This article provides Keynes and Kalecki expertise guide to Post-Keynesian economics.

Another feature of the Post-Keynesian theory is the difference not fully resolved between those who draw their inspiration from Keynes and those who base their work on the ideas-and work of Polish economist, M. Kalecki. It is this difference—between those who place a greater emphasis on monetary factors and those who see real factors as being important.

Minsky, Chick and Arestis built their papers on inspiration drawn from Keynes—while the papers by Harcourt, Sawyer and Skouras were based on Kalecki’s work.

The difference in their approach is one of emphasis only, and not a problem of reconciling the two different theories; as is the case of micro and macro halves of the neoclassical synthesis. Another difference is between those who follow Harrod and Sraffa and are interested in the long-period and those who draw upon Keynes and Kalecki for their inspiration and are more concerned with the short-period.


Kalecki’s work provides a better starting point than that of Keynes, for the development of contemporary macroeconomics. Kalecki’s work differs from Keynes in four important respects: on the nature of financial system; on the usefulness of equilibrium analysis; on the relative importance of political and economic institutions and ideas on the nature of competition in a developed capitalist economy. According to Prof. Sawyer Kalecki’s position on these aspects is more realistic and lays down what we call Post-Kaleckian macroeconomic theory.

Having accepted the view that there is no doubt that Kalecki provides not only a more realistic starting point for the development of an alternative macroeconomics (as against monetarism—Keynesian orthodoxy), it fits in well with many widely accepted feature of developed capitalist economies, such as mark-up pricing, investment dependent on demand and profits. Kalecki and Keynes can be given the credit of discovering the concept of effective demand; but there are strong reasons to believe that Kalecki was a couple of years ahead of Keynes in making this discovery,

However, there are differences in the determination of aggregate demand according to two writers. In Keynes, aggregate demand is the sum of consumer expenditure plus investment expenditure (Y = C + I) but according to Kalecki, consumer expenditure depends largely on wages and investment on an accelerator mechanism and profits (Y = W + P). The distribution of income between wages and profits has a role to play in Kalecki’s approach. Kalecki adopts an essentially oligopolistic view of a developed capitalist economy; while Keynes maintained an essentially atomistic competitive view of the economy.

Again, the nature of financial assets and crucial financial and real flows are looked upon rather differently; for example, for Kalecki private investment is financed by retained earnings and bank borrowing; while for Keynes it is largely financed by issue of bonds. Moreover, the views of Kalecki and Keynes on uses of equilibrium analysis are different and the relative importance to be given to political, social and economic institutions is different.


In both their approaches, there are major markets namely: the market for output, the market for labour and the market for finance. In each of these markets Kalecki adopted basically an oligopolistic view while Keynes adopted essentially a competitive view. In the output market Kalecki having adopted an oligopolistic approach feels that prices are determined as a mark-up over average direct costs, where the mark-up was determined by the degree of monopoly.

Kalecki was very clear and emphatic that the degree of monopoly determined the mark-up, and the factors determining the degree of monopoly included the process of concentration in industry……… tacit agreements………… development of sales promotion, advertising, selling agents, etc. In Keynes, prices play a more limited role than wages, while for Kalecki the position is just the opposite. Kalecki gave much less attention to the labour market than to the product market.

Kalecki did not view the labour market as atomistic competitive. In one of his papers, Kalecki wrote ‘that high mark-ups (of price over costs) ……. will encourage strong trade unions to bargain for higher wages since they know the firms can ‘afford’ to pay them. To sum up, trade union power restrained the mark-ups.

It follows from the above that the class struggle as reflected in trade union bargaining may affect the distribution of national income but in a much more sophisticated way than expressed by the crude doctrine that when wages are raised, profits fall pro tanto. Keynes, on the other hand, appears to have given greater emphasis to the labour market, particularly to money wages. Once the oligopolistic view is substituted for the competitive view, numerous changes follow in the wake.


