Monday, May 26, 2014

Steve Roth — We Have No Idea What Our Capital is Worth

That headline makes quite a statement. But it’s true. The stock of so-called “financial capital,” or wealth — all the financial assets out there, which are ultimately claims on real capital — represents only the most tenuous long-term approximation of what our real capital is worth.

Certainly true: the stock (total dollar value) of “financial capital” goes up (in fits, starts, and reverses) over the decades as real capital is accumulated. But beyond that rough, big-picture relationship, the total value of financial assets tells us very little about the total value of real assets....
Which is why — I’ll say it again — Piketty should have called it Wealth in the 21st Century.
Asymptosis
We Have No Idea What Our Capital is Worth
Steve Roth 

1 comment:

Anonymous said...

Price is one dimensional (at least in a single currency), while value is multi-dimensional. True, buying and selling is possible, but that does not mean that price equals value at any time.

What is a cynic? A man who knows the price of everything and the value of nothing. -- Oscar Wilde

BTW, the way I first heard that was not about cynics, but about economists. ;)