Lars P. Syll — Kalecki on wage-led growth

Kalecki refutes Say's law, which says essentially that money is a "hot potato" and people spend or invest all of it immediately without intertemporal saving. That is to say against a strict interpretation of Say's law, choice is not anything like immediate in a modern monetary economy, and saving negatively affects consumption of consumer goods and productive investment in capital goods thereby reducing effective demand below full employment. Since private debt is a feature of a modern monetary production economic and financial system, and nominal debt does not readjust without legal restructuring, economic contraction results in non-performing loans and ultimately defaults.

"Money" is not neutral, as Say's law assumes. Wages and prices do not adjust immediately to changes in economic conditions. Adjustment can take a long time, during which further changes occur that are not conducive to adjustment in the direction of general equilibrium at optimal capacity and full employment as efficient use of resources. Of this interregnum between states, Keynes said that in the end we are all dead; instead of waiting for the market to do its magic, the intelligent way forward is to address the causes.

Say's law in its strict formulation applies only to a particular economic model that is not very representational of a modern money production economy, especially one that relies extensively on the use of credit. While this model may be useful in illustrating the operations of supply and demand in a"free market," such ideal conditions don't exist in the world owing to a variety of factors, social, political, and economic.

The classical liberal solution was to refashion the world to be closer to the ideal system, but that attempt proved itself a fool's errand socially and politically. The neoliberal solution that replaced the classical approach has been to modify the initial approach by using the power of the state domestically and in imposing international agreements in order to favor capital while mouthing the sentiments about free markets, free trade, and free capital flows. The state favoring capital and international agreements favoring capital are kept in the background as the hidden agenda while the agenda that is presented publicly is "freedom."

Lars P. Syll’s Blog
Kalecki on wage-led growth
Lars P. Syll | Professor, Malmo University