[OPE] No rise is s/v? Kliman's empirical work on the falling rate of profit

Paul,

The short answer is that because of the way that profit income is grossed
and netted in order to obtain the factor income which is a component of
value-added, a fraction of business income is disregarded (transfers,
property income, capital gains, a fraction of real net interest receipts)
and the national accounts total does not equal the real total profit income
actually realized. Added to this is the fact, that a chunk of profit only
surfaces in tax havens abroad. This means that true generic profit income is
in fact greater than reported gross profit in the product account. I have
already described this on OPE-L many times.

The assumption of Marxists is that value-added is a valid measure of the
value product, and that consequently by deducting wage payments from it, we
must obtain a valid measure of the surplus-value component of the value
product. But since each component of value-added is itself a magnitude
involving an adjustment of the real payments involved to make them, to
conform to the macro-concept of value-added, and since value-added excludes
a portion of business income which is regarded as unrelated to production,
this assumption is false.

We can only obtain a more accurate measure by adopting an alternative method
of grossing and netting, working from the base data insofar as they are
available to estimate the aggregates. To my knowledge, no Marxist ever did
that,

- partly because the base data are often not available for study
- partly because there is no agreement about the estimation procedures and
the numerous adjustments and estimates which must be constructed.
- partly because it takes very comprehensive and detailed knowledge of the
meaning of the data and their limitations.

As regards capital gains, I can make a few comments.

In fiscal 2006, the US IRS reported that taxable net capital gains realised
by "individuals" in the US were $789.8 billion (13.4 million tax returns)
and there were 8.6 million tax returns reporting a tax-assessable net
capital loss of $18.7 billion. The major share of the capital gains are
realized by the top quintile of households classified by income size.
According to the CBO, 85% of the US personal income from interest,
dividends, rents, and capital gains was received by the top quintile in
2005.

If we deduct 2006 capital losses from capital gains for individuals, we get
a positive macro-economic gain of $771.1 billion. Since US GDP in 2006 was
$13.4 billion, the income of realized capital gains by US individuals is
equal to about 5.7% of GDP but it is obviously not included in GDP,
precisely because it isn't net value added.

Of course, corporations also realise taxable capital gains - quite
independently of their interest, rent, royalty and dividend net receipts -
and if we total the netted sums (gains reduced by losses) of those specific
(tax-defined) taxable capital gains we get about $240 billion. About 40% of
that is received by the biggest corporations ($2.5 billion of assets or
more).

If you add individual and corporate capital gains, narrowly defined,
together, you get one trillion US dollars of taxable income from capital
gains realized in 2006, or an amount equal to 7.5% of GDP.

But since we also have to factor in tax evasion and avoidance, tax
exemptions and "hidden" or unrealised capital gains, the true net capital
gains must be significantly more than that. In the US, for example, if a
couple makes a $500,000 capital gain on the sale of the house in which they
lived 2 out of 5 years before the sale, it's tax exempt income. It is very
difficult to get any accurate measure of the total, but it could well be an
amount of income equal to about 10% of GDP, or more. The significance of
this is not so much the gain in asset values involved itself, but the
additional income the asset gains generate - income which is spent and
accumulated.

By the time that we are talking about such large magnitudes, it is clear
that fluctations in annual GDP simply do not tell us so much anymore about
economic growth, incomes or capital accumulation, since we are dealing with
a parallel circuit of capital gains generating real income, which feeds back
into the circuit of production indirectly. If in addition to this,
individuals and businesses obtain very significant additional purchasing
power from borrowing capital, then a whole circuit of income and expenditure
emerges which is quite unrelated to the income generated by production and
disproportional to the real value of output being created. This fuels the
discussion about the difference between "real economy" and "financial
economy".

In general you can say that, if outputs and markets grow fast, capital gains
grow exponentially faster. If output growth and markets decline, capital
gains will also decline, but not in the same proportion. I have done some
calculations about this in 2004. In 1980, for example, taxable US net
capital gains of individuals were $32.7 billion (1% of GDP) and in 2000
$644.3 billion (6.4% of GDP). In nominal terms that is a 20 times volume
increase for 1980-2000. But we should adjust for price inflation - the 1980
figure then becomes $68.3 billion expressed in 2000 dollars, in which case
the real increase is just over nine times, in real terms (while the CPI
index only a bit more than doubled). Of course, there have been some changes
in tax legislation. In particular, the US Tax Reform Act 1986 repealed the
exemption of longerm capital gains from tax, but the effects on the long
term trend of taxable capital gains aren't very significant.

Jurriaan

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Received on Sat Oct 24 10:45:27 2009