reached a head with the recession of 2008-9, the causes of which have yet to be fully resolved. The history of capitalism continues its turbulent march forward.