Is there a term for the personal wealth that is not used to generate income?

Question

A rich person can own companies, shares, houses used for renting etc. that are worth billions of $US. That is the wealth that is generating income. I would call it income-generating wealth or income+jobs-generating wealth or growth-generating wealth

On the other hand, the rich person can own wealth like cash, bank accounts, houses, yachts, land used for playing golf etc. that is not used to generate income - this is a wealth that he is using for enjoying life. I would call this wealth leisure wealth.

A rich person can have an income-generating wealth worth billions of $US and in the same time it can have a leisure wealth that is close to zero. He/she can also have an income that is equal with the medium income. And then he/she can have only his own wage as a leisure wealth.

There are fundamental differences between the income-generating wealth and leisure wealth

• The income-generating wealth is actually used to spin the wheel of the economy and it is also directly creating jobs.
• In the same time, the leisure wealth is used by the rich person in order to actually live like a rich guy - or to live like an average citizen - depending of his/her choice. The leisure wealth is owned on personal name (not assets owned by a company of the owner) and it's for personal use - i.e. not used by any clients (like the houses for rent)

I think there should be distinct terms for the two in order to make a clear distinction between them.

Is there an already invented term for the wealth that I'm calling leisure wealth?

Answer 1

I do not believe that your suggested definitions will hold up. Since this is a forum for questions about economics, I do not see the point of proposing a new definition here. Who is going to see it?

What you call “income generating wealth” is captured by “wealth” in its standard usages. However, what you exclude (such as bank deposits) will be included in “wealth” or “claims on wealth.” From a portfolio perspective, it makes no sense to exclude bank deposits. Furthermore, “income” is well defined, and there are assets that generate no income for the holder, and yet are wealth (for example, a personal residence). Rephrasing to include future income does not help, since the sale of a primary residence is not considered income.

Everything else would be classified as “consumer goods.” If you want to only include things that “make you look like a rich person,” you would end up with the fuzzy category of “positional goods.”

Why not include consumer goods in wealth? One of the regularities of consumer goods is that they have almost no resale value. So there’s no good way to measure its value.

The lines are blurry. For a collector that buys and sells particular goods, those goods are actually assets that are expected to make a profit. However, no statistician could hope to measure the value of these exceptions.

Answer 2

The distinction between the two is not well specified. If I own an apartment I can rent it out or I can live in it. If I own an art collection I can hang it in my house or charge others to see it. Cash in bank accounts is lent out by banks to form investments in other firms and projects. Land might be used for long walks or used for farming, natural resource extraction, or simply held for future development. Nevertheless, a useful distinction in the spirit of your question is between inputs to production and "Durable Consumption". Durable consumption goods are a form of consumption good that is provides a stream of consumption services rather than totally consumed by the act of consumption. Contrast a car (durable consumption good) with a vacation (a service, which is a kind of non-durable consumption).

Here is the St. Louis Fed on Factors of Production - The Economic Lowdown Podcast Series, Episode 2

The first factor of production is land, but this includes any natural resource used to produce goods and services. This includes not just land, but anything that comes from the land. Some common land or natural resources are water, oil, copper, natural gas, coal, and forests. Land resources are the raw materials in the production process. These resources can be renewable, such as forests, or nonrenewable such as oil or natural gas. The income that resource owners earn in return for land resources is called rent.

The second factor of production is labor. Labor is the effort that people contribute to the production of goods and services. Labor resources include the work done by the waiter who brings your food at a local restaurant as well as the engineer who designed the bus that transports you to school. It includes an artist's creation of a painting as well as the work of the pilot flying the airplane overhead. If you have ever been paid for a job, you have contributed labor resources to the production of goods or services. The income earned by labor resources is called wages and is the largest source of income for most people.

The third factor of production is capital. Think of capital as the machinery, tools and buildings humans use to produce goods and services. Some common examples of capital include hammers, forklifts, conveyer belts, computers, and delivery vans. Capital differs based on the worker and the type of work being done. For example, a doctor may use a stethoscope and an examination room to provide medical services. Your teacher may use textbooks, desks, and a whiteboard to produce education services. The income earned by owners of capital resources is interest.

The fourth factor of production is entrepreneurship. An entrepreneur is a person who combines the other factors of production - land, labor, and capital - to earn a profit. The most successful entrepreneurs are innovators who find new ways produce goods and services or who develop new goods and services to bring to market. Without the entrepreneur combining land, labor, and capital in new ways, many of the innovations we see around us would not exist. Think of the entrepreneurship of Henry Ford or Bill Gates. Entrepreneurs are a vital engine of economic growth helping to build some of the largest firms in the world as well as some of the small businesses in your neighborhood. Entrepreneurs thrive in economies where they have the freedom to start businesses and buy resources freely. The payment to entrepreneurship is profit.

A person might have a great deal of wealth, but all of it held in durable consumption goods which they are using (the British royal family might be a good example of this type). Another person might have little consumption of any sort, but own lots of capital, land, and entrepreneurship (Hetty Green is a famous example of this type, but so might be Warren Buffet, at least relatively speaking).