Wealth Estimates: The Case of Sweden 1830-2010

Lars Fredrik Andersson Magnus Lindmark Geography and Economic history

On the wealth of nations

• Purpose of the study: to reconstruct historical aggregated data on wealth and thereby contribute to the environmental literature focusing on wealth

• Suggest a periodization of Swedish economic development based on assets and its structure

• Test four World Bank hypotheses on wealth

A short doctrine

• Wealth has been a key concept in economic thinking for centuries: the physiocrats & Adam Smith (1776 on the Wealth of Nations)

• Swedish 19th century focus on wealth: – Bollfras (1878; 1885) – Fahlbeck (1899)

• Focus on incomes with the Stockholm school & the Keynesian revolution – Lindahl/Dahlgren/Kock (1937)

• Sustainable devlopment (NNP & Genuine Savings) has led to an increased interest in measurements of wealth

Where is the wealth today?

• World Bank “Millenium Capital Assessment” – Intangible assets holds a very large part of all wealth – The relative importance of intangible assets increases

with income – The relative importance of natural assets decreases

with income – The proportion of produced assets in the total wealth

is fairly constant over incomes • No studies of these findings in historical

perspective

General approach in this study

• To measure total wealth 1830-2010: – Requires an historical estimate of the Consumer

Rate of Interest (CRI) for capitalizing the historical value of consumption

• To measure intagible capital: – Requires historical estimates of produced assets

and non-produced natural assets

Components of Total Wealth

Buildings & infra-structure Machinery

Sub-soil assets

Agricultural land

Forest & forest land

Produced assets

Non-produced natural assets

Tangible assets

Human capital

Institutional capital: Rule-by-law

Intangible natural assets

Intangible assets

Total wealth

Tangible assets

Produced assets

Source: World Bank (2006) ”Where is the wealth of nations?”

Wealth accounting – WB method

• Total wealth is estimated as present value of future consumption (consumption rate of interest)

• Produced assets are (in our study) directly measured: – investment data using PIM method – insurance – market valuations

• Non-produced natural assets are directly measured: – insurance sums – market valuations

Wealth accounting cont.

• Intangible capital is measured as the difference between total wealth and tangible assets (produced and non-produced natural assets)

Total wealth • Wealth (v) at time t is a function of

consumption at time t consumption rate of interest (s) ‘Fundamental discount rate’

• Present value of consumption stream is:

𝑣 = �𝐴 1 + 𝑠 −1

𝑡

• S=𝛿 + 𝜇 ∗ 𝑔 • 𝛿 = 𝑟𝑟𝑟𝑟 𝑟𝑡𝑡𝑟 𝑝𝑟𝑟𝑝𝑟𝑟𝑟𝑝𝑝𝑠 (Death rate)

Ulph (1997)

Total wealth cont.

• 𝜇 = 𝑀𝑟𝑟𝑔𝑡𝑝𝑟𝑀 𝑢𝑝𝑟𝑡𝑀𝑡𝑟𝑢 𝑜𝑝 𝑝𝑜𝑝𝑠𝑢𝑡𝑝𝑟𝑡𝑜𝑝 (capital return/savings ratio, weighted by labour income and interest rate) g= Expected growth in per capita consumption (historical growth rate in consumption)

Estimates of CRI

Ulph-97 World bank

SWE_1830

SWE_1900

SWE_1950

SWE_2010

Time preference 1,4 1,5 2,7 1,9 1,3 1,3

Marginal utility of consumption 0,8 1,0 2,9 0,7 0,6 0,6 Expected growth in per capita consumption 1,3 1,0 1,6 3,1 3,5 2,1 CRI 2,4 2,5 5,8 4,1 3,4 2,5

Estimates of produced and natural capital

• The basic method is gathering census data: – insurance – book-keeping values – market valuations

• For produced capital, cross-checking with PIM base estimates shows similar results for the 20th cent.

• PIM-estimates are lower than census based estimates for produced assets in the 19th cent.

Produced capital by components, 1830-2010

0%10%20%30%40%50%60%70%80%90%

100%18

3018

4618

6218

7818

9419

1019

2619

4219

5819

7419

9020

06

Central governmentbuildings andequipmentsLand infrastructure

Transport equipments(Trains in land infr.)

Live stock

Buildings andMachinery

0%10%20%30%40%50%60%70%80%90%

100%

1830

1843

1856

1869

1882

1895

1908

1921

1934

1947

1960

1973

1986

1999

Iron ore

Fish stock

Forest land andstanding timberFarm land

Natural capital by components, 1830-2010

0%10%20%30%40%50%60%70%80%90%

100%

1830

1843

1856

1869

1882

1895

1908

1921

1934

1947

1960

1973

1986

1999

Natural capitalProduced capital

Material capital/tangible assets by components, 1830-2010

0

0,05

0,1

0,15

0,2

0,25

0,3

0,3518

3018

3718

4418

5118

5818

6518

7218

7918

8618

9319

0019

0719

1419

2119

2819

3519

4219

4919

5619

6319

7019

7719

8419

9119

9820

05

Return on produced capital (GDP/Produced capital)

Non-produced in relation to non-produced capital

0%10%20%30%40%50%60%70%80%90%

100%18

3018

4318

5618

6918

8218

9519

0819

2119

3419

4719

6019

7319

8619

99

Non-produced

Producedcapital

Estimates of immaterial capital

• Total immaterial residual from total wealth by CRI net of produced and natural capital

• Human capital share of intangible assets is estimated by PIM method on educational expenditures

Immaterial capital by components, MSEK, current prices, 1830-2010

1

10

100

1000

10000

100000

1000000

10000000

10000000018

3018

4118

5218

6318

7418

8518

9619

0719

1819

2919

4019

5119

6219

7319

8419

9520

06

Human capitalRule of law

Wealth by key components, MSEK current prices 1830-2010

1

10

100

1000

10000

100000

1000000

10000000

10000000018

3018

4218

5418

6618

7818

9019

0219

1419

2619

3819

5019

6219

7419

8619

9820

10

Material capitalImmaterial capital

Periodization of wealth

• Foundations of industrial capitalism – 1840-1855 Rule by law – 1856-1894 Infrastructure

• Industrial capitalism 1856-1974 – Produced capital > Natural capital

• Post-industrial capitalism – Produced capital = Natural capital – Immaterial capital > Material capital