Chapter 13: Kalecki’s Theory of Income Distribution: The Answer to a Maiden’s Prayer?
1 Anthony J. Laramie, Douglas Mair and Peter J. Reynolds In short, Kalecki’s formulation is not the answer to any maiden’s prayer. (Bronfenbrenner, 1971, p. 411) INTRODUCTION As our opening quotation suggests, Kalecki’s theory of income distribution has not met with universal endorsement. The most persistent criticism that it is a tautology is a canard that Kalecki himself as well as more recent commentators denied (King and Regan, 1976). However, there are still weaknesses in Kalecki’s theory that need to be addressed. A problem identiﬁed, for example, by Mitchell (1988) and Sawyer (1999), is Kalecki’s failure to furnish in Theory of Economic Dynamics (1954) a satisfactory explanation of the process by which the price/cost mark-ups between competing ﬁrms are established and maintained. In Kalecki’s theory, the price/cost mark-up is an important determinant of the degree of monopoly and, hence, of the distribution of income. Kalecki’s failure to provide a convincing explanation of this process weakens his theory. Mair and Laramie (forthcoming) have proposed a solution that we discuss below. A second criticism, which is the focus of this chapter, is Kalecki’s failure to adduce empirical evidence in support of his theory (King and Regan, 1976). In light of what we consider to be fundamental weaknesses of the marginal productivity theory of income distribution – the Cambridge controversy and all that – it is all the more important to demonstrate that Kalecki’s theory can be tested empirically. An early attempt was Reynolds (1983) and in this chapter we seek to improve on...
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