The Wartime Fragments II

Working on government finance during the Second World War, Kalecki addressed the question of how the government can manage a rapidly growing debt. This should cause no problem because the money from government expenditure ended up in the bank accounts of capitalist businesses, so the problem of financing that expenditure is reduced to the technical one of taking that money through taxation on profits and capital to finance government borrowing. Kalecki also criticized Pigou’s attempt to resolve the problem of unemployment by price and wage deflation, pointing out that downward movements in prices raise the real value of business debt, and thereby reinforced lower production and investment.