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

From: wpc <>
Date: Sat Oct 31 2009 - 16:12:03 EDT

I agree with the general thrust of this. Dave and I are arguing a
similar case in a paper submitted to Science and Society.

Jurriaan Bendien wrote:
> Paul,
> You are certainly correct in the sense that national accounts seek to
> measure the income & expenditure which reflects the value of the net
> new output produced and the net new capital formation of investments.
> That is precisely why, for example, the NIPA's exclude the
> realised "net gains of sale of property" by corporations in
> calculating the profit volume (in 2006, the last year for which data
> are available, those realised net gains were estimated in the
> US at $281.5 billion or 5.6% of GDP - see NIPA table 7.16). The
> central argument for doing this, is that such gains do not add net new
> value to the economy. But this does not mean that the profit income
> does not exist. The real income of financial institutions for
> example is understated in the product account, because, effectively, a
> chunk of that income is treated as a capital gain.
> From the IRS point of view, real incomes and expenditures are
> understated or overstated because of tax law, but from the NIPA point
> of view, they are additionally understated or overstated because of
> the concept of value added. This leads to a series of adjustments to
> bring the incomes and expenditures into line with the central concept
> of value added. But that just means that profit from capital gain or
> transfers is excluded, and some imputations are made.
> You can validly argue that if I buy an asset for $1 million and I sell
> the asset to you for $1.2 million, the $0.2 million which is my profit
> income from the transaction does not "create new value", because the
> asset is the same asset, and I haven't added anything else that is
> new to the economy.
> Nevertheless, (1) I now own an additional $0.2 million to spend,
> invest or borrow more money with, but more importantly (2) the asset
> itself is now revalued, because ceteris paribus its market value is
> now $1.2 million and not $1 million.
> Because of that asset revaluation, other assets in the same class are,
> if such trading gains become widespread, also revalued upwards, and
> that means that the cost of newly producing or supplying such an asset
> also rises. Therefore, as the volume of capital gains rises, this will
> alter the cost structure of production - there is now permanently a
> new impost on production.
> You could argue that asset revaluations are primarily demand-driven,
> and predicated on the expansion of the "real economy". If the demand
> for the asset was not there, the asset (and other similar
> assets) would not gain value, and in that sense the expansion of
> capital gains "rides on" the expansion of the real economy, to some
> extent adding to the latter expansion with additional demand. You can
> prove this easily because if real output growth falls,
> measured capital gains decline. But,
> (1) in reality, the "demand" for the asset often has little to do with
> the fact that people want to own the asset as such, but rather
> with the expected future yield of the asset. So, in reality, the game
> is about income extraction from the trade in assets, and the
> revaluation of assets is almost completely dependent on the
> expectation of additional income that can be extracted from them.
> (2) in reality, as I have frequently pointed out, the total
> non-productive capital assets of rich countries are nowadays larger in
> value that their productive assets, and thus in good part the capital
> gains have nothing to do with the expansion of production but with the
> monopolization of asset supply per se (but you can say that if in
> 2000-2008 the US gained 8 million immigrants (36% of the net
> population increase) those people need housing, which fuels a housing
> boom, which in turns fuels a boom in capital gains and asset
> speculation).
> Is the capital gains income simply a redistribution of income? That
> depends on:
> (a) whether the income extraction process is durable, and on
> whether the positive asset revaluations are durable.
> (b) whether we look at it from the point of view of the domestic
> economy or the world economy.
> As regards (a), if net assets are durably revalued upwards, the
> result is a net increase in capital income, and as regards (b) the
> redistribution may take the form of a durable net gain to the domestic
> economy, which results from addition income extraction from abroad.
> Effectively, countries are nowadays being revalued and devalued in the
> long term, on the basis of how much income can be reliably extracted
> from them.
> My own argument as I have made in OPE-L in previous years is that, as
> historic trend, the value of real estate is being durably revalued
> upwards. That value may fall back during a few years, sometimes up to
> 30%, but the longer term trend is upward; short-term losses do not
> fully cancel out longterm gains. The most basic cause of this is
> simply population growth, but in addition it is also a matter of
> "productivity growth", i.e. the labour-exploitation rate, or the
> ability to extract income.
> Modern capitalists get rich from (trading in) debt, but the overall
> result of that is a durable increase in real unemployment. At the same
> time, labour-saving technological change means that fewer workers can
> produce more output. This means that the level of real wages is
> nowadays under a triple downward pressure:
> (1) the competition for jobs.
> (2) the need for a rising rate of labour-exploitation to sustain the
> income extracted from the burgeoning debt claims.
> (3) The reduction in labour requirements, due to increased
> productivity per worker.
> The main ways final market demand can expand in that case are:
> (1) if more people can be integrated in markets, and
> (2) through expanding labour mobility, where people can earn higher
> wages by changing jobs.
> Of course the haute bourgeoisie could also spend more on luxury
> consumption and weaponry, but they're only about 10 million people
> worldwide, and there's a limit to what they can consume or destroy .
> Jurriaan

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Received on Sat Oct 31 16:19:08 2009

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