Two weeks ago, I described two ways of looking at the capital of a modern economy: we can measure the value of physical assets or the total of household wealth. These aggregates are similar but not identical. The widely cited work of Thomas Piketty relates primarily to the value of physical assets.
The quality of available data on the value of physical assets, even in the modern era, is not very high. We have good information about current investment in various categories of assets — plant and machinery, vehicles, offices, shops and warehouses, roads and cables — but not about their current value.
National accounts figures for these assets are mainly estimated using a “perpetual inventory” method, in which allowances are made each year for depreciation, while new investments are added to the existing total. The resulting figure forms the basis of the next year’s calculation. Think of the solera process, where Spanish wine producers draw off a portion of mature sherry from a cask, before replacing it with each year’s new wine.