The Contributions of Marx, Keynes and Kalecki
Appendix C: Price Determination and Income Distribution in Kalecki
Kalecki’s analysis of the determination and variations of the wage share is based on his analysis of price formation. He assumes that imperfect competition prevails in the industry and that prices are cost-determined. In agriculture and in the production of raw materials, competitive conditions prevail, so that prices are demand-determined. C.1 PRICE DETERMINATION Individual industrial ﬁrms, which are not assumed to maximize proﬁts in ‘any precise sort of manner’ (Kalecki, 1965, p. 12), ﬁx their prices by applying a mark up to their average prime cost by taking account of the behaviour of ‘contiguous’ ﬁrms, that is ﬁrms that produce similar goods. If u is the unit prime cost (the unit wage cost plus the unit cost of raw materials), the ﬁrm ﬁxes its price by taking account of u and the prices ﬁxed by all the contiguous ﬁrms: p = mu + np ¯ m, n > 0 p is the weighted average of the prices ﬁxed by all the ﬁrms producing similar ¯ goods. If u increases, p can rise in the same proportion only if also p rises in ¯ the same proportion as u. The values taken by m and n reﬂect what Kalecki calls the degree of monopoly, which is increasing in the values taken by the ratio m/(1 – n) (Kalecki, 1965, pp. 13–4). The average price for the whole industry can be written as p=m –n ¯ ¯ ¯/(1 ¯)u with m /(1 – n reﬂecting the degree of monopoly in the industry.1 ¯ ¯) (C.2)...
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