GUEST BLOG: Dave Brownz – Capital gains are the opioids of dying capitalism
The debate about the CGT is in full flow but it’s mainly hot air that ignores where capital gains come from in the first place.
The CGT was presented by Labour and the Greens as an attempt to tax those whose incomes were not already taxed to allow a ‘fairer’ tax system and reduce the gap between rich and poor.
So, while firms whose profits based on turnover and output exchanging on the market are taxed, not taxed is the monopoly rent they extract from the rising ‘unearned’ value accruing to property (farms, residential property, industrial sites, IP etc).
It is common knowledge going back to the early days of white settlement, that monopoly rents result from the ‘unearned increment’ in ‘value’ of land etc. It is not the owners who earn this value, but the wider society that pays for the right of the owner to expropriate value that is created by workers labour as profits.
Farmers earn an income from the value of the commodities they produce. But part of the ‘value’ is unearned because of the fact that the price of land includes monopoly rent – the excess profits that are redistributed from other producers. This is the same monopoly rent that monopoly firms can extract from the profits of non-monopoly firms.
This is why the landless wanting farm land in the 1880s campaigned for a ‘land tax’ and the breakup of the large estates of the gentry. The Liberal Government policy to put the unemployed on the land created a new class of family farmers indebted to the banks.
The resulting rush of small farmers onto the land did not displace the gentry but created a new class of family farmers benefiting from large new areas of appropriated Maori land (greater than the lands confiscated during the land wars).
This was the fateful political compromise that allowed the gentry to dominate NZ politics ever since, shifting the burden of tax from the land onto income tax. The rising numbers of small farmers backed this shift in taxation because their indebtedness to the banks could be reduced by ‘rent farming’.
As has been pointed out often enough, NZ’s class structure was shaped by white workers trying to escape the working class into family farming, creating a conservative middle class that ever since has been the political enemy of industrial workers.
But NZ workers attempts to defend their class interests in the face of this urban rural divide were defeated. The land tax became an income tax. The Red Fed was opposed by state forces and “Massey’s Cossacks” and the NZ Labour Party committed to managing NZs colonial economy in the national interest was founded in 1916.
Nor did those on the land did not gain equally. Monopoly rent attracts surplus profits from those who do not own land. But that rent is not shared equally among monopolists. Rent differs according to the quality of the land and its distance from market. The result is differential rent. Better land produces cheaper outputs because of less labour expended in production. Worse land uses more labour and forfeits some of its profits to those on better land.
So, farmers have always been divided by the quality of their land. Both sides of my family were dairy farmers who worked farms during the 20s and 30s. One side lost two farms in the Bay of Islands due to falling prices and bank foreclosures, and ended having to drain part of the Kamo swamp before walking off the land in the late ‘30s. The other side drained a Taranaki swamp, created a fertile farm, paid off the bank and now employ farm workers to help run the farm.
The point is that farmers and banks have always relied on capital gains from the unearned increment as a bonus to make farming viable when prices fell during slumps. Nevertheless, only those who were on the best land could survive and grow while most on worse land remained small farmers, sold up or walked off the land.
What does that tell us about the nature of conservative politics in NZ? That hard work on the part of individual family farmers was not sufficient to succeed in farming. Survival and success depended first on the alienation of Maori land, monopoly rent and state subsidies such as infrastructure that made capital gains possible.
It is significant that in his resistance to the inroads of settler land theft, Te Whiti understood that the problem with the colonial economy was private ownership of land and money exchange. The settlement at Parihaka was his attempt to reject private ownership and money and retain instead tribal ownership and collective labour. This attempt was defeated because of its threat to the viability of colonial capitalism.
We can see that historic showdown between Maori economics and the colonial economics as the material basis of a residual white racist culture. This explains today’s existential contraction between the inertia of the dying capitalist economy claiming to represent NZ ‘values’ based on land theft and monopoly rent, and the insurgence of a new green global economy that socialises private property and plans production of collective labour in harmony with nature for need and not profit.
That is why the CGT had it survived would not have made a dent on inequality of incomes as taxes on the private property of the rich are notoriously avoided and evaded. It would have left the basic monopoly on land untouched and the economy held to ransom by bankers, gentry and property speculators.
The blatant class propaganda of the bankers, farmers, developers and small business to the GST was that they couldn’t survive the tax. But this did not mask the real fear that their historic unearned monopoly wealth would expose them as parasites and become a slippery slope to expropriation. Hence the panic cry of the “End of NZ Values”.
The irony is that such NZ ‘values’ based on monopolising rent is in reality nothing but the value produced by workers who produce the only value by transforming nature, yet can’t buy houses to live in today.
