The IMF's Statistical Systems in Context of Revision of the United Nations' A System of National Accounts
Chapter

31 How to Treat Nonproduced Assets and Exceptional Events in the National Accounts?

Author(s):
Vicente Galbis
Published Date:
September 1991
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Author(s)
Jean-Paul Milot, Pierre Teillet and André Vanoli 

National accounts should not only record flows but should also record wealth. To describe the latter, it is essential to form an exhaustive accounts framework to analyze the changes in the value of wealth in successive years.

One of the difficulties most often felt in this field is the insufficiency of the “flows” to describe the changes in natural wealth, particularly as regards mineral deposits. When mineral deposits are discovered, the find is not valued; when the find is exploited, the value obtained is described without noting the decrease in the resources.

Discussions to date regarding the revision of the United Nations' A System of National Accounts (SNA) usually have proposed to enter these elements directly into the calculation of annual incomes. But economic analysis, as well as accounting constraints (incomes directly or indirectly issue from production), would then make it necessary to modify the scope and significance of the concept of production. In addition, the consequences for economic indicators that are linked with production (for example, productivity indicators) are considered unacceptable. Finally, the current range of treatments used for non-produced wealth has proved insufficient for developing a usable practical solution.

In this paper we propose an approach, but no completely developed solutions. In Section I we examine the present configuration of the SNA and complementary manuals. In Section II we propose a structuring of the value of wealth in year n −1 to that of year n. The structure obtained does not modify the definition of production, but it allows for calculating aggregates, thus completing the present income and wealth aggregates. In Section III, elements of analysis of the capital gains and losses are proposed.

I. The Current Configuration

The current version of the SNA proposes a capital finance account for each institutional sector, which describes how the flows deriving from production and capital transfers received and paid modify a sector's wealth (Table 1). This account shows the actual flows of purchases and sales of assets affecting wealth. It is not limited to assets derived from production (or imported), since it is necessary to take account of all transactions to obtain coherence with the financial operations.

Table 1.Capital Finance Account
5.2.5.Increase in stocks5.7.1.Saving (A 3.7.1)
5.2.6.Gross fixed capital5.3.3.Consumption of fixed
formationcapital
5.7.4.Purchases of land, net5.7.6.Capital transfers, net
5.7.5.Purchases of intangible
assets, net, n.e.c.
5.7.8.Net lending (A 5.7.9)
Gross accumulationFinancing of gross accumulation
5.8.1.Gold5.7.9.Net lending (A 5.7.8)
5.8.2.Currency and transferable5.9.7.Short-term loans,
depositsn.e.c.
5.8.3.Other deposits5.9.8.Long-term loans, n.e.c.
5.8.4.Bills and bonds, short term5.9.11.Trade credit and advances
5.8.5.Bonds, long term5.9.12.
5.8.6.Corporate equityandOther liabilities
securities, including5.9.13.
capital participations
5.8.7.
andLoans, n.e.c.
5.8.8.
5.8.9.Net equity of households
on life insurance
reserves and on pension
funds
5.8.10.Proprietors' net additions
to the accumulation of
quasi-corporate private
enterprises
5.8.11.Trade credit and advances
5.8.12.
andOther financial assets
5.8.13.
Net acquisition of financial assetsNet lending and change in liabilities
Source: SNA, Capital finance accounts.Note: The actual list of assets and liabilities varies according to institutional sector; “n.e.c.” indicates not elsewhere classified.matter of practical reasons similar to those concerning animals. In the case of mineral or energy deposits, for example, the agents concerned perceive their discovery as an increment in wealth and their mining or tapping as progressive depletion, but the nondescription of this increment and depletion in flows does result from choice.
Source: SNA, Capital finance accounts.Note: The actual list of assets and liabilities varies according to institutional sector; “n.e.c.” indicates not elsewhere classified.matter of practical reasons similar to those concerning animals. In the case of mineral or energy deposits, for example, the agents concerned perceive their discovery as an increment in wealth and their mining or tapping as progressive depletion, but the nondescription of this increment and depletion in flows does result from choice.

However, the gross accumulation derived from this account does not completely represent the variation of the wealth of the sector during the period. Certain items described in the Provisional Guidelines (M 60)1 must be added to the annual flows. These items are presented in Table 2; all of them affect the change in wealth, but their justification may vary.

Table 2.Classification of Reconciliation Items by Cause
13.1.Revaluations due to price changes
13.1.1.Market prices
13.1.2.Replacement costs
13.1.3.Rate of discount or capitalization factor
13.1.4.Foreign currency exchange rates
13.2.Issue of SDRs
13.3.Adjustments in respect to unforeseen events
13.3.1.Unforeseen obsolescence
13.3.2.Differences between allowances included in capital
consumption for normal damage to fixed assets and actual
losses
13.3.3.Transfers to net equity of households on reserves of life
insurance and pension funds
13.3.4.Uncompensated seizure of assets
13.4.Net changes in value of tangible assets not accounted for in the capital
finance accounts
13.4.1.Natural growth less depletions
13.4.1.1.Breeding stock, draught animals, dairy cattle,
and the like
13.4.1.2.Timber tracts and forests
13.4.1.3.Plantations, orchards, and vineyards
13.4.1.4.Fisheries
13.4.2.New finds less depletions of subsoil assets
13.4.3.Losses in land and timber tracts in catastrophes and natural
events
13.5.Adjustments due to changes in structure and classification
13.5.1Changes in the institutional sector or subsector of owners
13.5.2.Acquisition or divestment of subsidiaries and consolidation or
decomposition of statistical units for other reasons
13.5.3Changes in the classification of entries
13.6Termination of purchased patents, copyrights, trademarks,
and the like
13.7.Statistical discrepancies and discontinuities
Source: United Nations, Provisional International Guidelines on the National and Sectoral Balance-Sheet and Reconciliation Accounts of the System of National Accounts, Statistical Papers, Series M, No. 60 (New York, 1977), Table7.1.
Source: United Nations, Provisional International Guidelines on the National and Sectoral Balance-Sheet and Reconciliation Accounts of the System of National Accounts, Statistical Papers, Series M, No. 60 (New York, 1977), Table7.1.

In certain cases, the existence of the item is the consequence of pure measurement problems: thus the natural growth of “breeding stock, draught animals, dairy cattle, and the like” (item 13.4.1.1 in Table 2) should be described in the flows of the present SNA. For practical reasons, however, this is not the case in general. In other cases, it is an issue that has not been resolved: the natural growth of forests is not described in production, nor is the consequence of their felling. Yet there is nothing to indicate that this is a conceptual choice or a matter of practical reasons similar to those concerning animals. In the case of mineral or energy deposits, for example, the agents concerned perceive their discovery as an increment in wealth and their mining or tapping as progressive depletion, but the nondescription of this increment and depletion in flows does result from choice.

