What are real assets?

A number of economic analyses focus on changes in ownership between real and financial assets.  By way of example, Blackrock wrote a report last year titled “The Ascent of Real Assets”, suggesting that investors are increasing their ownership of “real” things like land, infrastructure, and natural resources over “financial” things like stocks or derivatives.  The simplest dichotomy between real and financial assets I can find comes from Lasse Pedersen who describes the former as things that “produce goods and services” and the latter as things that offer a claim on the former.  I think a conceptually-meaningful difference between the two may be slightly more complicated.

The first point is that various liabilities are not measured and classification of what is measured as real or financial depends on the legal allocation of liability, which is less transparent, for example, if two partners pledge their personal wealth to the banker than if they incorporate allowing that put to be realized in the traded price.  Even without debt, those who buy goods and services sold may have some future claim on damages incurred depending on the judicial system, and the value of these claims on the real good of “factory + management” isn’t included in measures of real versus financial.

Moreover, if the company is incorporated and traded, expectations of future growth are included in the price.  In this sense, the stock market is just sort of an extension of the fractional-reserve nature of the banking system.  If there is a central bank that holds gold reserves as capital against all bank reserves, private banks may fund various partnerships through bank loans.  Assuming that the aggregate banking system does not decide to increase its reserve ratio, all real assets that have been bought may be sold if prices have not changed and new buyers can expect to operationalize the assets approximately as well as the previous owners.  But if most partnerships incorporate the aggregate market capitalization will eventually reach a point where it cannot be materially liquidated at once without sparking something akin to a bank run.

Seeing this is simple.  Everything can only be sold for how much money there is.  There is enough money to buy the original real assets like factories and the like so there must be enough money to sell what was bought if the banking system does not increase reserves held at the central bank.  If the market capitalization after incorporation increases more than the amount of money created by the banking system, it is essentially funded by some entity acting like a zero-reserve bank.  Ultimately, therefore, it seems the entire dichotomy is a question of the unit in which central bank liabilities are denominated.  If central bank liabilities are only denominated in something the government can create, people that hold the currency become the entity acting like a “zero-reserve bank”.

Given this, I’m not sure why people occasionally try to classify changes in financial versus real asset ownership between countries or over time.  Much of it is just a reaction to unmeasured changes in the allocation of liabilities, like tort or bankruptcy laws.  If the purpose of a real asset is to somehow assert a claim on current production that is in some way guaranteed, its format depends on the liability structure of the central bank.  And it must in some way be guaranteed for it to be interesting because otherwise it is no different than a financial asset in that there is nothing curious about the fact that relative prices change.  Someone might buy from the government a claim on some portion of the fixed currency it creates which would be analogous, in a previous era, to the ownership of gold or silver.  This truly “real asset” would be a “real liability” on part of the government, and therefore everyone