Re: [OPE-L] surplus labour and aggregate profit (reply to Paulo Cipolla)

From: Francisco Paulo Cipolla (cipolla@UFPR.BR)
Date: Thu Aug 23 2007 - 08:26:27 EDT

Hi Jurrian:
I understand your point but am afraid that is not the end of the story for. If
those capital gains represent a larger demand either upon consumer goods or
capital goods for which there is no extra supply then  prices will increase
whippinp out those  "profits". This seems to make sense since speculation is
usually based on a restriction of supply.


Jurriaan Bendien wrote:

> 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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