“Revaluations due to price changes” (item 13.1) describes general price rise movement that does not necessarily affect the variation of real wealth, except in the case of nonremunerated monetary assets and specific relative price variations that create “real” increases or decreases in wealth. Finally, there are pure adjustments such as the changes in the classification of items (item 13.5) and statistical discrepancies and discontinuities (item 13.7). In addition, the description of copyrights and patents and the like (item 13.6) allows for the phasing out of purchased assets but does not allow for the identification of these assets when they are created, despite the fact that they are beginning to appear in company balance sheets (for example, computer software). Nor does it allow identifying them at the seller, if the seller has created them himself, except by means of the “statistical discrepancy” item.

II. A Re-examination

We propose to analyze again the overall variations in wealth. First, we will reconsider the general structure of assets and liabilities, and then take another look at the types of operations or events that contribute to the variation of these assets and liabilities. After this we will ask ourselves about the articulation between the movements concerning these assets and liabilities and the national accounts sequence.

General Structure of Assets and Liabilities

The SNA and M 60 distinguish

  • Reproducible tangible assets

  • Nonreproducible tangible assets

  • Nonfinancial intangible assets

  • Financial assets and liabilities.

There is not much to say about financial assets and liabilities in the context of this article, except to recall that by convention in the SNA all liabilities are financial. This is not the case in real life. In societies where vendettas are current, for example, an individual may have a “blood debt,” not at all financial in nature, with respect to his family, clan, or group of another type, that is perceived by the group as a claim it holds against the individual. We admit that from the moment that a liability is or becomes economic, a financial debt comes into play. More pertinent for the national accounts purpose is the existence of contingent liabilities related, for example, to guarantees, endorsements, and the like that can be given by one economic agent to another. The frequency of contingent liabilities has grown considerably in the recent past. Written “off balance sheet” in the accounts of economic agents, these contingent liabilities (contingent assets are also to be considered) do not constitute financial liabilities in the sense of the 1968 SNA. Their inclusion there could be envisaged, not of course for their gross amounts, but for the (present) value of the risks taken. The difficulty then should be to enter their counterpart. Logically, the latter should be constituted by a corresponding reduction in the value of the liabilities of the group of economic agents benefiting from the guarantees considered, but this treatment is inapplicable in practice. Failing this, thought should be given to creating a specific category of “quasi-liabilities.” In any event, it is important to be provided with corresponding information as well as that relating to certain types of provisions, especially for bad debts that, for the same reason of asymmetry between the lenders and the debtors, are eliminated from the wealth accounts.

As regards nonfinancial assets, we do not question the usefulness of the SNA classification, even if, as can be seen with the categories “cultivated land” (nonreproducible asset) and “land improvement” (reproducible asset), the conceptual criterion of reproducibility creates a few problems of application, and even if the nature of the nonfinancial intangible assets is defined in a doubly negative manner. From the point of view of the SNA general structure, the distinction between produced assets and nonproduced assets presents a valid description. “Produced” assets are understood here as “produced in the national accounts sense” (in particular, in the sense of the 1968 SNA). A produced asset is fully described for entry in the framework of the SNA operations: it can be produced or imported, stocked, invested or exported, possibly consumed (in the sense of fixed capital consumption), bought and sold as a secondhand good (and reinvested or finally consumed); it appears among the assets of the wealth accounts; and it can be accidentally destroyed or scrapped. If economic life concerned only produced assets, things would be relatively simple. Matters become complicated because nonproduced assets (land, mines, patents, and trademarks, for example) sometimes appear in the wealth of economic agents and can be the subject of transactions.

In the 1968 SNA and in M 60, all the produced assets are tangible assets (reproducible in general; the separation between reproducible and nonreproducible is not clear a posteriori in certain cases). Within the framework of the SNA revision, the way will probably be opened up for the production of intangible assets (such as computer software, unless it is considered as tangible; mining exploration expenditure; and, in particular, all or part of research and development expenditure). The production of an asset in the national accounts sense can associate the work of nature with human activity. Stocks of agricultural products in general and fixed capital in cattle are in the 1968 SNA,2 In contrast, the SNA does not include natural growth in the production of assets constituted of plantations, orchards, vineyards, and timber tracts. These assets should be included. Produced assets can thus cover tangible assets, including assets produced in part by nature, and intangible assets.

Nonproduced assets—always nonfinancial assets—constitute all other assets. They can be grouped in five categories:

  • Rights that are not the counterpart of liabilities (“nonfinancial intangible assets” in the 1968 SNA)

  • Subsoil resources

  • Physical environments and living organisms (ecosystems)

  • Human resources

  • Intangible cultural assets (in the broad sense).

The first category calls for a brief comment. The SNA includes here patents, copyrights, trademarks, rights to exploit mining fields and fisheries, leases concerning land, and the like. The list is not restrictive. The item can cover, for example, the sums paid by one sports club to another to obtain the transfer of a professional player.

Operations and Events That Make Assets and Liabilities Vary

Variations in wealth include everything that explains the changes in wealth from the end of year n − 1, at the prices of the end of this year, to the end of year n, at the prices of the end of that year.

Transactions (Purchases or Sales, Gifts)

To simplify, let us equate with transactions all the stock entries or exits other than those due to wear and tear and destruction.

Own-Account Production

Fixed Capital Consumption

We use here the present SNA definition, which includes the average value of expected accidental damage.

Creation or Appearance of Assets Otherwise Than by Production and Corresponding Consumption

Most transactions concern produced assets (within or outside the economy considered). The goods concerned are created at the time of production. Some transactions, however, concern nonproduced assets (patents and trademarks, for example). In one way or another, these assets must be made to appear so that they can be the subject of transactions. Apart from this, wealth in nonproduced assets (noncultivated natural resources or subsoil assets, for example) varies irrespective of any transaction. Although creation or appearance and consumption are grouped in this description, the events leading to an increase in wealth should in practice be distinguished from those leading to a decrease.

Revaluation

The value of assets and liabilities changes as a function of the movement of prices between the end of year n − 1 or the subsequent date of entry into wealth, and the date of exit from wealth during the year or on December 31 if the asset or liability is still there. It is fundamental to distinguish the effect of the changes in the general price level from the effect of the changes in relative prices (the difference between the effect of the change in the general price level and the effect of the change in the specific prices of the assets or liabilities considered). We will refer again to this point.

