Capital gains are the opioid drip for 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 as family farmers indebted to the banks. The resulting rush of small farmers onto the land did not displace the gentry but created a new petty bourgeoisie 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 contradiction 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 capital 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.