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Definition of economic assets
Anne Harrison
What is the system about?
• How labour, capital and natural
resources including land are used to
produce goods and services
• Goods and services are used for
production, consumption and
accumulation
What makes it work?
• Benefits are the means of acquiring
goods and services for production,
consumption or accumulation in the
current period or future periods
Elaboration
• Immediate benefit - own account production
• Wages and salaries
• Consumption may be financed from current
or past benefits
• Production and accumulation involve
postponing benefits to future periods
• Financial asset converts benefit in one period
into benefit in another period
• Current benefits may be acquired by
committing future benefits in the form of
financial liabilities
Ownership
• Legal owner of entities such as goods
and services, natural resources,
financial assets and liabilities is the unit
entitled in law and sustainable under the
law to claim the benefits associated with
the entities
Elaboration
• Entities in the system must have owners
• Production risk - operating surplus,
income from employment embody risk
• Transferring benefits across periods
involves risk and different degrees of
risk
Economic owner
• Of an entity such as goods and
services, natural resources, financial
assets or liabilities is the institutional
unit which is entitled to claim the
benefits associated with the use of the
entity in the course of economic activity
by virtue of accepting the associated
risks
Elaboration
• Every entity has a legal and an
economic owner, often the same
• Legal owner may hand over risk to
economic owner for another package of
risks and benefits
• Government may act on behalf of
community at large
Definition of an asset
• An asset is an entity from which the economic
owner can derive a benefit or series of
benefits in future accounting periods by
holding or using the entity over a period of
time, or from which the economic owner has
derived a benefit in past periods and is still
receiving a benefit in the current period.
Because it represents a stock of future
benefits, an asset can be regarded as a store
of value.
Elaboration
• Changes the wording but not the
substance of the present definition
• Only economic assets recognised in the
system
Financial liability
• Is established when one unit (the
debtor) is obliged, under specific
circumstances, to provide a payment or
series of payments to another unit (the
creditor). The most common
circumstance is a legally binding
contract which specifies the terms and
conditions of the payment(s) to be made
and payment according to the contract
is unconditional
Cont.
• In addition, a financial liability may be
established not by contract but by long
and well-recognised custom which is
not easily refuted. In these cases, the
creditor has a valid expectation of
payment, despite the lack of a legally
binding contract. Such liabilities are
called constructive liabilities
Financial claim
• Whenever either of these types of liabilities
exist, there is a financial claim which the
creditor has against the debtor. Like the
liabilities, the claims are unconditional. In
addition, a financial claim may exist which
entitles the creditor to demand payment from
the debtor but whereas the payment by the
debtor is unconditional if demanded, the
demand itself is discretionary on the part of
the creditor.
Financial assets
• All financial claims plus monetary gold,
SDRs of the IMF and shares in
corporations.
• May change for unallocated gold
accounts and SDRs
Asset boundary
• All entities which meet the definition of
an asset. All appear on the balance
sheet of the economy.
• All assets can be represented by a
monetary value
• Value represents the market’s view of
the total of the benefits embodied in the
asset.
Classification
• Non-financial assets
– Produced
– Non-produced
• Financial assets
Produced assets
• Enter via production or imports
– Historical monuments
– Valuables
• Leave via being exhausted, sold to
residents for use other than as asset,
sold to non-residents
Non-produced assets
• Natural resources
– More as now
• Contracts, leases and licences
– More when agreement reached
• Financial assets and liabilities
– When commitments made or cease
Exclusions
•
•
•
•
•
Consumer durables
Human capital
Environmental assets
Contingent financial liabilities
Assets owned by non-residents
Questions
• Do you agree with the need to define
ownership and benefits?
• Thrust of proposed definitions?
• Revised definition of an asset?
• Exclusions from the balance sheet?
• Inclusion of constructive liabilities?
Last comment
• Please send me any detailed comments
on the wording in the paper
Cont.?
• Depending on the discussion on
standardised guarantees, there may be
some contingent liabilities