Adjustment of Fixed Capital Consumption

The calculation of fixed capital consumption takes account of average life durations. Any discrepancy between these average durations and the actual life durations should in principle be subject to an adjustment because the inventory value of assets has to take into account effective life durations. M 60 refers to two elements here:

  • Unforeseen obsolescence

  • The discrepancy between the “risk” element of fixed capital consumption and the actual losses of the period;3 this discrepancy exists individually in any hypothesis, even if balance is achieved globally.

The following should also be added:

  • Replacing in activity totally consumed assets (through fixed capital consumption) or assets having previously become obsolete.

In the three cases, we are presented with an a posteriori revaluation of the fixed capital consumption of the prior periods (including the current year).

Capital Gains or Losses on Disposal or Scrapping of Assets

If these corrections are made, the inventory value (in the national accounts sense) will not necessarily coincide with the selling price in case of resale or scrapping (for example, price of scrap iron). In principle, those capital gains or losses must be taken into account, as in the case of company accounts, but under the assumption of a revaluation of assets.

The capital gains or losses from disposal are equal to the difference between the actual value of the disposals (sales or benefits for claims in case of destruction of insured goods) and the “national accounts” residual value. M 60 does not allow this element to be taken into account in its Table 7.1, thus implicitly assuming that the element is part of the revaluation. But this would be the case only if the national accounts residual values were based on the “true” market (or insurance) residual values of assets. Similar gains or losses can also occur on some financial assets when market prices are not available for their revaluation.

“Assetization” of Previously Consumed Durable Goods

Wealth value can be modified—for example, if some consumer durables, while being treated as consumption expenditure, are afterward directly included in household balance sheets.

Destruction or Wear and Tear of Stocks by Insurable Risks

These should not appear in the changes of stocks of the capital account unless they are included in intermediate consumption or deducted from output. They would unbalance this account if they were treated as equivalent to sales of stocks.

Destruction of Assets by Noninsurable Risks

These can derive from natural catastrophes or political events (such as wars, demonstrations, and the like).

Uncompensated Seizures

In case of compensation representing only part of the value of an asset, the nonindemnified part should be taken into account. In case of uncompensated seizures of financial assets, the corresponding liabilities should be noted (debt repudiation).

Changes in Classification

Changes in classification do not normally affect the global consistency of national wealth, but they can modify its breakdown:

  • Between the institutional sectors or subsectors, in case of transfer of an institutional unit from a sector or subsector to another (for example, an unincorporated enterprise registering as corporation)

  • Between the various categories or subcategories of assets or liabilities (for example, in M 60, possibly between the “improvement of land” and “development of plantations” items and the “cultivated land” item: the first two items can be considered as linkage items between the classification of gross fixed capital formation and the classification of assets).

In Table 3, the main categories of assets and liabilities that have been distinguished and the factors that make assets and liabilities vary are cross-classified. We do not claim that the list given in Table 3 is exhaustive. For example, it might also include the transfer of capital gains or losses to insured households by life insurance companies or pension funds. This would comply with what M 60 prescribes in some cases, if these gains or losses are not directly assigned to the equity of households at the precise time of the revaluation of the corresponding assets, or if the further assignment is not classified as capital transfer. Moreover, we have not treated the possible entries that could be added if certain solutions relating to shares and the net worth of incorporated enterprises were adopted.

Table 3.Factors of Variation of Wealth
Types of Assets



Wealt Variadon Factors
Produced Assets (tangible and intangible)Financial Assets./Liabilities (as a reminder: off-balance-sheet liabilities orquasi-liabilities)Nonproduced Assets
Nonfinancial intangible assets (patents, leases, trademarks, etc.)Subsoil resourcesPhysical environments and living organisms (ecosystems)Human resources (reminder)Other intangible assets (reminder)
1. Transactions (purchases, sales, gifts)Acquisition/ resales of produced fixed assets Entries/exits of stocksAcquisition/ redemption of assets Incurrence/ refunds of liabilitiesAcquisitions/ sales of patents, leases, trademarks, copyrights, etc.Acquisitions/ sales of subsoil reservesAcquisitions/ sales of land, etc.
2. Own-account productionOwn-account fixed capital formation
3. Fixed capital consumption (FCC)FCC
4. Creation/ appearance of assets otherwise than by production and the corresponding consumptionAppearance of patents, trademarks, etc. (first transaction) End, termination of patents, trademarks, etc.Discovery of exploitable resources Variation of the exploitability level:
  • —Technological change

  • —Changes in prices Depletion of resources

Natural growth (net) Depletions Changes in ecosystem characteristics Appropriation of environments (first acquisition)
5. Revaluation Effect of change in specific prices including effects
  • —Of change in the general level of prices

  • —Of change in relative prices

6. Adjusrmenl of fixed capital consumptionUnforeseen obsolescence Discrepancy between the “risk” component of FCC and the actual losses of the period. Placing back in activity of totally consumed assets or assets previously become obsolete
7. Capital gains or losses on disposal/ scrapping of assetsTransaction value National accounts residual value Capital gains or losses (NB: historical monuments)
8. “Assetization” of previously consumed durable goods
9. Destruction or wear and tear of stocks by insurable risks
10. Destruction of assets by non-insurable risks:
  • —Natural catastrophes

  • —Political events

(reminder)
11. Uncompensated seizuresSeizures of financial assets Repudiated debts Uncollectable debtsFrauds on patents, licenses, trademarks (reminder)
12. Changes in classification
  • —Changes in sector

  • —Changes in the nature of assets or liabilities

Likewise, we have not systematically explored the content of each of the factors of variation of wealth that are presented in the table. For example, the “goodwill” item, which appears in companies' balance sheets when subsidiaries have been bought at a price exceeding the market value of the revaluated net assets, could be treated in the same way as patents, trademarks, and the like—that is, as are other nonfinancial intangible assets that are subject to transactions (on lines 1 and 4 of Table 3), at least when the companies have merged or when they present consolidated accounts.

Articulation with the Sequence of Accounts

Let us first consider produced assets. All the movements concerning such assets could be entered in a single “variations in wealth account.” Furthermore, if we assume that there are only produced (nonfinancial) assets, all the movements in financial assets and liabilities would be related to nonwealth flows, or produced asset flows, or other financial flows. This variation in wealth account could be presented as shown in Table 4, with the various types of assets and liabilities duly subdivided.

Table 4.Variations in Wealth Account in the Absence of Nonproduced Assets
Changes in AssetsChanges in Liabilities
NonfinancialFinancialFinancial
Itemassetsassetsliabilities
Stock entries+
Stock exits
Fixed assets acquisitions+
Resale of fixed assets
Fixed assets, own-account production+
Acquisition of financial assets
Redemption of financial assets
Incurrence of liabilities+
Refund of liabilities
Fixed capital consumption
Revaluation
Effect of change in the general price level±±±
Effect of change in relative prices±±±
Fixed capital consumption adjustment±
Capital gains or losses on disposal or scrapping of assets±
” Assetization” of previously consumed durable goods+
Destruction and wear and tear of stocks by insurable risks
Destruction of assets by noninsurable risksa
Natural catastrophes
Political events
Uncompensated seizures±±
Changes in classification±±±
Change in net worth±

For financial assets and liabilities, notes or bearer securities destroyed in a fire are an example.

