G. L. S. Shackle, Review of Studies in Economic Dynamics, by M. Kalecki (1944)

Shackle’s review assesses Kalecki’s essays through their conjunction of theoretical economy and empirical explanation. Moving from interest rates to distribution and then to the business cycle, he praises the construction of powerful models from simplifying assumptions while asking whether their statistical tests and behavioural premises sustain their explanatory claims.

The author's gift of producing, with extreme economy of argument, an elegant and fruitful theory, and straightway confirming it with statistical evidence, gives to these essays a quality which one may almost call dramatic.

The essay on short- and long-term interest rates provides Shackle’s strongest example. Two linear functions explain nearly a century of observations; exceptional circumstances account for the few departures from the regression lines. More importantly, substantially different regression coefficients would imply absurd values in the theoretical equation. Shackle thus values the evidence not simply for fitting the theory, but for exposing it to possible failure.

Thus the statistical test to which he has submitted his hypothesis is one which could have disproved it, had it been wrong in certain respects: but, on the contrary, the hypothesis passes this test with striking success.

His approval remains qualified: the division into historical intervals may improve the fit through some arbitrariness, and the scaling of financial circulation deserves fuller justification. Turning briefly to Costs and Prices, he highlights Kalecki’s explanation of the wage share under incomplete plant utilisation through market imperfection and oligopoly, although he finds its statistical support less compelling.

The review’s largest section examines the essay on the “Pure” Business Cycle. Shackle reconstructs the conceptual movement from equations describing direct psychological links—such as consumption responding to earlier profits and investment decisions responding to earlier economic changes—to a differential equation in investment alone. Elimination replaces those direct links with mediated causal relations between investment levels and their rates of change at different dates. He admires both the ingenuity of the assumptions and the intellectual discipline required to reconstruct the resulting model.

In order to assess the relevance, as distinct from the beauty, of the model, it is necessary to consider very carefully just what the various assumptions involve.

This distinction governs his criticisms. Without declaring the assumptions unrealistic, Shackle requests stronger support for a parameter restriction and for the proposed short combined time lag. He accepts that coefficient (a) gathers numerous influences into a single expression: further algebraic elaboration might obscure more than it clarifies. But he questions an explanation of its behaviour that attributes to entrepreneurs an awareness of the cycle and confidence in its regularity. Such knowledge cannot safely be assumed across historical periods or generations.

His final technical objection concerns coefficient (e), linking changes in working capital and stocks to changes in profits. Against Kalecki’s suggestion that a slump lacks a force reducing this coefficient and ensuring reversal, Shackle proposes a material limit: neither stocks nor working capital can fall below zero. The objection shows how his scrutiny moves from algebraic elegance back to the economic conditions represented by the symbols.

Any economist who is asked "What can economic theory do by way of explaining actual concrete facts?" would do well to point out these essays.

The concluding endorsement gives the review its broader significance. For Shackle, Kalecki demonstrates the explanatory reach of economic theory when economical construction is joined to empirical testing. His reservations sharpen that judgment by distinguishing successful simplification from insufficiently supported assumptions about timing, expectations, and the limits of contraction.