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July 03, 2007

« This Post is Bananas, B-A-N-A-N-A-S | Main | Talent Spikes »

Jonah Goldberg of the LA Times writes that the key to wealth is "between our ears."

[O]ur wealth is really all in our heads. Literally. In the case of the United States, for example, less than a fifth of our wealth exists as material stuff like minerals, crops and factories. In Switzerland, cuckoo clocks, ski chalets, cheese, Rolex watches, timber and every other tangible asset amount to a mere 16% of that country's wealth. The rest is captured by the expertise, culture, laws and traditions of the Swiss themselves.

These numbers come from Kirk Hamilton, a World Bank environmental economist and lead author of a new study, "Where is the Wealth of Nations?" (available at worldbank.org). In a fascinating interview in Reason magazine, Hamilton explains how, when measured properly, "natural capital" (croplands, oil, etc.) and "produced capital" (factories, iPods, roads, etc.) are the smallest slices of the economic pie. What Hamilton calls "intangible capital," which includes the rule of law, education and the like, is by far the biggest slice. The entire planet's "natural capital accounts for 5% of total wealth, produced capital for 18% and intangible capital 77%."

This makes some intuitive sense. We'd all rather be the man who knows how to fish than the man given a fish. Or think of it this way: The Malthusian thinks only about hardware, when the money is in software and design. China makes America's iPods; America collects the profits. ... The greatest symbols of our civilization — from skyscrapers to libraries — not only count for a mere fraction of our wealth, they would turn to dust and rubble if we disappeared. The hardware is nothing; the software, everything. All that civilization is and can become exists within us. If we forget that, we forget literally everything.

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