For financial assets and liabilities, notes or bearer securities destroyed in a fire are an example.

The change in net worth is equivalent to the sum of

  • Net saving—the balance of all the distribution and redistribution operations of income deriving from production (within or outside the economy considered) and final consumption

  • (Net) capital transfers, if applicable

  • A third component deriving from the balance of movements appearing in the second part of the variations in wealth account (revaluation and the like).

The common characteristic of the value generated by these movements is that they do not derive from production (that is, from the value added by production and distributed or redistributed).4 We will call them nonproduced values. Here they are nonproduced values relating to produced assets or financial assets or liabilities. They are gains or losses that do not derive from normal operations of the period and that are generally called “extraordinary gains or losses” in business accounts. To get back to the SNA familiar accounts (capital finance account), the single variations in wealth account presented in Table 4 merely has to be partitioned for produced assets, as shown in Table 5.

Table 5.Variations in Wealth Account
Produced assets: Capital finance account
Changes in stocksNet saving
Gross fixed capital formationaConsumption of fixed capital
Capital transfers received (net)
Net lending
Net acquisition of financial assetsNet incurrence of liabilities
Net lending
Nonproduced values account
Revaluation (+ or −)
Adjustment of the residual value of
assets (+ or −)b
Destruction and wear and tear of
stocks by insurable risks
Destruction of assets by
noninsurable risks (—)
Uncompensated seizures (+ or −)Change in nonproduced net worth

Purchases of land or intangible assets n.e.c. are not recorded because it is supposed, for the time being, that such assets do not exist.

Sum of adjustment of fixed capital consumption and capital gains or losses on disposal or scrapping of assets, “assetization” of consumed goods (+ or −).

Purchases of land or intangible assets n.e.c. are not recorded because it is supposed, for the time being, that such assets do not exist.

Sum of adjustment of fixed capital consumption and capital gains or losses on disposal or scrapping of assets, “assetization” of consumed goods (+ or −).

In the discussion of nonproduced assets that follows, we will leave aside both human resources, which within the framework of the SNA conventions call for complete treatment in satellite accounts, and also intangible cultural assets, which have been scarcely noted until recently in analyses of wealth. The other nonproduced assets are sometimes the subject of transactions. If the asset sold is entered in the opening wealth (cultivated land), there is no problem. If this asset does not appear in the opening wealth (as with nonfinancial intangible assets in the SNA sense, identified at the first transaction concerning them), its creation ex nihilo must be accounted for, as a counterpart for its sale; otherwise, the seller would sell something that he does not have.5 When these rights lapse, their phasing out of existence must also be shown.

Furthermore, if they can be measured, the discoveries of new subsoil resources or the change in the level of exploitability and the decrease in the stock of exploited resources can be shown. Similarly, the natural growth of ecosystems, their depletion, and changes in their characteristics can eventually be shown. The variations in wealth account for nonproduced assets can be compiled as shown in Table 6.

Table 6.Variations in Wealth Account
Nonproduced assets: Capital finance account
Purchases of land (net)
Purchases of nonfinancial intangible
assets (net)
Net lending (sellers)Net borrowing (buyers)
Net acquisition of financial assetsNet incurrence of liabilities
Net borrowing (buyers)Net lending (sellers)
Nonproduced values account
Revaluation (+ or −)
Creation of assets otherwise than by
production, and the
corresponding consumption
(+ or −)
Destruction of assets (—)
Uncompensated seizures (+ or −)Change in nonproduced net worth

The accounts drawn up separately for produced and nonproduced assets can now be combined as shown in Table 7. The nonproduced values account thus comprises both nonproduced value movements concerning produced assets and value movements (nonproduced, by hypothesis) concerning nonproduced assets.

Table 7.Variations in Wealth Account
Capital finance account
Changes in stocksNet saving
Gross fixed capital formationConsumption of fixed capital
Purchases of land (net)Capital transfers received (net)
Purchases of nonfinancial intangible
assets (net)
Net lending
Net acquisition of financial assetsNet incurrence of liabilities
Net lending
Nonproduced values account
Revaluation
Effect of change in the general
price level (+ or −)
Effect of change in relative prices
(+ or −)
Creation of assets otherwise than byConsumption of nonproduced assets
productionDestruction and wear and tear of
stocks by insurable risks
Adjustment of the residual value ofDestruction of assets by
assets (+ or −)anoninsurable risks
Uncompensated seizures (+)Uncompensated seizures (−)
Change in nonproduced net worth

Under this heading are grouped factors 6, 7, and 8 of the variations in wealth.

Under this heading are grouped factors 6, 7, and 8 of the variations in wealth.

In the present SNA, the nonproduced values account constitutes the largest part of the reconciliation account (see M 60, Table 7.1 and Table 2 of this paper). Proposals have been made to include part or all of its content in the capital finance account.6 To a certain extent, there would be no problem in doing so. Because the whole set constitutes the variations in wealth account, everything that constitutes wealth in one manner or another is broken out for entry in this account. The breakdown of the variations in wealth account into subaccounts is indeed a very open question, which can be given various answers. The purchases (net of land and nonfinancial intangible assets) are already placed by the SNA in the higher part of the capital finance account because they are market transactions bringing about a change in net lending and, correlatively, in financial assets and liabilities. To a certain extent, it is already a matter of “reconciliation” operations with respect to the “normal” sequence of economic operations described by the national accounts. The items relating to non-produced values could be placed back “at the top,” with a “change in nonreproduced net worth” counterpart being introduced to take account of the fact that the movements considered do not have an incidence on net borrowing or lending.

A remark must be made in relation to this last point. Because the unilateral noncollectibility of debts, whether explicitly repudiated or not, has been placed among uncompensated seizures (see Table 3), a change in assets and liabilities can appear in the finance account if the cancelled debts are entered in the variations in this account. A statistical adjustment thus exists between the net borrowing or lending and the net change in financial assets and liabilities. In the context of the SNA revision, the position adopted beforehand consists in distinguishing between the cancellation of debts that were the subject of an agreement between the creditor and the debtor—a counterpart would in this case be entered in the capital transfers—and the unilateral cancellation of debts with a counterpart entered in the reconciliation account. In this second case, a statistical imbalance appears between the two parts of the capital finance account. To make it disappear, in the present SNA framework there are two possibilities: either the unilateral cancellation of debts is included in the higher part of the capital finance account in a subcategory of capital transfers (or in a specific item), or else the corresponding changes in assets and liabilities are excluded from the second part of the capital finance account and placed only in the reconciliation account.

