Cafe Hayek: The Intangible Wealth of Nations

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December 20, 2005

The Intangible Wealth of Nations

Don Boudreaux

Judging from this post by Arnold Kling, and this summary by Ron Bailey, this new book from the World Bank makes a point that's vital and all but completely overlooked, even by the very best economists. (The point is very much a Julian Simon one.)

Capital is mostly a process; not a stock of stuff. Capital largely is a process of peaceful cooperation; a division of labor ever-deepened by market signals that contain more information than noise; an openness to economic dynamism; a culture of surpressing envy and applauding (or at least tolerating) honest success; a widespread acceptance of the difference between mine and thine, and an abhorence of those who refuse to accept this distinction; an acceptance, at least in practical affairs, of science, logic, and reason and a rejection in these affairs of faith, mysticism, and tradition-for-the-sake-of-tradition.

These intangibles go way beyond inventories, machines, and even precise bits of technical know-how. They are the bedrock of civilization and prosperity.

Posted by Don Boudreaux in Standard of Living | Permalink

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Comments

"... and a rejection in these affairs of faith, mysticism, and tradition-for-the-sake-of-tradition"

I agree with what is aid with the minor exception of the blurb above. Hayek, I believe, would have argued that the intangible qualities of Western faith, mysticism, and tradition are the bedrock on which our civilization builds prosperity, for they allow our moral system which, in-turn, allows for our capitalist system. A rejection of these qualities would almost certainly destroy the spontaneous order upon which we rely.

Posted by: C Gatto | Dec 20, 2005 9:42:31 AM

I'm skeptical of the effort to quantify intangible capital, which the report does: $512,000 per person in America, 80% intangible, 17% in hard assets, and 3% in natural resources. To put a price tag on, say, the capital value of Americans' belief in scientific rationalism rather than mysticism, we would have to determine by how much our production would be diminished if we were to do without it.

One problem is that all of these "factors of production" are interdependent; the value of the combination is much higher than the combined value of the individual factors. Another problem is simply measurement - do you compare America's economy to China's to determine the capital asset value of democracy?

And finally, since capital by this view is anything which contributes to the creation of things of value, at its most abstract capital would then include things like gravity, the sun, and the metabolic process. What portion of my $512,000 should I attribute to mitochondria, without which I would be vastly less productive?

Posted by: eddie | Dec 20, 2005 10:59:17 AM

Hernando De Soto makes this same point in "The Mystery of Capitalism". The persistent problem of the struggling developing world--even countries being "helped" the World Bank and IMF"--is that they make policy reforms but not reforms to the system of capital itself. In essence, they have no system of capital--there is no set of tools for the common entrepreneur to produce large-scale value for society and hence generate wealth.

Interestingly, an area de Soto doesn't study--post-Soviet Eastern Europe--has figured all of this out, and is doing spectacularly. (There are Latin American exceptions--like Chile).

Posted by: Aaron Krowne | Dec 20, 2005 11:55:03 AM

Let me also add that de Soto's take is specific in another way: capitalism isn't just some vague culural milieux; it is a specific set of legal and financial tools. It is easy access to titling. It is transferrability of certificates within the banking and governmental system. It is rapid access to business permits and licenses. It is ownership of your real property and the ability to mortgage it to finance a venture, and so forth. Without these things, the typical entrepreneur runs into enormous roadblocks to participating in the capitalist system, which biases it towards the already-powerful and established.

Posted by: Aaron Krowne | Dec 20, 2005 12:00:00 PM

Or as Will Wilkinson pithily put it, "ideology is infrastructure":

http://www.techcentralstation.com/012604D.html

Posted by: Matt McIntosh | Dec 20, 2005 1:33:21 PM

And they are almost entirely lacking in Latin America.

Posted by: Camilo | Dec 20, 2005 2:24:14 PM