Full text: Capital Gains in Economic Theory and National Accounting

It is one of the peculiarities of our very peculiar subject that it takes very 
little notice of capital gains. The national accounts do not know them at all 
and economic theory has very little if anything to say about them. The reason? 
Well, the national accounts have two limitations which together prevent any 
consideration of the matter: They do not deal with assets, and they consider 
only the relations of flows taking place in one and the same year, not relations 
of flows in different years. ( This is inevitable because the system of 
identities refers to one given period ) . If they did we should find that the 
gains of estate speculators are paid out of the rents or interest on the 
mortgage of home dwellers in later years and it might then be possible to regard 
realised capital gains as a special kind of transfer incomes ( the rent or 
interest paid by the home dweller services a loan which bought the land and from 
which the speculator's gain was paid ) .As it is, all the accounting identities 
must refer to one and the same period. On the other hand, as far as theory is 
concerned the prevalence of equilibrium ideas somehow deflects the interest from 
facts which from this point of view may appear abnormal or unessential. 
But if you consider how vastly the value of the urban land has increased in the 
course of modern capitalist history and is still increasing all the time you 
wonder at the oddness of our modern economics which manages practically to 
ignore the theoretical relevance of capital gains for the distribution of income 
in the long run and for the accumulation of credit instruments which finance 
them in the short run. The astonishment gets even greater if we think of the 
casino society in which we live and the hausse and capital gains it has produced 
in the 80s. The shares are not as difficult to reproduce as land and works of 
art but are not as promptly reproduced as manufactures, so that they are liable 
to great price fluctuations and also to a long time trend increase in value 
reflecting the accumulation within the firm. Again very unlike manufactures are 
raw materials and agricultural produce which therefore give rise to price 
movements and speculative gains. 

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