From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Wed Aug 22 2007 - 02:15:22 EDT
Hi Paulo, You wrote: Honestly speaking, I donīt understand how capital gains can increase aggregate profits! What is it that you do not understand? In the USA, total realised capital gains declared for tax purposes amounted to a positive income of about 6.5% of GDP in the year 2000, i.e. more than twice the average annual increase in real GDP. Suppose there is a strong demand for dwellings (through demographic pressures, cheap credit etc.) then obviously more dwellings will be built. In addition, however, it is likely the prices of existing dwellings will rise. In this situation, an individual house-owner can easily keep buying and selling existing dwellings on own account at a profit. Possibly the transactions might involve some surplus labour from companies or institutions facilitating the deals, but the bigger part of the profit the house-owner himself makes, cannot be attributed to surplus-labour at all. Because this particular type of profit income is regarded as "property income" from the point of view of the product account, and does not involve value-adding production, it is theoretically excluded from Gross Output and GDP (well, GDP does include the "imputed rental income of owner-occupied dwellings" that would accrue if the dwellings was rented at current market rates, a component that will increase if more homes are owned rather than rented). A profit is made, but it is not attributable to surplus-labour. The circuit in this case is not M-C...P...C'-M' but C-M-C' or M-C-M' depending on whether you start with owning a house or with owning capital to buy a house with, which, in an aggregate sense, is a redistribution of capital. I suppose you could then argue, that the capital gain of one person must be the loss of another, the two cancelling each other out, but if the housing stock as a whole increases in value beyond the additional value of the new dwellings built, the total net capital gain is positive. Jurriaan
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