Unemployment, Recession and Effective Demand
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Unemployment, Recession and Effective Demand

The Contributions of Marx, Keynes and Kalecki

Claudio Sardoni

In the midst of the current world economic crisis, many claim there is a necessity to return to the Marxian and Keynesian traditions in order to better understand the dynamics of market economies. This book is an important step in that direction. It presents a critical examination of the foundations of macroeconomics as developed in the traditions of Marx, Keynes and Kalecki, which are contrasted with the current mainstream. Particular attention is given to the problem of market forms and their relevance for macroeconomics.
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Appendix C: Price Determination and Income Distribution in Kalecki

Claudio Sardoni

Extract

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 re...

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