Full text: Capital Gains in Economic Theory and National Accounting

shift in distribution owing to the interest payments may and most probably 
will,however, influence effective demand in the long run unfavorably if, as is 
likely, the interest income is less readily spent than most other incomes. In 
all cases the shift to interest receivers can be avoided if the total income of 
society increases correspondingly so that relatively speaking the position of 
rentiers is unchanged. The aftereffects of a consumers'credit or a budget 
deficit will become more inconvenient if the (net) borrowing is repeated, with 
the object of holding effective demand on the same level. The income is then 
shifted more and more to the rentiers. Since the interest has to be paid out of 
the new credits these have either to be increased or the effective demand 
created will decrease. Similar effects will obtain in the case of continuing 
increase in land or other asset prices. 
If, in order to escape from these troubles, measures are taken to reduce the 
debt then this will necessarily mean a corresponding more or less drastic 
restriction of effective demand. The experience of this is nowadays familiar to 
everybody in view of the frequent instances of restrictive budget policies. The 
dilemma is, however, the same for households and corporations. 
We have drawn a parallel between the concepts of Investment and Saving on the 
one hand and "Inflationary Spending" on Assets and Realised Capital Gains on the 
other. Actually this parallel is really hardly new or strange to the Keynesian 
tradition if we think of the way in which Keynes dealt with the phenomenon of 
demand inflation ( Kalecki's opinion on the subject was the same). The logic of 
effective demand implies that in an underemployed economy additional investment 
( or budget expenditure or exports or any other additional kind of spending ) 
will call forth additional output and incomes sufficient to create the saving 
necessary to finance the investment. If, however, full or over full employment 
of resources has been reached so that additional output can not materialise then 
further additions to investment ( or other types of spending ) will exhaust 
themselves in an increase of prices and the excess profits thereby created will 
finance the investment ( or other types of spending ). Thus the identity of the 
amounts of investment and saving will again be established but by a different 
mechanism - increase of prices rather than increase in output. In the case of 
raw materials where supply is inflexible at least in the short run the price 
adjustment method is valid even in an otherwise underemployed economy. 
The view of capital gains suggested in this paper is nothing but the application 
of the same ideas to the special case of non-reproduceable or limited assets, a

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