Let us now come back to the main topic. There is really no definitive argument against mixing what we have called the nonproduced values account (in other words, the main part of the M 60 reconciliation account) with the capital finance account. But should this be done? Let us set aside the measurement difficulty, which is very real for many items but which does not alone control the solutions chosen in a long-term accounting system. Truly, the effective calculation of these items would only be partial and would vary from one country to another for a very long period. The disadvantage would be minor only insofar as, clearly isolated and designated and including a counterpart of an equivalent amount, these items would not hamper the analyses and comparisons. Those who propose the integration solution use a similar consideration, but draw an opposite conclusion. If the items that are difficult to measure are not placed in an account considered as having a high priority ranking, then scant efforts will be made to measure the underlying magnitudes. The argument is not unfounded, and it shows that national accounts are widely underdeveloped in most countries and are nowhere totally developed.

It is preferable to distinguish the nonproduced values account, provided that it is given conceptual consistency that the present reconciliation account does not have, and as long as it is clearly shown that the SNA framework includes a variations in wealth account that comprises the nonproduced values account, the financial account, and the present capital account (whose name should be changed).7

Regardless of the possible presentation variations, to our mind the variations in wealth account enables one to address more explicitly the question of the relation between income and wealth in the national accounts. The implicit hypothesis in the SNA is that movements in nonproduced values and capital transfers do not influence the measurement of the net disposable income defined as the sum of final consumption and net saving. It follows that net saving is not equal in the national accounts to net change in wealth, and that income is not what can be consumed without tapping one's wealth.8 The SNA therefore does not follow either the wisdom of nations, which readily speak of “consuming one's wealth” or “consuming one's capital” with reference to spendthrifts, or economists who have drawn up and perfected a common notion of income.

Reference to Hicks is essential here: “We ought to define a man's income as the maximal value he can consume during a week and still expect to be as well off at the end of the week as he was at the beginning.”9 In this commonplace formulation, it is nothing more than the wisdom of nations, or else, as Adam Smith (An Inquiry into the Nature & Causes of the Wealth of Nations, Tome 2, Chapter 2) is quoted by Schumpeter: “neat revenue” was what people, individually and collectively, “without encroaching upon their capital…can … spend upon their subsistence, conveniences and amusements.”10 But the Hicksian notion comprises many refinements. It is only in ex ante forecasting (short-term) that it is useful to theoretical economists, since it is then revealing of behavior. The wealth referred to is the “capitalized money value of the individual's prospective receipts” or the individual's gain expectations. Expectations concerning changes in the interest rate and in prices intervene. The sum of the incomes of individuals understood that way does not make any sense except arithmetically. “Income is a subjective concept dependent on the particular expectations of the individual in question,” which do not have any reason to tally with the expectation of any other individual; if the forecasts do not come true, the “value of his (the individual's) prospect at the end of the week will be greater or less than it was expected to be, so that he makes a ‘windfall’ profit or loss.”11 In addition, in order to neutralize the effect of fluctuations in receipts, Hicks defined an individual's income as “some sort of standard stream of values whose present capitalized value equals the present value of the stream of receipts which is actually in prospect.”12

Economic definitions on one side, and accounting measurements on the other side (in the national accounts, but also in accountancy more generally), thus appear irreducible. The absence of a link would be total if Hicks had not recognized that ex post income notions have great usefulness, in particular as a convenient measurement of economic progress, that grants them a specific place in economic and statistical history. Furthermore, macroeconomics and econometrics have developed approaches and techniques that enable making the theoretically imperfect magnitudes constituted by income and saving, in the SNA sense, “say” things about the behavior of economic agents. The debate therefore cannot be avoided by advocating the “lack of a bridge.” The national accounts are indeed confronted, if not with the Hicksian notion of income, for the reasons stated, at least with that of common sense.

Recall that the SNA net saving is not equal to the net change in wealth. Its relation to wealth is defined as follows:

If one wishes to introduce into the SNA a “quasi-Hicksian” concept of income, one is faced with the following alternative:

  • Include in the current flows of the period (“current” here means the flows of the production and income and expenditure accounts in the sense of the 1968 SNA) capital transfers and operations that make the nonproduced net worth vary (the variations in wealth account is then reduced to the present capital finance account after elimination of the capital transfers item)

or

  • Consider that the central concept of income in the national accounts is, by nature, different from the “quasi-Hicksian” concept and that the latter can be applied only to the set constituted

    • —by the accounts of the “normal” operations of the period accounted for in the production and income and expenditure accounts

    • —and by an “extraordinary” operations account covering the nonproduced values account and possibly capital transfers.

This does not mean that putting something in either the normal (“current”) or the extraordinary operations account makes no difference. A satisfactory solution has to be found for the difficult problem raised by the treatment of

  • Direct indexation of financial assets and liabilities

  • Their indirect indexation through an actual amount of “something” explicitly directed to the compensation of inflation

  • Their implicit indexation by means of the “compensation for inflation” component of undifferentiated rates of interest.

In effect, if an element of compensation for inflation remains included in the interest appearing in current flows (as presently in the national accounts), then current income (consequently current saving, according to the terminology used in the following paragraphs) covers redemption of a part of the real value of creditors' claims and is calculated after refunding a part of the real value of debtors' liabilities.

Given the high inflation prevailing in some countries (but the problem in principle is the same everywhere; even low rates of inflation may influence the real value of very large amounts of financial assets and liabilities), the impact on the measurement of (current) income, (current) saving, and net lending of institutional sectors can be very meaningful. A full discussion of this question, of course, is beyond the scope of this paper.

As regards the alternative raised when a quasi-Hicksian concept of income is considered for the SNA, a few observations are necessary. It is assumed that the magnitudes in question are known or can be known. Considering the first part of the alternative, one must consider the additive quality of current economic life and extraordinary events. Hicks's analysis may be thought to apply mainly to the former, but Hicks referred explicitly to “windfall losses due to natural catastrophes and war” in one of his concepts of ex post income.13 From the point of view of wealth value, regardless of its concrete consistency, additivity cannot be discarded. Analysts would probably not like simply substituting new concepts of income and saving for the present ones, preferring instead to see a distinction made between several notions of income and saving. This would bring us back to the second part of the alternative, except for differences in presentation.

