Cooking the Books 2: The Price of Everything

At the end of August the Office for National Statistics published its annual ‘UK national balance sheet’ which it says is a measure of ‘the nation’s wealth’. More accurately it later explains that it’s an ‘estimate of the total value of land, housing, machinery and financial assets held in the UK by individuals and companies.’ What is being measured is the price that the assets held would fetch if notionally sold. The tables can be found here: www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/datasets/thenationalbalancesheetestimates.

The figure the ONS arrives at for the end of the year 2017 is £10.2 trillion (a million million, what used to be called a billion), adding that this is ‘an average of £155,000 per person.’ Relevant for comparison with other countries, this latter is completely misleading if taken to mean that every individual in Britain has net assets of that amount, if only because it doesn’t take into account how the £10.2 trillion is divided. As we know from other ONS statistics, it is very unevenly divided.

Wealth is something, either provided free by nature or fashioned from it by human work, that is useful to human life in a particular society. By this standard, financial assets are not wealth; they are merely claims on wealth. Counting them as wealth as well as the wealth they have claims on – for instance, the mortgage as well as the house – is double-counting.

Ignoring, then, financial assets, what’s left are two forms of real wealth, which the ONS calls ‘produced non-financial assets’ (buildings, structures, machinery, equipment, inventories) and ‘non-produced non-financial assets’ (land). The ONS emphasises just how much of their total figure for 2017 is represented by land:

‘UK net worth more than trebled between 1995 and 2017, but much of this was from growth in the value of land. Land accounts for 51% of the UK’s net worth, higher than in any other measured G7 country.’

In Germany in 2017 it was 26 percent. In the UK in 1995 it was 33.7 percent.

The Times (30 August) commented that this showed ‘that the economy is floating on a house price bubble.’ Actually, it’s a land price bubble as it is not the price of houses that has gone up (if anything this tends to go down) but that of the land on which they stand. The ONS statistics illustrate this very well. The total notional price of ‘dwellings’ owned by ‘households’ amounted at the end of 2017 to £1.57 trillion while the total notional price of the land on which they stood amounted to £4.1 trillion, over two-and-a half times as much.

The price of land, however, is as irrational as financial assets in that an increase in its total amount never represents an increase in total wealth. In both Marxian and pre-Marxian economics, land, being what the ONS itself describes as ‘non-produced’, i.e., not the product of human work, has no ‘value’ separate from its price. This is the capitalisation of the income the land is expected to bring as rent over a period of years. This is speculative in both senses of the term; that the rent will be the same for the period is a speculation and that it won’t be can be a subject for financial speculation.

It is not land price bubbles that drive the capitalist economy; that’s the pursuit of profits by ‘non-financial corporations’. Land price bubbles only make the system more unstable, more unequal – and more irrational.