National wealth is the total value of the set of economic goods owned by the members of a given economy, at a given time.
National wealth is nothing more than the computation represented by the set of economic goods owned by the members of a country. In order to effectively monitor this macro indicator, a specific period of time is usually taken as a reference, usually one year (one year). In other words, the set of goods and services that a given country possesses.
It is a magnitude that presents a difficult calculation. For this reason, on many occasions and depending on the country to which we are referring, the indicator may not present a representative image of the economic reality.
Difference between national wealth and national income
Taking a certain period of time as a reference, national income is not the same as national wealth. Although both concepts represent similar methodologies in the calculation, we are not talking about identical indicators.
In the first place, national wealth, as we said, is the value presented by the set of all the goods possessed by the economic agents present in a given economy. In other words, the value of the goods and resources that a given society possesses, at a given time.
While, secondly, national income is the flow of goods and services produced over a given period of time. Generally, this given period of time refers to a financial year, a year.
In other words, the main difference is that national wealth is an aggregate of those accumulated from previous years, while national income is the flow that occurs during a given period of time. That is, one is a stock variable while the other is a flow variable.
Types of national wealth
To know the different existing indicators in terms of national wealth, we must know that there are two ways to approximate the indicator. Two points of view that are distinguished by the indicators, and the variables, included in the model, as well as their quality.
Depending on the selected variables, we can classify the calculation of national wealth into two types:
- Objective estimation: This point of view considers reliable variables, such as the price at which the goods were acquired, as well as their depreciation over time.
- Subjective estimation: This is done by using indirect indicators. That is, a calculation that takes as indicators a series of indicators of lower quality. Among them, wealth taxes.
How is the calculation of national wealth carried out?
As we mentioned earlier, there is really no single way to calculate national wealth. Depending on the end use of this indicator, we are talking about that we can do the calculation in one way or another. These ways of calculating it, as we said, are the objective estimation and the subjective estimation.
These estimates are differentiated by the variables that make up their estimate.
If we make a subjective estimate, the calculation we make must select a series of indicators such as the aggregate wealth declarations of a country, as well as the taxes levied on the assets of the citizens that make up the fabric of an economy.
While, on the other hand, if what we want is to make an objective estimate, the process to follow goes through the selection of accounting criteria that allow establishing a model for the calculation. These accounting criteria may vary from one model to another, since, as we mentioned, there is no uniform and static valuation method.