Full text: Capital Gains in Economic Theory and National Accounting

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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