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

Description:: The national accounts do not know capital gains as they do not deal with assets and consider only the relations of flows in one year. Steindl states that modern economics manages practically to ignore the theoretical relevance of capital gains. Steindl argues that a rise in land or share values creates savings just like real investment and that the exclusion of capital gains from national accounts has led to glaring misinterpretations of the data (distortion of the savings rate). He suggests to introduce separate accounts for capital gains, consumer's credit and investment. Furthermore he explains the macroeconomic implications of creating capital gains.

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

Related work:: Steindl, Josef: Capital Gains in Economic Theory and National Accounting. In: Banca Nazionale del Lavoro Quarterly Review, Vol. 51, Issue 207, December 1998, S. 435-449

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

Access:: Free access

and the service he enjoys is simply equalled to the fictitious rent. In a spirited criticism of this procedure Kopcke-Munnel-Cook (1991) have pointed out that the "income" of the house owner is underestimated in this way and that anyway part of it should be regarded as investment and not consumption so that the procedure of NIPA leads to a substantial underestimate of saving. This criticism is well taken but I would prefer to go further to what seems to me the root of the evil. The owner-occupier as such is not a business man and while we may not be able to avoid fictitious and arbitrary figures in the accounts we must at least strive to limit them if possible. I therefore suggest that we measure consumption as in other cases by the spending of the consumer which we have only to spread over a number of years in this case. The stream of consumption is calculated ( like depreciation but with a rather different meaning ) by distributing the purchase price of the house over the whole of the useful life. We have to introduce then a separate ACCOUNT FOR OWNER-OCCUPIED HOUSES which on the left hand side will show the spending of consumers on houses in the given period; on the right hand side it will show the stream of "use value" measured by depreciation of the whole existing stock of such houses. The remaining balance of the account will represent the investment (equal to saving ) of consumers in housing ( this is independent of the manner of finance - by mortgage or otherwise). Quite properly this investment will be the difference between the stream of current use and the spending on new houses. The question arises now whether we ought to adjust this flow of "use value" to inflation in the way which the NIPA does with depreciation. If we want to base our estimate of consumption on the actual spending there is no need for such an adjustment. As T. Scitovsky ( 1987 ) argued, home-owning is not a business and the owner is normally not concerned with keeping his capital intact; if he were he would have to consider the appreciation of housing value, too. The durable consumption goods might in principle be treated in the same way as houses; spending on them would be regarded as investment as is done by the Flow of Funds. In the sketch of accounting relations which is represented in the tables p. I have chosen a mixed treatment which is unsystematic but may serve some practical purposes: I have regarded the durable consumers goods as investment only in so far as they are financed by consumers credit, the remainder are treated as consumption as before. This is a compromise between the old way and a recognition of the similarity which to some extent exists between the durables in consumption and those in business. I want to go back now to the question of capital gains and consider the case of pension funds which is most important in this context because it is here that

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