Haskel and Westlake’s new book, Capitalism without Capital, is on my reading list for the new year. For now I’ll just concentrate on comments made in The Economists’ review of the book. The key point I want to make is that not real is not the same as hard to measure
Intangible Assets Are On the Rise
The review in The Economist magazine details a lot of interesting points from the book. I suspect I agree with most. I believe that the review’s author sees the problem of intangible assets and is sympathetic to the argument that the financial system doesn’t do a good job of coping with them. This is a significant problem given intangibles seem to be becoming an increasingly important part of the economy.
Given I’m sure I largely agree with the reviewer, what problem did I have? A throwaway comment largely illustrates a view of intangible assets that we have to do away with.
Intangibles Are Real
The reviewer says:
When people think about business investment, they tend to think of spending on real things like factories, computers, and machines.
The Economist, 2017, page 75
The problem with this comment is the implicit dichotomy between “real” things like tangible assets and “unreal” things like intangibles. The fact that intangibles are “things you cannot drop on your foot” (The Economist, 2017, page 75) does not make them unreal. It is a problem to say otherwise. Patents are real, customer relationships are real, brands are real despite none of these being tangible assets. Indeed, think of life more generally. Lots of things can’t hurt your foot but still matter. Emotions are real and sunlight is real. Still, you can’t drop either on your foot (even if you’d want to). No wonder accountants are wary of valuing more intangibles if we all start with the unstated premise that they aren’t real.
Not Real Is Not The Same As Hard To Measure
I understand the argument that intangibles are hard to measure, and so values may be difficult to add to financial records. (We need to work on making the value we estimate better). But I have no sympathy with the argument that intangibles are not real. We should all try to counter such incorrect notions.
For more on Haskel and Westlake’s book see here, here, and here.
Read: The Economist (2017) Capital in the 21st Century: Businesses’ Investment Decisions Can Have Unexpected Consequences, December 16th edition.