What this tells us is that business in NZ is very fragile, facing a global economic crash and a climate emergency, and is desperate to hold onto its capital gains at all costs when profitability world-wide is falling.
If the monopolists are panicking about falling profits then we need a debate about what creates capital gains in the first place. Maybe it is time to explain why the fight by the rich to retain their gross wealth is a rational response to their fear of the collapse of capitalism.
Without a doubt it is capitalism’s failure to make profits from production that threatens its collapse, and makes capital gains an opioid drip feed for a dying capitalism.
The underlying cause of this decline in production is the inability of capitalism to exploit workers enough to profit sufficiently to justify reinvesting profits in new production. Since 2008 we have seen massive subsidies going to the banks and monopoly firms being hoarded rather than reinvested in new production because the conditions for renewed profits did not exist.
World capitalism suffers from chronic stagnation so that surplus money seeks other outlets for investment, in particular property speculation. Alternatively, big (oil, ag, pharma, tech etc) monopoly firms which dominate the market can extract extra profits from other firms that have to compete against monopolies.
The most critical fact about dying capitalism is that it is also killing the planet. Taxing the capital gains of monopoly capital will neither allow capitalism to be reformed, nor save the planet. We have to draw the line against defending a system that is destroying all living life to hold onto its ill-gotten wealth.
We need to end capitalism and the monopoly of private property, and expropriate unearned rents and profits as our common wealth, funding collective ownership and production for our human survival.
Dave Brownz is TDBs guest Marxist Blogger (because every left wing blog should have a Marxist)
Realistically most people have no choice but to go into the kinds of employment contracts that promote second class citizens so ate one below renters because the wage earns isn’t enough to pay the rent which is clearly unfair design work. Its bad and unreasonable that most people because of luck and the conditions they’re born into but mostly unfair because of luck of genetics and stuff. But some people are so lucky that they don’t have to work while most people have to work to survive and get this big share extracted to service those other people.
So before we think about cutting out the capitalist and distributing all wealth among the workers I think we should ask well what share does health and education and welfare and defence get and production ect…, so after we do the taxes to pay for the schools and hospitals and so on and then sure we would have something to distribute to those who can’t work. So I guess as automation takes hold people can vote themselves shorter and shorter hours while being compensated through the tax system or we could have a retirement system that can take care of new borns and the elderly through the hard work of every one else.
But notice that there is no incoherence where it could be said that you are taking from some one else to give to people who can’t work because the other person is morally in titled to. It might be wrong because we’ve selected the wrong design team or some one might get hurt or is hurt or doing policy in a vigilante way that could lead to a lot of avoidable chaos and violence. So yeah, it could be this big take over where the workers kick out all the land owners and factory owners or it could be this big orderly thing that is apart of a plan that will work in this big structural way.
Capital gain is not rent Dave. The two carry on side by side. And if you want to have a “rent” paid by farmers and property owners to the rest of society well you have it and always have had. It’s called rates.
Wealth is in the land or property. The illusion of wealth is the arbitrarily created medium of exchange that for commercial convenience it can be exchanged for should the owner wish to reinvest his / her wealth in some other enterprise.
The medium of exchange we use is called money, and from time to time it’s volume sloshing about in the economy gets completely out of synch with the things of real value as it is an arbitrary construct the issue of which under the control of people who gain from it’s creation and issue to the community and don’t actually have control of it.Nobody does once it has been created. So money can quickly become massively oversupplied as it is in Venezuela at the moment ( imagine paying a capital gains tax on a farm in Venezuela just now) or undersupplied in areas of the economy that don’t currently look attractive to those who have the power to create it.
So a CGT is removing part of the real accumulated wealth on which tax has already been paid , not to mention in most cases an at least equal amount in interest. It is a tax on inflation . A tax on an illusion of increased wealth . An illusion created simply by the inadequacy of the people such as Michael Cullen to properly manage the monetary system.
D J S
David if you want to stay confused by neo-classical (bourgeois) economics that’s your choice. Prices are not determined by supply and demand but fluctuate around an average determined by labour value.
Your last para shows you have not understood my argument about rent.
Capital gains are correctly defined as gains that are not currently taxed.
It is the ‘value’ that accrues to capital assets that do not reflect any reward for economic activity of the firm or home owner. It is ‘value’ that is stolen from nature and society by virtue of privately owning a monopoly of some scarce property, land is the main one, but IP is also important today.
As someone who owns part of this scarce property you can make normal profits by living off your own and/or your workers labour (on which you theoretically pay income tax and interest to banks), but you can also make excess profits (monopoly rent) by selling commodities for more than your cost price (Marx calls that ‘price of production’ which incudes an estimated average profit) because your rivals do not have a monopoly shareholding.
