& WE'VE ONLY BORROWED $8 TRILLION AGAINST THAT? (via Robert Schwartz):

The Intangible Wealth of Nations: Why you're worth more than you think (Ronald Bailey, 12/16/05, Reason)

For the average American living in the United States is like having more than half a million dollars in wealth. So says a new study from the World Bank, Where is the Wealth of Nations?: Measuring Capital for the 21st Century, which makes estimates of the contribution of natural, produced, and intangible capital to the aggregate wealth of 120 countries.

Why are Americans so well off? It's not just because of America's fruited plains and its alabaster cities. In fact, it turns out that such natural and man-made resources comprise a relatively small percentage of our wealth.

The World Bank study begins by defining natural capital as the sum of nonrenewable resources (including oil, natural gas, coal, and mineral resources), cropland, pastureland, forested areas, and protected areas. Produced capital is what many of us think of when we think of capital. It is the sum of machinery, equipment, and structures (including infrastructure) and urban land. The Bank then identifies intangible capital as the difference between total wealth and all produced and natural capital. Intangible capital encompasses raw labor; human capital, which includes the sum of the knowledge, skills, and know-how possessed by population; as well as the level of trust in a society and the quality of its formal and informal social institutions.

Once the analytical framework is set up, what the researchers at the World Bank find is fascinating. "The most striking aspect of the wealth estimates is the high values for intangible capital. Nearly 85 percent of the countries in our sample have an intangible capital share of total wealth greater than 50 percent," write the researchers. They further note that years of schooling and a rule-of-law index can account for 90 percent of the variation in intangible capital. In other words, the more highly educated a country's people are and the more honest and fair its legal system is, the wealthier it is.

Human capital doesn't even get factored into our already staggering $50+ trillion household net worth.

Posted by Orrin Judd at December 19, 2005 3:35 PM