I have previously described two ways to look at the capital in a modern economy: We can measure the value of physical, material goods or the whole community prosperity.
These units are similar, but not identical. The much talked about Thomas Piketty book The capital of the 21st century relate primarily to the value of physical assets.
The quality of available data on the value of physical assets, even in our modern Time, however, is not particularly high.
We have good information about investments in different physical categories – factories and machinery, vehicles, offices, shops and warehouses, roads and cables – but not about their actual, current value.
National accounts figures for these assets are mostly estimated using a “persistent inventory,” which calculates quotas for annual value reduction, while new investments are added to the total value.
This estimated figure forms the basis of next year’s calculation. Think of Solera system, where Spanish wineries skims a portion ripe sherry from a barrel before they replace it with this year’s new wine – a progressive, persistent vinmodning.
But calculations are sensitive to estimates converted value reduction and price of capital goods. Put another way – it’s basically never quite clear what one is trying to measure when one asks, “What is the London Underground worth?”
Read also: Piketty : – Increased tax needed to reduce inequalities
Gods holders new reality
With these reservations in mind, however, we, like Professor Piketty, look at the long-term the value of physical assets in countries such as Britain and France, which both have a well-documented economic history.
200 years ago were agricultural properties the most important part of the capital, and inherited ownership such goods were the deciding factor for prosperity (and inequality).
Today represents agriculture a much smaller part of total production, and the value of farms in Britain and France was reduced when countries opened new territories in North America and other parts of the world.
Estate homes today is a liability, not an asset profitable and modern dukes making ends meet by serving tea to visitors.
The new owners of capital
These visitors are the new owners of capital.
Both in Britain and France constitute residential properties over half of the estimated value of physical assets. Between 60 and 70 percent of the houses occupied by their owners, and looks at the total value of the properties, the percentage of owners who live in their own home, even bigger.
Even after deducting outstanding debt – approximately one third of the property’s value – are homes that are used by the owners, the largest component of personal prosperity.
Consequently, the main factor behind the phenomenon of “capital return” value of urban land.
This is a quite different explanation than Professor Pikettys assertion that capital growth – and different distribution – driven by an inevitable historical tendency for return on capital exceeds the rate of economic growth – which in turn leads to unlimited accumulation of capital for the wealthiest.
Also read: “Wealth does not drip down, but pile up in a few”
Inequality passed on
There are two types of property-based wealth: It can serve to stay in a house they own themselves, and increasing property value. While one might serve to stay in their own homes year after year like being spent on just to stay in the house, the increase in house prices a significant effect on the distribution of wealth. This applies especially for the transmission of inequality between generations.
Today depends young people the opportunity to take advantage of future housing price increase largely on parents’ ability to provide rewards of former housing price increases on to them.
But such injustice is different, both in character and cause, of the injustice that worries people who buy professor Pikettys book.
The rise housing value has contributed much to redistributing the wealth wider. But the effect of differences between generations are less praiseworthy.
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