Academic Article

Introduction to Wealth

Wealth is a stock, not a flow. The country with the highest flow of GDP in a particular year is not necessarily the richest country. The richest country has the highest capital stock, whether endowed or accumulated, implying a higher potential for future income and consumption. This should be obvious, yet concepts of wealth are often poorly understood or ignored. Many countries do not maintain adequate wealth accounts; those that do would admit that a great deal of work on national accounts remains to be completed. This is remarkable: investors would not accept corporate balance sheets of a quality akin to those of many countries. However, with progress on wealth accounting, including the accounting of natural wealth, this situation may be set to change, enabling the rate at which nations are becoming richer or poorer per capita to undergo popular examination. A focus on wealth, and changes in wealth, would lead to attention on investment in important assets and to sharper attention on sustainability. This paper, and this issue of the Review as a whole, provides an examination of wealth, its definition, constituent parts, geographical distribution, and change over time, and provides policy guidance on accounting and management. We also explore the degree to which successful wealth management may even make us happier.

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Academic Article

Human capital, tangible wealth, and the intangible capital residual

Since income is the return on wealth, the total wealth of any given country should be in the order of 20 times its gross domestic product. Instead, the average observed ratio from the bal- ance sheet accounts of the System of National Accounts is a factor of 2.6–6.6, depending on whether natural resource stocks are included in the balance sheet. The clear implication is that the System of National Accounts wealth accounts are incomplete, with the most obvious omission being human capital. Estimating the value of human capital using the lifetime income approach for a sample of 13 (mostly high-income) countries yields a mean share of human capital in total wealth of 62 per cent— four times the value of produced capital and 15 times the value of natural capital. But for selected high-income countries in the sample there is still an average of 25 per cent of total wealth that is unac- counted for—it is neither produced, nor natural, nor human capital. This residual intangible wealth is arguably the ‘stock equivalent’ of total factor productivity—the value of assets such as institutional quality and social capital that augment the capacity of produced, natural, and human capital to support a stream of consumption into the future.

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