Michał Kalecki Is the Economist We Need to Make Sense of Class Conflict

Jan Toporowski

Polish economist Michał Kalecki argued that capitalists would always resist full employment because it increases the confidence and bargaining power of workers. He was right — so right that even the Fed has now begun citing his ideas.

Strikers of the Oil Workers International Local 456 CIO picket the Dearborn Wyoming bulk station at the Socony Vacuum Oil Company in Dearborn, Michigan, on September 23, 1945. With record low unemployment, the post-WWII US economy saw a huge strike wave. (Bettmann / Getty Images)

Interview by
Daniel Finn

In an article for the Financial Times last year, journalist Martin Sandbu announced the return of class conflict as a central theme for economics. According to Sandbu, “Every downturn rekindles interest in John Maynard Keynes. This one should call attention to Michał Kalecki.”

Kalecki developed many of the ideas associated with the “Keynesian Revolution” in economics independently of John Maynard Keynes. The Polish economist is best remembered today for his celebrated essay on the politics of full employment, which has lost none of its topical value. A recent discussion paper published by the US Federal Reserve drew on Kalecki’s thinking to explain why the bargaining power of workers had declined since the neoliberal offensive of the 1980s.

Jan Toporowski is a professor of economics at SOAS in London and the author of a two-volume intellectual biography of Michał Kalecki. This is an edited transcript from Jacobin’s Long Reads podcast. You can listen to the episode here.

Daniel Finn

The name of Michał Kalecki is often linked with that of John Maynard Keynes, but the social and political backgrounds from which they came were radically different. What was the environment in Poland that shaped Kalecki?

Jan Toporowski

The environment in Poland during his childhood and youth was one of economic instability, nationalism, and antisemitism. His father was a factory owner in the city of Łódź, which was a major industrial center for the Russian Empire. In 1905, it was one of the centers for revolutionary activity in the revolution of that year. That ruined the textile business of Kalecki’s father and plunged Łódź into a twelve- or thirteen-year period of disorder. The place was rife with conspiracies.

You had the socialists, who were agitating for socialism and trade union rights, including a faction that thought that these goals would best be obtained if Poland became independent. You had a group of nationalists who believed that Poland would be best served by becoming independent in an alliance with Russia. The nationalists were fiercely opposed to the socialists, and in particular to the largest socialist grouping, the Jewish Bund. The Bund was a trade union–cum–political party that was essentially the largest socialist bloc in Poland at that time. The nationalists started an antisemitic campaign of boycotting Jewish shops and businesses.

You had all of this in the pot, on top of which there were various religious groups that were being denounced by the established churches. The Mariavites were an offshoot of the Catholic Church. They were denounced by the Catholic hierarchy. The Catholic Church was distrusted by the Orthodox Church, which largely served the Russian occupation forces. In addition, there was a total collapse of the economy, and after 1915, when the Germans took control during the war, they started removing all the machinery and equipment.

I think it was this kind of background that gave rise to a famous comment by Keynes in his work The Economic Consequences of the Peace. He said that Poland was an economic impossibility whose only industry was Jew-baiting. I once mentioned this to Kalecki’s widow, and she thought this was a most profound insight. She had me write it out and give her chapter and verse on where it came from in Keynes’s book.

Keynes had preceded this remark by saying that it held true unless Germany and Russia were stable. Independence made Poland dependent on the stability of markets in those two countries. Of course, after World War I, you had the civil war in Russia and the rise of the Weimar Republic in Germany, then Poland was hit by the Wall Street Crash. It was a most unstable and volatile situation — personally and politically volatile as well.

Daniel Finn

What was the significance of his encounter with Oscar Lange?

Jan Toporowski

He met Oscar Lange at the end of the 1920s. Both of them were working on the business cycle at that time, but Lange was clearly much more dedicated to academic economics. The dominant school in Polish academic economics was a neoclassical one, and Lange was always dedicated to the idea that market forces would bring the system to a point of equilibrium, if only those forces were allowed to work properly. Kalecki was rooted elsewhere, in business and financial journalism, which was how he got by after he had to abandon his university studies. He had a great feel for how business was conducted.

