A Thought or 2 About Wealth

Generali

People on this board discuss in the most civil terms, whether or not increasing house prices make the people of the UK 'richer' or 'wealthier' or not.

As I see it, there are two ways to define the wealth of a country

- you can look at the market value of the productive assets owned by the citizens or subjects of that country

or

- you can look at the potential productive output of the country that can result from the assets that are available to support production (plus the stream of payments that result from foreign owned assets)

If house prices rise then the former definition of wealth increases so that makes the country as a whole wealthier, albeit in a way favouring those owning that asset class. However, the second definition doesn't change as the increase in the price of the house hasn't changed the potential of a country to produce.

FWIW, my belief is that the former measure of wealth is only really useful to individuals and companies whereas the latter version is best suited to nations and countries.

fc123

I would have said

you can look at the market value of the productive assets owned by the citizens or subjects of that country

but can't really back it up with anything smart just it feels more correct.

BTW How are the thighs?

lostinrates

I ''liked'' this thread. Not only is OP good, but hopefully it will provoke some of the better sort of post this forum comes up with The good learnin' stuff.

michaels

My 'pad is worf loadsa money in'it

lostinrates wrote: »

I ''liked'' this thread. Not only is OP good, but hopefully it will provoke some of the better sort of post this forum comes up with The good learnin' stuff.

CLAPTON

Generali wrote: »

People on this board discuss in the most civil terms, whether or not increasing house prices make the people of the UK 'richer' or 'wealthier' or not.

As I see it, there are two ways to define the wealth of a country

- you can look at the market value of the productive assets owned by the citizens or subjects of that country

or

- you can look at the potential productive output of the country that can result from the assets that are available to support production (plus the stream of payments that result from foreign owned assets)

If house prices rise then the former definition of wealth increases so that makes the country as a whole wealthier, albeit in a way favouring those owning that asset class. However, the second definition doesn't change as the increase in the price of the house hasn't changed the potential of a country to produce.

FWIW, my belief is that the former measure of wealth is only really useful to individuals and companies whereas the latter version is best suited to nations and countries.

not as simple as that; housing asssets can be used to raise capital for other productive assets and so actually have productive potential.

possibly one of the reasons that countries / cultures that don't allow private property are generally poorer that those that do... as those assets can be used to secure loans for entrepenurial activity hence increasing whealth and happiness.
The essense in fact of capitalism

Alan_M_2

The older I get the more I define my personal "wealth" in ways other than financial.

I'm not sure where this shift in thinking came from, I was quite happy being a capitalist pig:o

Generali

CLAPTON wrote: »

not as simple as that; housing asssets can be used to raise capital for other productive assets and so actually have productive potential.

possibly one of the reasons that countries / cultures that don't allow private property are generally poorer that those that do... as those assets can be used to secure loans for entrepenurial activity hence increasing whealth and happiness.
The essense in fact of capitalism

That's a very good point although it has to be mitigated by saying that it is only of any use if people then actually borrow against the house to invest. A staple of small business finance down the years has been the second mortgage.

Also AFAIK, there is a strong link between strength of property rights and income per head across the world.

fc123 wrote: »

I would have said

you can look at the market value of the productive assets owned by the citizens or subjects of that country

but can't really back it up with anything smart just it feels more correct.

Fair point. I think from a personal point of view I agree but from a national point of view I disagree.

fc123 wrote: »

BTW How are the thighs?

Well toned! Like an idiot I was riding without sunscreen yesterday so, now the sunburn and windburn have gone, I'm quite bronzed too. Who'd have thought you could get sunburn on a ride that finished before 10am?

Actually, I'm going out for another ride today. Just a gentle 25kms or so just to get the blood moving again. Hopefully I'll do something a little more vigorous tomorrow.

Mr_Mumble

Generali wrote:

the second definition doesn't change as the increase in the price of the house hasn't changed the potential of a country to produce.

Doesn't an increase in house price often signify an increase in productive capacity? The time saving function and flexible working provided by newly installed utilities increases potential output for example.

Consider houses in poorer nations that acquire tap water after requiring a well or river bed, the homestead given gas to replace the open fire and the potential for being hooked up to a power grid after being on a generator or having no electricity at all. Even in Blighty and Oz the availability of high speed internet or access to new travel links increases potential output capacity.

Generali

Mr_Mumble wrote: »

Doesn't an increase in house price often signify an increase in productive capacity? The time saving function and flexible working provided by newly installed utilities increases potential output for example.