A specific problem arises in the revaluation of assets and liabilities. The first reaction is to exclude them from the quasi-Hicksian notion of income and saving. Being “as well off at the end of the week as [one] was at the beginning” is being as rich as one started in real terms. To consume the equivalent of the revaluation of one's assets would manifestly mean tapping one's capital. However, these remarks must be qualified. Being as rich in real terms applies to the abstract global value of wealth. If the revalued value of the opening wealth of an economic agent increases more than the general price level, we will say that this agent has grown richer and that an income is constituted, in Hicks's sense, by the difference between the evolution of the revalued value of his wealth and the evolution of that value if the revaluation had been done in terms of the general price level. The economic agent could consume this difference while being as well off at the end of the period as he was at the beginning.14 Conversely, an economic agent obtaining a negative difference should, everything else being the same, reduce his consumption by an equivalent amount in order to remain as well off at the end of the period as he was at the beginning.

A distinction must thus be drawn in the nominal capital gains or losses15 between the two elements that have been isolated in the presentation of the variations in wealth account:

  • Capital gains or losses linked with relative price movements (real capital gains or losses calculated as the difference between the revaluation of assets or liabilities made with their specific prices, or by using specific price indexes, and the revaluation of the same elements obtained by using a general price index)16

  • The effect of changes in the general price level, as just described.

The sum of the two constitutes the revaluation, at specific prices, of the assets or liabilities. Only the first element represents capital gains or losses; the second corresponds only to maintaining wealth intact.

Finally, one might think about the following accounts on the assumption of concurrent treatment of extraordinary operations (Table 8).17 The sum of current income and extraordinary income corresponds to the quasi-Hicksian income, subject to the acquisition of capital transfers. In a presentation of this type, nothing would go against placing capital transfers in the extraordinary income account. However, this would mean that wealth donations do not “notionally” have the right to exist. For households in particular, the question arises if accounts per category of households are drawn up or if life-cycle types of analyses are made. More broadly, the problem concerns “heritages,” including deceased estates. A possible interpretation of the SNA and M 60 would consist in saying that, were these flows known, they would be entered in the “changes in sector” item. But this solution would not be correct because it is the assets or liabilities that are transferred from one institutional unit to another one (and possibly, as a consequence, from one sector to another) and not the institutional units that change sector. It thus appears preferable to choose the solution appearing in the above presentation. In Tasi-Hicksian terms, this could be expressed in the following manner: “the income of an economic agent (of an institutional unit) is the maximal value that he can consume in the period without tapping his wealth (without prejudice, however, to the wealth transfers he can make or receive).” If the beneficiary of such a transfer uses its amount to increase his consumption, this supplement is therefore not financed by income but by a reduction in wealth. The person who makes the transfer does not undergo a reduction in income.

Table 8.Parallel Sequences of Accounts
Production account
Current income accountExtraordinary income account
Capital gains or losses
linked with relative
price movements
Consumption ofCreation of assets
nonproducedotherwise than by
assetsproduction
Destruction and
wear and tear of
stocks by
insurable risks
Destruction ofAdjustment of the residual
assets bynon-value of assets
insurable risks
UncompensatedUncompensated seizures
seizures
Current IncomeExtraordinary
income
Current income use accountExtraordinary income use account
ConsumptionCurrentExtraordinary
incomeincome
Current netExtraordinary net
savingsaving
Variations in Wealth Account
Opening AssetsOpening LiabilitiesOpening Net Worth
Changes in stocksCurrent net saving
Gross fixed capital formation+ Extraordinary net saving
+ Capital transfers received (net)
Consumption of fixed capital (−)= Net accumulation
Purchases of land (net)+ Effect of change in the general
price level
Purchases of nonfinancial intangible= Change in net worth
assets (net)
RevaluationRevaluation
Creating of assets otherwise than by
production
Consumption of nonproduced assets
(−)
Adjustment of the residual value of
assets
Uncompensated seizures (net)Uncompensated seizures (net)
Destruction and wear and tear of Stocks
by insurable risks
Destruction by noninsurable risks (−)
Net acquisition of financial assetsaNet incurrence of liabilitiesa
Changes in classificationbChanges in classificationChanges in classification
Closing assetsClosing liabilitiesClosing net worth

To be added “off balance sheet”: opening financial quasi-liabilities and quasi-financial assets; opening provisions; changes; closing financial quasi-liabilities and quasi-financial assets; closing provisions.

Of course, on the whole, changes in classification balance each other for assets and liabilities, respectively, and their effect on net worth is zero. But for a given category of asset or liability or for a given institutional unit or sector, the result can be either positive, negative, or zero.

To be added “off balance sheet”: opening financial quasi-liabilities and quasi-financial assets; opening provisions; changes; closing financial quasi-liabilities and quasi-financial assets; closing provisions.

Of course, on the whole, changes in classification balance each other for assets and liabilities, respectively, and their effect on net worth is zero. But for a given category of asset or liability or for a given institutional unit or sector, the result can be either positive, negative, or zero.

The accounting framework we propose is independent from the precise production concept. If that concept were modified to include the creation of assets that at present are considered as nonproduced, this would change the content of certain items presented without modifying the approach itself. It is therefore not necessary to discuss, for example, the problem of subsoil resources or degradation of the natural environment.

III. Capital Gains or Losses

The proposals made in the foregoing raise many technical accounting questions. In this section we propose to treat only one of these: the measurement of capital gains and losses.

Nominal Capital Gains and Losses

The variation in the value of wealth is at the beginning equal to

where

  • W = variation of the value of wealth

  • E = net savings

  • VNP= operation on nonproduced values not linked with price movements

  • PVC =nominal capital gains or losses.

Consider the case of an element q of this wealth, the price of which is p. The value at time t of the wealth is thus

The instantaneous variation is then

where p(t)q′(t)dt represents the instantaneous flow similar to E + VNP and p′(t)q(t)dt represents the instantaneous nominal capital gains or losses.

Over a period represented by the passage of t from 0 to 1, one has

However, this notation in continuous time is not really usable. It is necessary to give an accounting form to this expression in which the time t becomes “discrete.” We then have, with i and j > 1, the times when the quantities are modified:

This formulation shows that the nominal capital gains or losses on the element q can be broken down into four terms:

(p1p0)q10Revaluation of quantities present all year
i>0i<1(p1pi)q1iRevaluation of quantities having entered during the year and not having left
i>0i<1(pjp0)qj0
Revaluation of quantities present at the beginning of the year and having left during the year
i>0i<1j>ij<1(pjp0)qj0Revaluation of elements having entered and left during the year.

The valuations for each element q can be added so as to obtain the nominal capital gains or losses for all the wealth of an agent, sector, or nation. The complementary term should be treated in the same way to obtain the sum of saving (E) plus operations on nonproduced values (VNP) not linked with price movements.

