Talk:Capital formation

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The whole "Wrong Definition" section misses the point of the macro-economic definition. Cash and Equity in businesses - self-financing - is fundamentally obtained by individuals - consumers and households. Similarly, financial institutions rely on consumers for deposits, and businesses for deposits (and business rely on consumers). So at the end of the day, all source financing comes from households and individuals.

Secondly, the whole section seems to be opinion. Albeit valuable and insightful, asset and securities speculation constitutes capital formation for other businesses, and while each move may not directly expand the economy, the net effect is expansion of the economy, thus "macro" economics. -Avery F

I tend to agree with you Avery. However, I found the section to be very important because it addresses the problem that saving and investment as defined by economics are often misunderstood by some (if not most) economist and other people (including me).
"In the last instance" perhaps the funds are only owned by individuals, but that last instance never arrives since at any time the fund managers hold assets in trust for clients, and engage in trade with these assets, and these assets dwarf the yearly new deposits by individuals. If corporations buy from and sell equities on a large scale to other corporations, the individual shareholder has normally no effective control over that whatsoever. The only thing the shareholder can do is sell up his shares, if he does not like corporate policy. If a corporation issues an equity or bond, it is true that individuals can buy them. But in fact the largest buyers are usually other corporations, and even where the majority of shares is owned by many dispersed individuals, a large minority holding by a corporation can be sufficient to exert control over corporate policy. Moreover, as Wolff and others have shown, the ownership of stocks and bonds is highly concentrated among a small group of very wealthy people, who cannot manage their wealth themselves and employ companies to do it for them. As a government employee I was by law a contributor to a pension fund which holds in excess of 200 billion euro in trust for employees, but my ability to affect fund policy is nil. Whether I save more or spend more has nil effect on investment policy, except that if all my colleagues or former colleagues acted the same the fund might decide to invest somewhere else; even so I have no control over that, nor can I cash in my contributions. I'm not too worried because generally they invest fairly well, but the point here is that whereas theoretically the funds originate with individuals, in reality it is corporations which manage the 200+ billion euro, trading worldwide with other corporations and governments. Compared to that continuous asset, the yearly contributions of individuals are rather small, maybe one or two percent of the total fund. In other words, it is not me as individual who does the investing, but corporations do. When the concept of capital formation was originally invented for statistical purposes by Simon Kuznets and others, the aim was to obtain a measure of the value of the net additions to the physical capital stock of the country, excluding land but but including the value of land improvements. Land was not included because if a piece of land changes owners, no new land is thereby created, and that aside, it is difficult to obtain a standard valuation for land values and therefore to devise a meaningful and useful measure of the value of land sales. Financial assets were explicitly not included in the statistical measure of capital formation, partly for conceptual reasons (they do not constitute additions to physical wealth) but also because the net increase in financial assets is likewise difficult to value consistently, in such a way that a meaningful and useful measure would result. When a greater and greater proportion of assets consists of financial assets, the traditional definition of capital formation may of course be questioned, and new definitions created; in the article I have only tried to convey that the traditional definition was formulated with a specific purpose in mind: to measure the value of the increase in physical wealth. User:Jurriaan 9 September 2010 00:52 (UTC)

Capital formation and Investment[edit]

I miss one important point in the article: Is Capital formation equal what would in macroeconomics be Investment and thus equal to what would be called in macroeconomics savings?

As I explain in the article, capital formation is not equal to investment, it is a subcategory of investment which refers only to the net additions made to the total physical capital stock. This implies that gross investment in physical capital is larger than capital formation, because physical asset disposals are deducted. Whether investment is considered as being equal to savings depends on your economic theory. Savings need not be invested; as Keynes acknowledged, they can be "hoarded", i.e. deposited somewhere without being used for specific investment purposes. Some theories propose that all savings are investments in the sense that even if deposits are strictly banked only as a reserve holding, at a certain rate of interest, this is still a type of investment. In other words, sums of money of any size are rarely placed somewhere for any length of time where they "do nothing", they are placed somewhere where they at least obtain a minimal interest rate. But macroeconomically, it is quite easy to show that the total annual savings (revenue that is not spent by the earner) does not equal to the total annual investments. Depending on how favourable business conditions are, more or less of current savings will be reinvested in business or other activities, and investment levels also respond to how favourable credit facilities are. So it is generally preferable not to conflate total savings with total investments. User:Jurriaan 9 September 2010 1:08 (UTC)

No Wikipedia entry for "Education Capital"[edit]

The section 'Example of Capital Estimates' contains a $45.4 trillion!! item "Education Capital". Wikipedia has no article explaining this concept and it is not defined or mentioned elsewhere in the article. After some on-line searching I found that this refers mainly to schools and universities and the like. I'm not qualified to write such an article. Patientmerit (talk) 19:38, 13 October 2014 (UTC)patientmerit[reply]

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