Theories of Financial Disturbance

Theories of Financial Disturbance

An Examination of Critical Theories of Finance from Adam Smith to the Present Day

Jan Toporowski

Theories of Financial Disturbance examines how the operations of market-driven finance may initiate and transmit disturbances to the economy at large, by looking in detail at how various economists envisaged such disturbances occurring.

Chapter 11: The Principle of Increasing Risk III: Michal Kalecki and Josef Steindl on Profits and Finance

Jan Toporowski

Subjects: economics and finance, financial economics and regulation, post-keynesian economics


Josef Steindl worked with Kalecki in Oxford during the Second World War and was to regard him as the seminal influence on his work. Indeed, so great was Kalecki’s influence that, in comparing their work, it is difficult to identify where that influence gave way to Steindl’s own ideas. In his early papers, ‘On Risk’ and ‘Capitalist Enterprise and Risk’, Steindl put forward the Breit– Kalecki principle of increasing risk, and suggested that it leads to ‘capitalwastage’ in small enterprises. However, in the second of the two papers he touched upon an issue that was to become a distinctive theme in his later work. He suggested that in the joint stock system, ‘over-capitalization’ or the issue of stock in excess of ‘the cost value of real assets’ is used to give ‘inside’ shareholders controlling the company a higher rate of profit and a greater influence over the company vis-à-vis ‘outside’ shareholders. In his first book, Small and Big Business: Economic Problems of the Size of Firms, written as a critique of the Marshallian theory of the ‘representative firm’, Steindl returned to the principle of increasing risk as a factor limiting the effectiveness of lifting the financing constraint on small businesses. He also noted that ‘overcapitalization’ leads to the understatement of the rate of profit on the actual capital of big companies.1 1. MONOPOLY CAPITALISM AND INFLEXIBLE SAVING Steindl’s second book was his classic study of American monopoly capitalism in the six decades before the Second World War, Maturity and...

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