Traditionally, differences in wealth between nations are explained by differences in institutional, economic, geographic, and historical-political factors (Landes, 1998). Newer models also include human capital, the stock of individuals’ abilities that allows societies, nations, and cultures to work in an economically effective way. In the present study, we used different cognitive-ability data sets from 90 countries to show that cognitive ability is the decisive factor of human capital: Mean national cognitive ability predicts productivity, but the cognitive ability of the 95th percentile of the population (the
intellectual class), via its direct influence on national excellence in scientific achievement and technological progress, is
a more important predictor of a nation’s wealth. Both of these ability levels are relevant for economic growth.
Additionally, the ability level of the intellectual class increases a society’s economic freedom, which exists when private individuals and the leaders of companies can choose freely how to work, invest capital, and produce and consume goods and services. The increase in economic freedom also has a positive effect on societies’ wealth. Analyses show that this pattern is stable across time, and it is independent of different variable measurements and data sets. On the one hand, the ability level of an intellectual class (relative to the general cognitive ability of the society) predicts wealth through excellence in scientific and technological achievements and by changing economic and political institutions in a more liberal, democratic, constitutional, and efficient way, all of which further wealth. On the other hand, wealth, economic freedom, and high intellectual achievement themselves have a positive effect on society’s cognitive ability at all levels. In the long run, the positive interactions between cognitive ability and the intellectually stimulating quality of the physical, social, institutional, and cultural environment are mutually reinforcing, producing what economists refer to as a virtuous spiral.
