Exploring the capital gains economy: the case of the UK

Much wealth is not the accumulation of saved incomes, but capital gains spurred by debt growth. The difference is widely neglected, yet central to our understanding of the sources of wealth and the functioning of contemporary capitalism. This paper connects to the literatures on financialisation, rents and critical macrofinance to make three contributions. A conceptual framework of the capital gains economy is developed, contrasting it to the conventional System of National Accounts. The framework is applied in an empirical analysis of the UK over 1995-2020. The UK economy changed from needing four Pound Sterling in liabilities to needing 7.5 Pound Sterling in liabilities to produce one Pound Sterling in value added. Earned incomes doubled but house prices quadrupled and the valuation of financial assets rose fivefold. Third, empirical proxies for macrofinancial capital gains and for the sustainability of the attendant growth in liabilities are suggested.