Profits share is strongly influenced by the degree of monopoly; rather than being linked with the marginal productivity of capital. Real wages are influenced by the degree of monopoly and union bargaining power, rather than the interplay of supply and demand of labour. Imperfections in the capital market lead to retained earnings as an important element in savings, and profits as a key factor in the determination of investment.

Coming to the nature of financial system, for Kalecki, savings are largely made directly or indirectly out of profits, with savings of the labour income often taken as zero. Finance for investment comes from retained earnings, borrowing from banks and new share issues. Bonds are essentially government debt used to help finance any deficit. The money supply would appear to be largely credit money created by banks in response to the demand for loans. While in Keynes, it would appear, as a first approximation, that savings are determined by households (based on income), while investment decisions are made by firms. Keynes had a very broad and flexible definition of money in mind.

Therefore, it is difficult to establish a single definition of money used by Keynes. The precise manner by which investment is financed is not clear in Keynes, with most attention paid to the cost of finance and its impact on investment. Money is treated as exogenously determined by Keynes, the only route in which savings flows back to firms to finance investment is through the issue of bonds (though in this context bonds means a spectrum of assets).

Equilibrium analysis is another area in which Keynes and Kalecki differ. Much of the Post- Keynesian literature has stressed the importance of uncertainty, historic rather than logical time and the limitations of equilibrium analysis. The style of analysis used by Keynes is essentially one of short- run equilibrium analysis in the Marshallian tradition. In contrast, Kalecki did not use equilibrium analysis as a general tool. It can be seen that the word equilibrium does not appear in the index of Kalecki. Having noted that the theory of growth usually worked in terms of moving equilibrium, he argued that the problem of the trend growth of the economy should adopt an approach similar to that applied in the theory of business cycles.

Finally, both Kalecki and Keynes give different weights to institutional, economic and political factors as compared with pure knowledge or ideas in determining economic policy and development. While the analysis of Keynes implicitly assumes a particular institutional arrangement, he rarely discusses the influence of particular institutional arrangements. Corporations, financial institutions and trade unions might as well not exist for the attention given to them by Keynes. In contrast, for Kalecki the institutional framework of a social system is a basic element of economic dynamics.

The maintenance of full employment through government spending financed by loans has been widely discussed but this assumption that a government will maintain full employment in a capitalist economy if it only knows how to do it is fallacious because of the ignoring of institutional arrangements. Kalecki’s belief is more in the importance of institutions and interest groups on which the performance of economic policy depends. It is, therefore, appropriate to conclude that Kalecki adopts a more appropriate approach in all the fields of differences with Keynes.

Prof. M. Sawyer outlines some of the key features of alternative macroeconomics stemming from Kalecki, to which he gave the name Post-Kaleckin macroeconomics. He gave three reasons for using the term Post-Kaleckian economics. First, it informs us to stress the break with post-war macroeconomic orthodoxies in a way in which other term Post-Keynesian does not.

Second, on grounds of historical accuracy, the work of many Post-Keynesians owes more to Kalecki than to Keynes. Third, Prof. Sawyer feels that the term Post-Keynesian is used by some Post-Keynesians to cover a wide range of approaches to economics and the range of opinions expressed by members of the Editorial Board of the Journal of Post-Keynesian Economics. He says that Keynes adopted a competitive view, while Kalecki adopted an oligopolistic view.

Thus, the use of the term Post-Kaleckian can be used to signal a macroeconomic based on oligopolistic behaviour rather than competitive behaviour, within the broad range of Post-Keynesian macroeconomics. The basic ‘vision’ of the world is one in which oligopolistic managerial firms and trade unions are credited economic organisations in which money is largely credit money and financial institutions are important in influencing the allocation of finance. The approach is a mixture of building up a macro theory of the economy based on ‘realistic’ assumptions and building blocks which conform with empirical evidence.


Moreover, a Post-Kaleckian approach offers a large distinct break with a neo-classical framework and its derivations which have dominated economics this century. It offers liberation from the sterility of the Keynesian— monetarist debate over thank role of price flexibility and degree of price rigidity in the system, and offers an explanation of unemployment which does not rest on failure of prices to adjust.