Kalecki and Unemployment Equilibrium.

• Author: Konz, Jeff M.

Since originally published, the aspects of Kalecki's economics that have received the most attention are markup pricing and his theories of the macrodynamics of business cycles. Sebastiani argues that a core component of Kalecki's economic thought is the theory of effective demand and unemployment equilibrium, acting as a linkage between markup pricing and business cycle analysis. The aim of this book is to systematize Kalecki's analysis of effective demand and unemployment equilibrium, as a contribution which stands apart.

As is well documented, the origins of the notion of effective demand and the possibility of unemployment equilibrium can be traced to several different sources, most notably Kalecki, the Stockholm School, and, of course, Keynes. Questions of priority aside, this is a classic example of simultaneous and independent discovery in science. Sebastiani observes that there are distinctions between these sources, especially between Kalecki and Keynes, regarding the sources of unemployment equilibrium and the implied solution to the problem.

Sebastiani's first chapter is a lucid and insightful study of Keynes's and Kalecki's theories of effective demand in relation to one another. Both propose that income adjusts to effective demand, and that this position of macroeconomic equilibrium may not be at full employment. However, they offer very different reasons for this outcome. The Keynesian story is well known. Kalecki sees the root cause as lying in macrodistribution. The factors which determine the division of output between labor and capital also determine the level of effective demand. These distinct origins give rise to distinct solutions; for Keynes, the solution is to increase effective demand directly, either through increasing investment (either public or private incentives) or through fiscal policy, while for Kalecki, the solution lies in changing the macrodistribution. As Sebastiani points out, increasing the share of output to labor is essentially shifting income to a class which consumes more of its income, thereby increasing effective demand. A plausible solution to unemployment equilibrium is then to induce changes in the macrodistribution through appropriate intervention.

Sebastiani considers the institutional dimension of this policy proposal by following Kalecki's "Political Aspects of Full Employment."(1) Sebastiani highlights Kalecki's belief that full employment is fundamentally incompatible with capitalism...