The Innovation Rate and Kalecki's Theory of Trend, Unemployment and the Business Cycle

This paper reconsiders the post-1943 versions of Kalecki's theory of the cycle and the trend of a capitalist economy which is free of any government involvement and in which labour supply is expanding. Kalecki's proposition on the central role of innovations in preventing the trend rate of unemployment from increasing is shown to apply only to the case when investors react slowly to changes in profitability (capitalists are cautious) and when, in addition, innovation-induced investments are low, either because innovations are rare (capitalism is sluggish) or because firms that do not innovate can still survive (captialism is poorly competitive). The reason for Kalecki's too general a proposition is shown to be his incorrect analysis of the stability of the trend growth rate of output. This paper offers new stability analysis as well as some extensions of Kalecki's theory. The reported results make his models richer and place them closer to the mainstream of macroeconomic theory.