Note that this expression is in all points similar to the theoretical formula used to calculate the revaluation of stocks of products, materials, and goods. Among the well-known consequences of this identification, also note that the global “capital gain” cannot be calculated by referring only to the wealth at the beginning and end of the period. Global capital gain depends on all the acquisition and resale movements (and more widely, on entries and exits) of the wealth components during the period in question.

Real Capital Gains or Losses

The problem of real capital gains or losses relates to comparing nominal capital gains or losses with what would be obtained by valuating the same wealth elements with a general price (or money purchasing power) index.

Given k (t) as this index, we will assume that k (0) =1. The real capital gains or losses will then be [p′(t) − k′(t)]q (t)dt for an elementary period, which can be integrated in the period. We obtain

This is a formula that will be applied here too, wealth element per wealth element. (For elements such as money that do not have a specific price, we consider that p (t) = k (0) =1.)

The accounting translation of this calculation, however, is not obvious. We can proceed in a manner similar to that related in the previous paragraph. The results are summarized in the recapitulative Table 9 (columns 2 and 4). The valuations in column 2 are with reference to the prices at the beginning of the period in which elements of wealth are held; those of column 4 are in reference to end of period.

Table 9.Recapitulative Table on Real Capital Gains or Losses
Calculation Most Coherent with the National
Accounts Concepts
PVCPVC
RevaluationEquivalent of
Real capitalof the initialReal capitalthe final
gains orpurchasinggains orpurchasing
lossespowerlossespower
PVC(PVR1)(PVR1)(PVR2)(RA2)
Item12345
Capital gains or losses
on elements kept in
the wealth (latentp1pop1po
capital gains or losses)+k1pok1po
Capital gains or losses
on elements having
entered in i and
present in 1 (latentp1pip1pi
capital gains or losses)+k1ip1k1ip1
Capital gains or losses
on elements
present in 0 and
having left in jpjpopipo
(realized capital gains)+kjo pokjo po
Capital gains or losses
on elements having
entered in i and
having left in jpipipipi
(realized capital gains)+kjiPikjiPi
1 +kji
Note: This table provides the elements for calculating the price elements of the capital gains. They must be multiplied by the corresponding quantities and then added to all the elements of the wealth to calculate the total capital gains or losses. The reader's attention is drawn to the following fact: if in i a certain quantity of the wealth element described here is acquired, on the same date another element is sold for the same amount. The capital gains or losses concerning all the wealth result from the algebraic sum of the gains or losses relating to the two elements of this transaction. PVC is nominal capital gains or losses; P(t) is the price index of an element of wealth that is studied; p(0) = p0; p(1) = p1; and k(t) is a general price index: k1i=k(1)k(i)k(i);ki0=k(i)k(0);kji=k(j)k(i)k(i);k(0)=1. The capital gain realized in the third line is the sum of the capital gain of the year in which the element leaves the wealth and of the capital gains of the two preceding types accumulated in the course of the prior periods.
Calculation Coherent with Maintenance of the Real Value of
the Initial or Final Wealth
PVCPVC
MaintenanceEquivalent of
of the pur-the final
Real gain onchasingReal gain onwealth pur-
the intitialpower of thethe finalchasing
wealthinitial wealthwealthpower
(GR1)(RR1)(GR2)(GR1)
ItemPVC678
Capital gains or losses
on elements kept in
the wealth (latentp1pop1pok1p0
capital gains or losses)
Capital gains or losses
on elements having
entered in i and
present in 1 (latentp1pip1pi0
capital gains or losses)
Capital gains or losses
on elements
present in 0 and
having left inj
(realized capitalpipopipopip00
gains)+k1pok1po
Capital gains or losses
on elements having
entered in i and
having left in j
(realized capital
gains)pjpipjpi0pjpi0
Note: This table provides the elements for calculating the price elements of the capital gains. They must be multiplied by the corresponding quantities and then added to all the elements of the wealth to calculate the total capital gains or losses. The reader's attention is drawn to the following fact: if in i a certain quantity of the wealth element described here is acquired, on the same date another element is sold for the same amount. The capital gains or losses concerning all the wealth result from the algebraic sum of the gains or losses relating to the two elements of this transaction. PVC is nominal capital gains or losses; P(t) is the price index of an element of wealth that is studied; p(0) = p0; p(1) = p1; and k(t) is a general price index: k1i=k(1)k(i)k(i);ki0=k(i)k(0);kji=k(j)k(i)k(i);k(0)=1. The capital gain realized in the third line is the sum of the capital gain of the year in which the element leaves the wealth and of the capital gains of the two preceding types accumulated in the course of the prior periods.
Calculation with Fixed Prices Specific to the
Element Concerned
PVCPVC
Specific price
gain withRevaluationRevaluation
respect toof the spe-Specific priceof the spe-
the initialcific price ini-gain on thecific price
wealthtial wealthfinal gainfinal wealth
(GPS1)(RPS1)(GPS2)(RPS2)
ItemPVC10111213
Capital gains or losses
on elements kept in
the wealth (latent
capital gains or
losses)p1po0p1po0p1po
Capital gains or losses
on elements having
entered in iand
present in 1 (latent
capital gains or
losses)p1pop1po0+(p1po)p1po
Capital gains or losses
on elements
present in 0 and
having left in j
(realized capital
gains)p1po+(p1pj)p1pop1po0
Capital gains or losses
on elements having
entered in iand
having left in j
(realized capital
gains)pjpipjpi0p1po0
Note: This table provides the elements for calculating the price elements of the capital gains. They must be multiplied by the corresponding quantities and then added to all the elements of the wealth to calculate the total capital gains or losses. The reader's attention is drawn to the following fact: if in i a certain quantity of the wealth element described here is acquired, on the same date another element is sold for the same amount. The capital gains or losses concerning all the wealth result from the algebraic sum of the gains or losses relating to the two elements of this transaction. PVC is nominal capital gains or losses; P(t) is the price index of an element of wealth that is studied; p(0) = p0; p(1) = p1; and k(t) is a general price index: k1i=k(1)k(i)k(i);ki0=k(i)k(0);kji=k(j)k(i)k(i);k(0)=1. The capital gain realized in the third line is the sum of the capital gain of the year in which the element leaves the wealth and of the capital gains of the two preceding types accumulated in the course of the prior periods.
Note: This table provides the elements for calculating the price elements of the capital gains. They must be multiplied by the corresponding quantities and then added to all the elements of the wealth to calculate the total capital gains or losses. The reader's attention is drawn to the following fact: if in i a certain quantity of the wealth element described here is acquired, on the same date another element is sold for the same amount. The capital gains or losses concerning all the wealth result from the algebraic sum of the gains or losses relating to the two elements of this transaction. PVC is nominal capital gains or losses; P(t) is the price index of an element of wealth that is studied; p(0) = p0; p(1) = p1; and k(t) is a general price index: k1i=k(1)k(i)k(i);ki0=k(i)k(0);kji=k(j)k(i)k(i);k(0)=1. The capital gain realized in the third line is the sum of the capital gain of the year in which the element leaves the wealth and of the capital gains of the two preceding types accumulated in the course of the prior periods.