Good NZ examples are energy and transport that are paid for by general taxation but which are a social subsidy to monopolists. So the profits that are transferred from social production and nature to monopolists are ‘unearned’. Hence the concept of capital gains tax which returns part of that ‘rent’ to taxpayers.
Neoclassical economics accepts that monopoly rent (or profit) distorts the market. But it conveniently turns a blind eye when that monopoly rent is what is keeping dying capitalism on the drip feed. Of course neoclassical economics does not accept that labour (plus nature’s inputs) produces value. Interestingly Smith and Ricardo did, but then invented justifications for a share of that value going to capitalists.
My point is that the CGT is a diversion from much more important matters. Fixating on redistribution of tax when capitalism is crashing is stupid. That is why Greta Thunberg and her generation are making a nonsense out of the puffed up bullshit that is neoclassical economics.
There is no way that the market (now controlled by monopolists) will correct for climate change. Therefore the system that generates the market has to be destroyed and replaced by common ownership and collective production that returns us to living in harmony with nature.
You may be interested in an article on the Development of Capitalism in NZ from the 1970s which created a Marxist framework for understanding the production and distribution of value in NZ from colonisation to today.
https://situationsvacant.blog/2019/04/11/the-development-of-capitalism-in-new-zealand-towards-a-marxist-analysis/
Thanks Dave; but I don’t want to retract any of my comment.
Perhaps your definition of ” rent” rates some clarification. I suspect it is sum what different from the common concept.
I notice that you and Marx, seem to regard any remuneration for the planning, market research and risk; and for innovation as illegitimate. Only labour seems in your view to add any value to the raw materials from which our consumer goods are made.
Can you explain how, in your ideal Marxist world any new ideas or new products , or inventions come into society? Who decides what is to be grown or manufactured? How are these people chosen ? How is their authority established? How are they to be sanctioned when they make the wrong decisions? How is it established that they have made a good or bad decision.
The decisions a modern society makes are extremely complex. I think life under a Marxist regime would be a lot simpler all right, but very boring.
D J S
Don’t take my word for what Marx said.
You can easily google him on rent (earnings from land as represented by labour output). The labour output of the family farmer represents improved value for which the farmer receives income that is taxed. Any wage labour creates income which is taxed. What is not taxed is the ‘price’ of land at sale that is unearned as explained above (basically it transfers profits from monopolies at the expense of non-monoplies.)
On innovation, competition between capitalists drives innovation because it reduces labour time (and hence wages) and produces cheaper commodities allowing the most competitive to grab a larger share of the market and more profits.
Yes, Smith and Ricardo argued capitalists contribution to innovation justified a profit. Marx proved that innovation did not justify profits going capital, because it increased the rate of exploitation of labour (labour not capital productivity), which is the same as increasing the proportion of value produced by wages that goes to capital.
Marx argues that capitalism in its competitive 19th century maturity was progressive mainly because of innovation. However as soon as monopoly firms start to dominate the market they suppress innovation (this is what it has in common with the Stalinist forms of so-called socialism). Thus the 20th century sees capitalism resort to monopoly profits (rent being one form) which ceases to be competitive and profitable. Hence is progressive character is replaced by overall stagnation and destruction of nature.
The is why capitalism today is incapable of providing for the future of humanity. It can no longer organise innovation and development but has to survive by drawing down on natures and societies finite wealth with apocalyptic results.
Land should not be owned by anyone except the state.
Henry George –
land can be taken by the state when required, and the state controls what can be done on and with it. Ownership would be little different except semantically if all tenure was long term lease. If “owners” are to be expected to dedicate their lives and resources to improvement of their land they have to have an incentive or who will bother. Improvements would become the prerogative of the owner (the state) and the occupier’s role would be purely extractive.
The system we operate under has to accommodate human nature and I don’t think Marxism does that very well.
D J S
Henry George is not a Marxist.
His rationale is worth reading, and is much wider than land tenure.
Norman Kirk discussed the tenure of land in NZ seriously as a means of reforming our economy and many of the downsides of our present ponzi economic system.
Housing and land is now an affordable dream for a growing sector of Kiwis. An industry has grown around land ownership, profiteering without production of labour. This costs us all deary as wealth is extracted through this unproductive wasteful activity. The environment has suffered drastically as well as NZ debt increases as a result.
It is not necessary to own land to improve it but you would expect secure occupation of land would be needed.
Community cohesion is a fundamental force in facing hardship and change which lies ahead and will not be avoided no matter what words are said.