The Wealth of Nations: Rule of Law & Energy Per Capita

Kumar Thangudu

July 14, 2018

Adam Smith proposed that the Wealth of Nations was built upon the heels of selling their goods to other countries and buying nothing in return.

We’ve seen this isn’t true, China is a great example, they have a funny money system at play and massive trade imbalances.

How should we evaluate the wealth of nations then?
I propose a complementary lens to evaluate the wealth of nations.

I believe the wealth of a nation is directly related to its quality of Rule of Law and its MWh/capita production and efficiency.

Rule of Law
This is a complex myriad of navigation. Generally, my belief is that the following components make up a better rule of law.

  • Clear monetary policy within banks and the ability of new banks to start.
  • Cross border money policy being straightforward and understandable, ease of transmission
  • Ease of buying, selling, owning, and protection of property.
  • Simple tax policy that the layman can comprehend.
  • Secularism
  • Many more….

Countries like Saudi Arabia may be wealthy, but they do not have a wealthy populace that is free, secular, and remotely egalitarian by western standards.

Countries like Norway are wealthy and chock full of oil.

Energy Production — Steel & Nitrogen
A country that surpasses ~2MWh/capita can produce enough steel & nitrogen to build a modern and performant civilization. Looking at a simple chart of energy consumption per capita from Wikipedia gives a lot of insight.

Notice that these countries are considered for the most part developed countries.

Steel is the backbone of infrastructure built on the heels of viable energy production and feedstock coke-ash(coal). Steel is energy intensive and a primary ingredient for roads, buildings, and everything in between.


“the world now consumes in one year nearly as much steel as it did during the first post-World War II decade, and (even more incredibly) more cement than it consumed during the first half of the twentieth century.”
― Vaclav SmilMaking the Modern World: Materials and Dematerialization

Steel is everywhere.


Nitrogen is the farming hack that enabled humanity to massively accelerate the production of food.

In 1909, Fritz Haber put osmium in a steel chamber, pumped it with Nitrogen and Hydrogen, pumped in heat and pressure, and the output was Ammonia which was the difficult raw feedstock for synthetic fertilizers.

Carl Bosch made it possible to produce tons of nitrogen based fertilizer in a process now called the Haber-Bosch process.

The Haber Bosch process is now responsible for 1/3rd of the world’s food supply.

The next time you walk into a country, try to guess it’s MWh/capita. The rule of Law is pretty straightforward to characterize as advanced or primitive.

Civilizations that have low energy production rates have increased birth rates. Electrification seems to decrease birth rates at large. One study of Indonesia suggests that ~25% of the decrease in birth rates in certain countries can be attributed to electrification.

Look at this list of countries and you’ll notice that poor electricity lacking countries have high birth rates.

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