The Wartime Fragments I

While working in Cambridge and Oxford, Kalecki took issue with the Neo-Classical Wicksellian theory that the rate of interest determines the amount of investment in the economy. His studies showed only a weak effect of interest on business investment, in particular during recessions when firms were more likely to be operating with excess capacity. The short-term rate of interest would only affect velocity of circulation of money. But he also rejected Keynes’s idea that the long-term rate of interest could affect the amount of investment in the economy. Like Hawtrey, Hicks, and Shackle, Kalecki found that the long-term rate of interest does not vary much, and is therefore unlikely to be a causal factor in the business cycle.