Lange’s circle and its journal, Socialist Review, gave Kalecki an opportunity to bring together the politics and the economics of the Great Crash after 1929. The meeting with Lange gave him scope to combine all this in his own political economy, which was rather different from that of Lange. Until he died, Lange thought that Kalecki’s model was an interesting one, but he didn’t realize that behind it, there was a much more profound understanding of how capitalist business operates.

Daniel Finn

What were the conditions in Poland during the interwar period that made it necessary for both Lange and Kalecki to leave the country?

Jan Toporowski

There were similar factors at work to the ones that had wrecked the business of Kalecki’s father — nationalism and antisemitism — combined with the repression of the political opposition in Poland. Lange left in 1934 or 1935; Kalecki left in 1936. By then, Poland had succumbed to a military coup.

Interestingly, it was a coup that had been supported by the Polish left because it was intended to prevent the assumption of power by a nationalist government. The leaders of the military government said that they were going to follow a sensible program of national development. However, after economic conditions deteriorated from 1930 onward, it became a much more brutal regime.

The floor of the parliament was invaded, and opposition MPs were beaten up. The opposition leaders were interned without trial. There were more and more incidents of attacks on Jews and national minorities. The government styled itself much more explicitly on the regime in Italy, which its leaders believed was solving the economic problems much more effectively than the ineffectual bourgeois democracies. This made conditions very difficult for people on the Left.

Lange wasn’t Jewish, but Kalecki was. Lange, incidentally, was always suspected of being Jewish because he was multilingual, and he had learned to speak Yiddish. This gave rise to a rumor that he was Jewish and therefore not properly Catholic. In fact, Lange was of German Protestant origin.

Lange and Kalecki both left under the program of the Rockefeller Foundation. The foundation was following a policy at the time that was very sympathetic to democratic forces around the world. There was a realization that things were getting to be very difficult for leftists in Central and Eastern Europe, in particular following the rise to power of Adolf Hitler. Lange was given a fellowship to get out, and he was followed by Kalecki. This saved Kalecki’s life because he wouldn’t have survived the events of the Holocaust in Poland.

Daniel Finn

What were the key ideas that Kalecki and Keynes contributed to what became known as the Keynesian Revolution?

Jan Toporowski

This is something that is disputed among Keynesians and Post-Keynesians, even those who are more sympathetic to Kalecki. I think they all agree that the problem of aggregate demand in capitalism was common to both Keynes and Kalecki. But the key issue is that it was aggregate demand in the form of underinvestment.

Kalecki wrote a review of Keynes’s great work, The General Theory of Employment, Interest, and Money, in 1936. It was written in Polish and not published in English until the 1980s. He pointed out that the essence of Keynes’s theory was not underconsumption but rather underinvestment. This was something that Keynes himself acknowledged, although he didn’t put it in The General Theory.

Keynes made this point explicit in a talk that he gave for the BBC called “Poverty in Plenty.” He said that his sympathies were with all the theorists who said that there was insufficient aggregate demand — figures like Jean Charles Léonard de Sismondi, Thorstein Veblen, and many thinkers on the Left. But Keynes went on to say that he had a point of difference with them. They believed that the problem in capitalism was insufficient consumption.

In many respects, this seemed obvious, because you just had to look at the poverty that was spreading during the 1930s. However, Keynes said that the heart of the problem was insufficient investment. Why was this important? Because it was the link with Karl Marx’s view of what constitutes the driving force of capitalism — the accumulation of capital. The theory of profits that you can find in the work of Marx and Kalecki is the idea that so long as capitalists are spending money on their own consumption and on investment, the money that they spend comes back to their pockets in the form of profits.

Kalecki got this theory of profits via Rosa Luxemburg’s work The Accumulation of Capital. Kalecki didn’t read very much — he didn’t steep himself in economic theory, unlike Lange — but he tended to read what was useful to him, so he read Marx and Luxemburg.

