Capital Gains in Economic Theory and National Accounting

Steindl, Josef

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Document type:: Works

Collection:: Josef Steindl Collection

Title:: Capital Gains in Economic Theory and National Accounting

Author:: Steindl, Josef

Scope:: Typoskript, 13 Blätter, mit handschriftlicher Ergänzung auf Seite 1 sowie handschriftlicher Paginierung (beides nicht vom Verfasser)

Year of publication:: 1992

Language:: English

Note:: Der vorliegenden Text wurde post mortem (1998) mit geringfügigen Änderungen publiziert.

Topic:: Economic history,economic theory,current developments

JEL Classification:: E22 [Investment, Capital, Intangible Capital, Capacity] E01 [Measurement and Data on National Income and Product Accounts and Wealth, Environmental Accounts]

Shelfmark:: S/M.78.1

DOI:: https://doi.org/10.48671/nls.js.AC14446488

When Kalecki analysed the relation between investment and national product (the multiplier ) he always worked in real terms. (Keymes aimed at the same result by his use of wage units ). He assumed that prices of investment and of consumption goods changed at the same pace so that no practical problems would arise (Kalecki 1990, p.259 ). What were his reasons? I think his general method was to separate the analysis of real term movements and price movements since no doubt a simultanous treatment of both problems might produce difficulties. But the assumption of constant relative prices does not always hold. After world war II the prices of investment goods had risen in comparison to those of consumer goods. In the late 80s the opposite movement can be observed. It seems quite natural to apply a multiplier in terms of money rather than in real terms and the regression would hold equally well. This implies, however, a remarkable step in the theory. Saving is needed, then, not only to finance real investment but also to finance a relative increase in the prices of investment goods. If that is accepted it is logical that we should take another step and admit that also an increase in the price of land or of shares whenever they change hands should require and therefore should produce savings to finance the appreciation of these assets. A hausse in land or share values would then create savings just like real investment. How does it work? Let us assume, to start with, that all transactions in land are financed by bank credit. The buyer of land who is motivated by expectation of hausse will pay a higher than the usual price for it. He finances his purchase with bank credit. The seller of the land will use the proceeds of his sale in order to pay back the credit he had taken when he in turn bought the land. But since he had paid less than he has now received he has got a surplus, his realised capital gain. And the banking system is left with an addition to its credits outstanding, so there is clearly an expansion of credit. Even though there is nothing of substance behind this additional credit it will create effective demand just as if there were. The seller of the land may be assumed to hold his gain in the first place in form of short term assets. In this way the saving created is evident. He may then use his gain for consumption (or if it is a corporation, for paying out dividends ) or for real investment or he may buy bonds. In so far as he consumes this will create a multiplier effect leading to the creation of an equal amount of saving. This is analogous to the effect of consumers * credit. In both cases the consumption does not arise from the circulation of income but rather like an exogenous influence comes from outside ( analogous to investment ).

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