Wealth (Encyclopedia of Business)
The concept of wealth refers to the value of the total quantity of goods or assets in existence at a particular time. Private wealth, or the wealth of an individual, consists of the value of things owned, including money and other claims against goods and services such as stocks and bonds. In the case of national wealth, however, money and other claims against goods and services are not included as part of a country's wealth. Rather, national wealth consists of the goods in existence that are available for use. Thus, a distinction is made between private wealth and national wealth. If an individual destroys a $100 bill, that person loses wealth, but the national wealth remains unaffected.
Wealth is a measurement of a stock of goods at a particular time. Wealth is said to be a stock concept. In contrast, income and gross national product are flow concepts. That is, production and income measure the rate at which goods and services are produced over a period of time. While national wealth may be measured in terms of dollars, it is important to realize that national wealth consists of a supply of goods, not money or claims against goods.
Real or national wealth consists of two types of goods, natural wealth and produced wealth. Natural wealth includes the value of a country's natural resources, such as minerals, farm land, and construction sites. Produced wealth, or capital goods, consists of machinery, buildings, equipment, and inventories of raw materials and finished products. Capital goods, in turn, include both consumer capital, producer capital, and government capital. Consumer capital includes such items as automobiles, appliances, and furniture. Producer capital consists of buildings, productive equipment, inventory, and other goods that are owned by business firms. Government capital includes those goods owned by various governments, such as police and fire vehicles, highways, sewers, schools, and jails.
The capital stock portion of national wealth may be increased through investment. Gross private domestic investment is that part of the gross national product that is spent on nonresidential structures, producer durable equipment, residential structures, and increases in business inventories. Gross investment includes the replacement of older equipment as well as additions to the total amount of capital goods. Net investment, or the net addition to the stock of capital goods, is calculated by subtracting capital consumption allowances from gross investment.
[David P Bianco]
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