A Still More Obvious Excess: Capital as Wealth

Abstract

Saving may not translate easily into the ‘real’ investment required to expand production, but it is the basis for personal investment aimed at securing some of the income from production. And whereas physical capital assets depreciate, requiring investment simply to maintain them, financial assets have the potential to appreciate, allowing fortunes to expand even if their income flows partly to consumption as well as reinvestment. In economies rich enough to save, the pool of unspent income steadily rises over time and is channelled into assets designed to protect its value and generate additional income. A consequence is that ‘second-hand’ assets — including previously issued shares and bonds, old houses and classic artworks — can encounter rising demand and appreciate in value despite advancing age (Scitovsky 1994). If these durable private-investment assets are included in capital, its expanding size becomes a source of social as well as economic strains.