ABSTRACT
In the hands of Joan Robinson, following in Kahn’s steps, imperfect competition became the means by which the Marshallian-Pigouvian apparatus could again be given generality and validity against Sraffa’s attack. No wonder Sraffa soon distanced himself from this line of research and pursued his research agenda against marginalist analysis in almost total isolation in Cambridge.5 (Marcuzzo 2001a). In the mid 1930s Kalecki, too, developed an approach based on imperfect competition within a macroeconomic analysis of the economic system. When he arrived in England in 1936 he had already worked with the assumption that in many firms per unit prime costs were in fact fairly constant over a considerable range of output changes. (Chilosi 1989, 106) The following year he moved to Cambridge and became an active participant in Sraffa’s Research Students seminar. At the end of 1938, when the Cambridge Research Scheme of the National Institute of Economic and Social Research into Prime Costs, Proceeds and Output was set up, Kalecki was actively pursuing a line of research in which firms were assumed to set prices on the basis of the degree of monopoly prevailing in each industry. In two articles written during his Cambridge period (Kalecki 1938, 1940), market imperfection is defined as a function that relates the elasticity of demand for the product of each industry to the ratio between the price charged by the individual firm and the average price of the industry. The degree of market imperfection is constant if, for each individual firm, the elasticity of demand is correlated solely with its price; otherwise the degree of market imperfection varies with the average elasticity of market demand. In the 1940 paper Kalecki drops the assumption that firms fix prices according to the equality of marginal cost and marginal revenue — as in the RobinsonKahn general framework of competition — and examines the case of firms setting the price at a point where marginal revenue is greater than marginal cost. The price is set at this particular level because each firm knows that a lower price would induce the rival firms to lower their prices, while a higher price would not make them raise it.6 In any given market, the degree of oligopoly is measured by the ratio of marginal revenue to marginal cost, which is in general greater than one. Kalecki was highly original, although at the cost of simplification, in producing a methodology to study the aggregate effects of price policy by firms in a macroeconomic representation of the economic system. (Marcuzzo 1996, 11-12). Quite rightly Joan Robinson commented in the preface to the second edition of the Economics of Imperfect Competition that ‘it was Kalecki,’ rather than herself who ‘brought imperfect competition in touch with the theory of employment.’ (Robinson 1969, viii). By contrast Keynes remained unimpressed by imperfect competition and worked his way through the General Theory without taking much notice of it. This has given rise to speculation and various interpretations have been given of why this might have been so.7 Clearly, it was not by introducing frictions and imperfections in the working of markets that he believed the assault on the ‘citadel’8 could be effective; in fact he launched on a
more radical attack on the way economic theory was being developed, as I shall argue in the next section.
