Kalecki and the Grossmann Model of Economic Breakdown

Henryk Grossmann radically changed the course of Marxist economics with his 1929 adaptation of Marx's law of the falling rate of profit. By a simple extension of Otto Bauer's simulation of Marx's reproduction schema, Grossmann demonstrates that accumulation leads to a shrinking pool of surplus value and eventual economic breakdown. It can, however, be argued that once the role of money is taken seriously in Marx's reproduction schema it is no longer possible for accumulation to swallow up all the available surplus value. By identifying the role of the Kalecki principle in Marx's schema, that capitalists earn what they spend, a modified simulation of the Bauer/Grossmann model is developed in which there is no precise mechanical breakdown. This approach leads to a focus, in interpreting Marx's law of the falling rate of profit, on problems of realization associated with an increasing mass of surplus value.