Wealth of Nations

Socialists and "progressives" of various stripes always want to argue that the distribution of wealth among nations is basically due to luck, in large part related to the distribution of natural resources.

This is disprovable in about 2 seconds:  Russia (via Cafe Hayek) and the Netherlands.   Russia, resource-wise, is perhaps the richest country in the world.  It is, our could be, among the largest producers of any number of natural resources, from diamonds and gold to oil and uranium.  But its economy is a disaster.  The Netherlands, resource wise, has about nothing.  There are few third world economic hell-holes that don't begin with infinitely more resources than the Dutch, but the Dutch are among the richest nations in the world. 

Wealth comes not from labor or capital or resources - wealth comes from the mind, and as such requires a rule of law where the mind is free not only to imagine new ideas but to pursue and reap the fruits of these ideas.  As I said in this article:

From the year 1000 to the year 1700, the world's wealth, measured as GDP per capita, was virtually unchanged.
Since 1700, the GDP per capita in places like the US has risen, in real
terms, over 40 fold.  This is a real increase in total wealth - it is
not money stolen or looted or exploited.  Wealthy nations like the US
didn't "take" the wealth from somewhere else - it never even existed
before.  It was created by the minds of human beings.

How?  What changed? 

  1. There was a philosophical and intellectual
    change where questioning established beliefs and social patterns went
    from being heresy and unthinkable to being acceptable, and even in
    vogue.  In other words, men, at first just the elite but soon everyone,
    were urged to use their mind rather than just relying on established
  2. There were social and political changes that greatly increased
    the number of people capable of entrepreneurship.  Before this time,
    the vast vast majority of people were locked into social positions that
    allowed them no flexibility to act on a good idea, even if they had
    one.  By starting to create a large and free middle class, first in the
    Netherlands and England and then in the US, more people had the ability
    to use their mind to create new wealth.  Whereas before, perhaps 1% or
    less of any population really had the freedom to truly act on their
    ideas, after 1700 many more people began to have this freedom. 

So today's wealth, and everything that goes with it (from shorter
work hours to longer life spans) is the result of more people using
their minds more freely.



  1. Ashish Hanwadikar:

    Even if there are "natural" resources available (like say water, land etc.) we still need to apply our brains to make use of them. To take just a simple example, what is more useful: more matter or knowledge of E = mc2 equation.

    The utility that we receive from nature can be multiptle millions times by application of our minds!

  2. yeah whatever:

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  3. Daran:

    You could say the natural resource of the Netherlands are the three major rivers Rhine, Maas and Waal. Rivers used to be major factors in trade patterns.
    The threat of flooding (both by the sea and these rivers) forced the people of the Netherlands to organize themselves.

    But I agree with your thesis that it takes both freedom and the rule of law to create wealth.

  4. Estate Legacy Vaults Blog:

    Wealth from Minds

    From the year 1000 to the year 1700, the world's wealth, measured in GDP per capita, was virtually unchanged....  So sayeth Coyote Blog Today's wealth, and everything that goes with it (from shorter work hours to longer life spans) is the resu...