Consider houses in poorer nations that acquire tap water after requiring a well or river bed, the homestead given gas to replace the open fire and the potential for being hooked up to a power grid after being on a generator or having no electricity at all. Even in Blighty and Oz the availability of high speed internet or access to new travel links increases potential output capacity.

I think there's an extra link in there:

Increase in productive capacity => Increase in incomes => Increase in average house prices

A better road being built or a new airport or even a source of employment could do those things (eg Ashford when the Chunnel link went in).

baileysbattlebus

Generali wrote: »

People on this board discuss in the most civil terms, whether or not increasing house prices make the people of the UK 'richer' or 'wealthier' or not.

As I see it, there are two ways to define the wealth of a country

- you can look at the market value of the productive assets owned by the citizens or subjects of that country

or

- you can look at the potential productive output of the country that can result from the assets that are available to support production (plus the stream of payments that result from foreign owned assets)

If house prices rise then the former definition of wealth increases so that makes the country as a whole wealthier, albeit in a way favouring those owning that asset class. However, the second definition doesn't change as the increase in the price of the house hasn't changed the potential of a country to produce.

FWIW, my belief is that the former measure of wealth is only really useful to individuals and companies whereas the latter version is best suited to nations and countries.

The UK produces accounts that show the value of the country's non financial assets, I think they call it Net Worth, these include residential property - including not for profit etc. Factories/commercial and the value of plant, some agriculture, military ships & planes etc.

At the end of 2008 - the non financial asset value of the UK allegedly was £6.95tn - with residential housing (all types) accounting for £3.9tn -

The value at the end of 2007 was £7.13tn with housing at £4.31tn - I have no idea what use the information is though. And I have no idea how they arrived at the value of housing.

Does the fact that the non financial asset value of the UK fell in 2008 make me feel any poorer? No. Will the fact the asset value will probably show an increase in 2010 when the figures for 2009 are published make me feel any wealthier? No.

Though I suppose all countries do have assets in the form of housing, factories, etc.

The value of the productive assets in the UK is £3.05tn - if you remove the military planes & ships - then it's a bit less.

Though how you would be able to work out potential productivity from that I'm not sure - but it is early in the morning.

What about the other assets - financial assets - though I'm not sure they would be classed as an asset at the moment. The UK derives a lot of income from the financial sector.

How about a third measure?

What about GNI (income) per capita, the total value produced in a country + income from other countries (interest, dividends etc) minus similar payment to other countries.

The GNI consists of: the personal consumption expenditures, the gross private investment, the government consumption expenditures, the net income from assets abroad (net income receipts), and the gross exports of goods and services, after deducting two components: the gross imports of goods and services, and the indirect business taxes. The GNI is similar to the gross national product (GNP), except that in measuring the GNP one does not deduct the indirect business taxes.
For example, the profits of a US-owned company operating in the UK will count towards US GNI and UK GDP, but will not count towards UK GNI or US GDP.

.

Generali

baileysbattlebus wrote: »

The UK produces accounts that show the value of the country's non financial assets, I think they call it Net Worth, these include residential property - including not for profit etc. Factories/commercial and the value of plant, some agriculture, military ships & planes etc.

At the end of 2008 - the non financial asset value of the UK allegedly was £6.95tn - with residential housing (all types) accounting for £3.9tn -

The value at the end of 2007 was £7.13tn with housing at £4.31tn - I have no idea what use the information is though. And I have no idea how they arrived at the value of housing.

Does the fact that the non financial asset value of the UK fell in 2008 make me feel any poorer? No. Will the fact the asset value will probably show an increase in 2010 when the figures for 2009 are published make me feel any wealthier? No.

Though I suppose all countries do have assets in the form of housing, factories, etc.

The value of the productive assets in the UK is £3.05tn - if you remove the military planes & ships - then it's a bit less.

Though how you would be able to work out potential productivity from that I'm not sure - but it is early in the morning.

What about the other assets - financial assets - though I'm not sure they would be classed as an asset at the moment. The UK derives a lot of income from the financial sector.

How about a third measure?

What about GNI (income) per capita, the total value produced in a country + income from other countries (interest, dividends etc) minus similar payment to other countries.

.

All excellent points.

The thing is, I'm trying to look at wealth rather than the income which is produced by that wealth. GNI, GDP etc are all good measures (within their limitations) of output or income. The stock of wealth is different though.