Interpretation of this real capital gain is quite simple: it is the difference between a permanent revaluation of wealth made by using the specific price variation of goods (if the good does not have a price, like money, its price remains equal to 1) and a permanent revaluation made by using a general index. The real capital gain is positive if the specific prices weighted by the structure of the movements have increased more quickly than the reference index used, and it is negative if the opposite applies. It is natural to conclude that this notion of real capital gain derives logically from the national accounts conventions. It must be the subject of the same remarks as for nominal capital gains; in particular, its valuation depends on all the wealth entry and exit movements.

Nevertheless, real capital gain cannot be calculated exactly in practice either in the continuous form or in its two accounting expressions. We have thus included in Table 9 various simplifications that lead to calculable notions and correspond to often-used methods, such as those deriving from the Hicks formulation, if specific importance is attached to the structure of wealth at the beginning or at the end of the calendar period.

These solutions are also based on the nominal capital gains or losses and seek to provide a correction taking account of the maintenance of the “real” value of the initial wealth, or to refer to the equivalent in purchasing power of the final wealth. Simplifications consist in abandoning the idea of making corrections for each elementary capital gain or loss and in making a global correction. The calculations can nevertheless be presented so as to be compared with the four configurations of wealth elements: present throughout the year; having entered and not having left; present at the beginning of the year and having left during the year; or having entered and having left (see columns 6 and 8 of Table 9).

By aggregating all these elements, real gains can be defined as gains against the initial wealth:

where Wo is the wealth on January 1; and as gains as against the final wealth:

where W1 is the wealth on December 31.

With respect to the notion of real capital gains or losses (PVR) defined previously, the cumulative effect of the variation of relative prices noted for wealth at each moment is no longer considered. Instead, the current capital gains or losses are compared with the effect of revaluation of a fixed structure of wealth over the whole period.

Finally, we have included in Table 9 a calculation of the capital gains made at fixed prices specific to each of the wealth elements. The result (not directly discussed here) corresponds, for GPS1, to the surplus gain obtained with respect to that which we would have had by keeping the initial wealth; for GPS2, to the same surplus gain with respect to the final wealth. In other words, with the average index of the initial wealth as the k price index, GPS1 = GR1; with the average index of the final wealth as the k price index, GPS2 = GR2.

Note: This is a revised version of a paper originally presented at the Twentieth General Conference of the International Association for Research in Income and Wealth, August 24–28, 1987. The French version is available on request from the authors: 18, bld A. Pinard - 75675 Paris, Cédex 14. This paper is reprinted, with minor editorial modifications, with permission from the Review of Income and Wealth, where it originally appeared in Series 35 (No. 2, June 1989), pp. 163–86.

United Nations, Provisional International Guidelines on the National and Sectoral Balance-Sheet and Reconciliation Accounts of the System of National Accounts, Statistical Papers, Series M, No. 60 (New York, 1977).

According to M 60 (paragraph 7.11), only the initial outlay for cattle acquisition is included in the formation of fixed assets in the SNA; this interpretation does not seem correct.

Measured at the residual value according to national accounts; that is, the difference between the revaluated initial value and the accumulated and revaluated fixed capital consumption. The actual losses do not appear except as an element of the adjustment of the fixed capital consumption because of the SNA definition of the latter (see the third point above). If the fixed capital consumption were to exclude the “risk” component, then the losses would directly appear as a factor of the assets variation.

Sectoral changes or changes in asset or liability classification are elements of adjustment that, finally, do not represent a variation in the net worth of wealth.

Of course, if such assets were included in wealth as so on as they were created, independently of any transaction, the recording mentioned in the text would take place at that moment.

Nancy D. Ruggles, “Financial Accounts and Balance Sheets: Issues for the Review of SNA,” Review of Income and Wealth, Series 33 (March 1987).

The respective positions of the financial account and the nonproduced values account are conventional. They could be reversed with respect to the presentation made above. The best solution, but one that would probably change habits too much, would be to place the nonproduced values account first by including in it the purchases (net) of land and non-in tangible assets, which would make a balance (net) to be financed appear in this account. Placed last, the balancing item of the financial account would then be equal, leaving aside the statistical adjustment, to the total of the balances (net) to be financed of the “capital” account and the nonproduced values account.

Recall that consumer durables (households, military goods) do not appear in wealth in the SNA sense; so wealth does not include everything that, at a given time, is available for the future. As regards households (military forces raise more complex problems that have not been discussed in this paper), the exclusion of durables that are actually consumption goods does not matter very much; to give the value of the stock of these goods as a complementary item can be considered sufficient. On the contrary, some durables are acquired and held exclusively or essentially as reserves of value (gold and other precious metals, precious stones, antiques, and the like). Except accidentally, they do not disappear progressively when using them and can be thought of as “financial investment goods.” It certainly would be wise to exclude them from consumption and to put the corresponding flows in the capital account.

John R. Hicks, Value and Capital: An Inquiry into Some Fundamental Principles of Economic Theory, 2d ed. (Oxford: Oxford University Press, 1946), p. 173.

Joseph A. Schumpeter, History of Economic Analysis (Oxford: Oxford University Press, 1954), p. 628.

Hicks, Value and Capital, pp. 177,178.

Ibid., p. 184.

Ibid., p. 180, fn. 2.

Of course, prudence would require the economic agent to make sure about the stable nature of this gain.

Nominal capital gains or losses are defined as the difference between the value of the assets (or liabilities) at their date of exit (or end of a period) and their value at the beginning of the period (or subsequent date of entry), with these values being measured at the specific prices of each of the assets (or liabilities) at each of these dates.

The choice of the general price level indicator will not be discussed in detail here. Should it relate to the sole assets, or to goods and services (gross domestic product—GDP—or gross national expenditure), or to this last set increased by nonproduced assets that are the subject of transactions or increased by all the nonproduced assets? Let us say simply that this indicator must be unique because it aims to measure the change in real value of money in general. Should it be chosen so that capital gains and losses compensate each other exactly? Not necessarily, for the same reason that it is required to be unique. This would lead to choosing in principle the widest possible cover indicator.

Recall that throughout this paper the distinction between current or extraordinary refers to the borderline of the production. Thus, some elements of the extraordinary income account can be recurrent, such as the effects of relative price movements and the appearance of patents.

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