Daniel Finn

How did the economic thought of Kalecki differ from the ideas that were commonplace among the Marxists of his own time — whether or not those views were strongly grounded in the work of Marx himself?

Jan Toporowski

The Marxists of that time, and still to a great extent today, followed Marx. After Marx had written Capital, he wrote about the problem of unemployment and economic crisis, using the idea that it stemmed from the poverty and underconsumption of the working class. This was followed by most of the Marxists in the twentieth century, such as Eugen Varga and Paul Sweezy.

In Sweezy’s book The Theory of Capitalist Development, which came out in 1942, he argued that the fundamental problem in capitalism was that the capitalists did not pay workers the full value of their labor and therefore there was a problem of realizing profits. This problem, according to Sweezy, could be resolved by raising wages.

This was a paradoxical conclusion, because if capitalists raised wages, then they were raising their costs. This was pointed out by one of Kalecki’s followers, Josef Steindl, who asked: how could capitalists realize more profit by raising their costs? The answer was that they couldn’t, of course.

But if you take the view that was put forward by Kalecki, following Rosa Luxemburg, according to which profits are realized through the expenditure of capitalists on investment and their own consumption, then it becomes much clearer. You get away from the confusion that arises from believing that because the poverty of the working class is a feature of crisis and capitalist stagnation, therefore underconsumption must be the cause of that stagnation.

Daniel Finn

What did Kalecki believe that governments had to do in order to create full employment, and what social and political consequences did he expect to follow from that?

Jan Toporowski

In the first instance, he thought that there was not much scope for encouraging private investment. He dismissed the idea that had been put forward by Mikhail Tugan-Baranovsky, according to which capitalists would always invest in such a way as to maintain profits (though not the rate of profit taken as a share of the capital stock).

Kalecki didn’t think that you could encourage private investment through tax policies, subsidies, or a lower rate of interest. If you did that once, he believed, you would have to keep doing it more and more often, and finally it just wouldn’t be worth it, and you might not get a response from the capitalists. The capitalists would invest however much they wanted, rather than how much was good for the economy as whole.

For Kalecki, the real scope for creating full employment lay in the redistribution of incomes, through what he called subsidized consumption — in other words, the provision of public services, welfare payments, and to some extent public works. However, he was skeptical about public works programs. If you look at the type of Keynesianism that is fostered by right-wing regimes, it usually takes the form of public works, because they don’t want to spend the money on health, education, or welfare — which is precisely what Kalecki believed it should be spent on.

He also thought that you should have higher taxes on the wealthy. He made a very simple argument for why this was an appropriate and efficient form of taxation. If you tax the rich, they won’t notice — they’ll still maintain their standards of consumption — and they’ll get the money back anyway from the expenditure of government employees and welfare recipients. When the nurses, doctors, and teachers that you employ spend their money, who’s going to receive it? It will go back to the capitalists.

From this perspective, higher taxes on the wealthy are simply a way of churning the money of the rich to ensure that it’s actually being spent. There is a tendency among the rich to hold on to their money in the form of liquid assets, as we can see in the United States or Britain today, rather than spending it as much as is needed to maintain high levels of employment.

Daniel Finn

Did Kalecki believe that full employment was compatible in the long run with a capitalist economy?

Jan Toporowski

Not really. He thought there would always be resistance from the capitalists, in particular big business, which has a disproportionate political influence. Big business would resist full employment because it would tend to undermine work discipline in the factories. At the same time, if you did get high employment, there would be a growing confidence of the working class, which would precipitate a political struggle over full employment and over the influence of workers and their organizations within society.

You had this phenomenon during the postwar period, when there were high levels of employment, where workers’ organizations were consulted over government policy. With mass unemployment, you don’t need to consult the workers. The workers will do what employers tell them to do because they need the jobs. Full employment, Kalecki believed, would precipitate a political struggle, not only over full employment itself, which the capitalists would denounce as inflationary, unsound, and bad for business confidence, but also because a regime of full employment would tend to strengthen working-class organizations, which would be sympathetic to socialism.

