Return of the Kalecki principle

The Bauer/Grossmann interpretation of Marx s reproduction schema can be contrasted with our alternative perspective in which the role of money provides the focus of analysis. For Kalecki (1991c 241), it is capitalist investment and consumption decisions which determine profits, and not vice versa . In the Grossmann approach, however, capitalist consumption is a residual left over once capitalists have decided their production of surplus value, out of which new constant and variable capital are allocated. The capitalist consumption portion of surplus value is not determined by the amount of money advanced at the start of the production period, but by the portion left once production has been completed. 

Using Marx s reproduction schema, Kalecki derives an aggregate relationship between profits and capitalist expenditures.2 As demonstrated in Chapter 3, under the assumption of zero savings on the part of workers, an aggregate identity is established between profits, capitalist consumption and investment, which is shown as 

This equation shows clearly how the Kalecki principle works, with profits determined by capitalist expenditures. Since capitalists can only choose what they spend and not what they earn, they as a class determine by their expenditure their profits and in consequence the aggregate production (Kalecki 1991a 25). 

To explore how the Kalecki principle can be applied to Grossmann s numerical simulation, we can first show how equation (7.1) relates to Table 7.1. In year 1, total profits of 100,000 consist of 75,000 units of capitalist consumption together with 20,000 constant capital and 5,000 variable capital 25,000 units of investment in total. Hence the identity 

Kalecki pays particular attention to the structure of capitalist consumption, defining the constant part as B0 and the part which is dependent on profits according to the proportion A. Hence 

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