A Minsky-Levy-Kalecki Model

Introduction

The introductory lecture in macroeconomics introduces the student to the breakup of GDP into consumption goods and investment goods. Thereafter, a representative agent is assumed to drive the consumption stream by maximizing her utility over time. Income not consumed is saved and then invested. Bounded rationality might be introduced and, lately, agents are behavioral in the models. Macro is founded on micro. Michal Kalecki drew attention to the dual breakup of national income into wages and profits. Backing each are classes this time, wages and capitalists that connect with the data. The connection with the textbook division of GDP into consumption and investment is the subdivision of the former into the consumption of Basics by the working class and the consumption of Luxuries by the capitalist class and, correspondingly, the division of the Investment Goods Department into capital goods used as inputs in Basics and Luxury Goods production respectively. The research programme is progressive as scholars worry about the collapsing of both classes into a rentier class. Workers who cannot find jobs are forced to flip their miniscule assets. Capitalists find it more lucrative to speculate in financial markets rather than produce and invest in the goods market. The aggregates are manipulated to derive theorems like the realization problem of Marx or, equivalently, the problem of effective demand of Keynes.

Money in Kalecki was implicit, at best, with no more than the rate of interest figuring in the development of the theory. However, the identical starting point above is the launching pad of the theory of the monetary circuit actively researched mainly in Italy and France (Cencini, 2017, is a summary in a festschrift to Bernard Schmitt, the pioneer of a school in France). In short, the macroeconomic identity referred to must be underwritten by the advances of money that back the wages paid out to workers that produce goods and services (Mallorquin, 2019). The circuit is opened by the visit of the manager of a firm to a bank or a bank that ferrets out a profitable idea from the population of entrepreneurs and pursues it. New schemes or novel ways or green technologies will not possess probability distributions nor meet credit norms. Indeed, capital adequacy norms like those of Basel II have acted as an incentive opposite to truth telling as banks subvert them to preserve their bottom lines (Goodhart, 2018).The bigger the banks the harder they are falling in our times and the handshake between local and community bank manager and the environmentally-kind businesswoman, for instance, must be strong. In the Minsky archives at the Jerome Levy Institute in New York, numerous jottings will be found where the skills of scrutiny and audit of the bank manager are emphasized. When the credit line is drawn upon through an overdraft facility, the “first moment” in the circuit is initiated in the terminology of Schmitt. Production takes place and Basics, goods consumed by workers in the production process, are sold. The “second moment” is concluded. The sales circle back as revenues to firms who proceed to repay their loans to banks. The “third moment” is the closing of the accounts. The savings of workers and the financing of capital goods must be recorded in separate accounts in banks or financial institutions. Nothing in the account predisposes the adjunct ‘commercial’ or ‘central’ to the bank. In fact, Central Banks (CBs, hereafter), relatively young entrants on to the arena of production and finance, emerged from the community of commercial banks of longer standing as a result of the exigencies of extraordinary circumstances like the aftermaths of wars. CBs were leaders of the pack of banks and the connection between the two remained intimate and constructive, devoted to the joint primary task of screening and monitoring the writing up and drawing down of credit balances.