Daniel Finn

How did Kalecki evaluate the policies that were put into effect by governments in Western Europe and North America after 1945?

Jan Toporowski

Having been one of the leading proponents of full employment policies and having laid out the necessary fiscal and monetary conditions for full employment during the war, Kalecki became quite disillusioned with what actually happened, particularly with the rise of McCarthyism and anti-communism in Western Europe and North America. He observed this phenomenon firsthand, because he was working at the United Nations in New York when the UN authorities allowed the FBI to have access to their premises, which were supposed to be under diplomatic immunity.

Ostensibly, the FBI were only reporting on American citizens, but in fact they were reporting on many more people as well. I know this because Kalecki and Lange were both at the UN and I have their FBI files. There’s a lot of stuff there about how they were observed.

Kalecki reached the conclusion that while there was a period of high employment, this was achieved through the arms race and through the taxation of workers, so workers didn’t benefit all that much from high levels of employment. Their living standards did not rise very much. Rationing continued after the war. In the UK, it continued until the mid-1950s.

Kalecki believed that high employment during the Cold War was achieved through military Keynesianism — though the arms race and through wars that were paid for by higher taxation, which was not necessarily all that progressive. In fact, this situation was damaging to the economies of those countries that came to be dependent on arms. For Kalecki, the economies that really benefited from it were Germany and Japan, which had their production of arms restricted after the war. This meant that they had no alternative but to engage in civilian production and develop new technologies.

Daniel Finn

What relationship did Kalecki have with the postwar Communist authorities in his native Poland? What proposals did he make for the management of a socialist economic system?

Jan Toporowski

His relationship with the postwar Communist authorities started off being quite positive. He was sympathetic to the idea of postwar reconstruction, stabilizing the economy, introducing land reform, and reconstructing the economy under state control. But he really disapproved of the attempts to industrialize in an accelerated fashion during the Stalinist period. He pointed out that if you have these kinds of grandiose industrialization pushes, such as happened in the late ’40s and early ’50s in Poland, you end up creating shortages of consumption goods.

For Kalecki, the planned economy should make a priority of consumption, because that way you would maintain the confidence of the working class in the socialist system. Kalecki was not in Poland during the Stalinist period, which effectively came to an end in 1956 with a change of leadership. But afterward, there was a tendency for the Polish Communist authorities to go back to grand industrialization schemes to shore up their political support. During the 1960s, this gave rise to recurrent “meat crises,” as they were known — shortages of basic consumption goods.

Kalecki criticized this approach heavily. He did so from a different angle to that of Oscar Lange and his followers. Lange believed that you could resolve the problem simply by allowing prices to rise, with central planners using their control of prices flexibly to balance out supply and demand in consumer goods markets. Kalecki pointed out that the problem wasn’t one of prices, but rather one of overambitious investment, which was directed too much toward heavy industry, when it should have been directed toward what workers and their families wanted to consume.

This argument became something of an irritant to the Communist authorities. The economic problems got worse, and so, too, did the political problems, because there was rising discontent throughout the 1960s. In 1968, the Communist leadership tried to head this off by launching a campaign, arguing that the Stalinist leftovers in the Communist Party were the real problem.

This campaign highlighted the fact that many of these Stalinist leftovers were Jewish and claimed that the problem was one of a minority in the party and in Polish society who were not fully committed to Poland because they were Jewish. There were antisemitic purges: a lot of good, loyal Polish citizens were expelled from the country. Kalecki was elderly by then, and he was so famous that he couldn’t really be touched, but his research groups were dismantled.

He became very disillusioned. At one time, he believed that the CIA must have been behind this antisemitic purge, because it was so obviously not in the interests of Polish socialism. Shortly afterward he had a heart attack, and he died in 1970. He died, I think, in rather sad, disillusioned circumstances.

However, Kalecki left us with a legacy and a critique of capitalism and socialism that is certainly worth coming back to. He understood how business works much, much better than many economists do today.