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This is the first of a two-part series on where all the money in the world is. This week’s post establishes a definition for “money” and then sheds light on who controls the world’s money. Next week covers where that money is invested.
Here’s a paradox: simply adding up all the money in the world won’t reveal how much money is in the world. The combined value, in American dollars, of the world’s major currencies is about $5 trillion according to Blocktown Capital. The value of the world’s real estate, according to Savills Research, is over $300 trillion. There’s more money in the form of land than there is money in the form of money.
Money has three functions: medium of exchange, store of value, and unit of account. A medium of exchange is a practical application - give a surgical team $8,469 and they will remove your gallbladder (I’ll do it for half that). A store of value is practical as well. Six month from now $8,469 will probably still buy one gallbladder removal because the purchasing power of a dollar is relatively stable - it stores value well. A unit of account is less tangible - it measures value. Say a hotdog costs $1. Put another way, $1 costs 1 hotdog. The second phrasing sounds weird. A hotdog is worth $1, not the other way around, because dollars can also buy meatballs, Spandex, and elections. Since everything is measured in dollars, over time we all develop this abstract sense of what a $1 is worth, even though a physical dollar bill has no intrinsic value - it’s just paper (or bits on a screen). This resolves the paradox above. Literally adding up all the money in the world reveals how much money is used as a medium of exchange and store of value, but it doesn’t reveal how much wealth there is in the world. We measure wealth in units of account (in the case of this article, the U.S. dollar). In this post we don’t want to know literally how many dollars are in the world. What we really want to know is how much wealth, measured in dollars, is in the world.
Why measure wealth in dollars?
A dollar, or any unit of account, describes the value of a thing as expressed in terms of all other things. This is a specific form of economic value: exchange-value. Exchange-value is an imperfect way to assess worth. The average family spends $100,000 to raise a child rather than sell the organs of that child for $10,000 profit, gallbladder included. From an exchange-value perspective, this is unfathomably stupid. Maybe exchange-value isn’t everything. There’s more to life than just stockpiling unit of accounts, right? If you’re nodding your head vigorously as you read this, you should know that this is basically the opening argument to Capital by Karl Marx, you filthy socialist. Maybe there should be an accounting method that quantifies the value of your cherished memories of that semester abroad, but today those memories are worthless. In this post wealth will be measured as the sum of the world’s exchange-value.
How much wealth is there in the world?
Nobody knows. The Visual Capitalist ballparks the total at $2.7 quadrillion dollars. If you need help comprehending such a large value, just imagine 2.7 quadrillion Dollar Menu McMuffins. Is that not helpful? It doesn’t matter, $2.7 quadrillion is just a shot in the dark anyways. Accurately valuing the world’s wealth is an impossible task. What’s the Galapagos Islands worth? What’s the mausoleum of Qin Shi Huang worth?
The mausoleum of Qin Shi Hunag is an underground crypt for the 3rd century B.C.E. Chinese Emperor filled with hundreds of warrior statues, called the Terra Cotta Army. What would this fetch on Ebay?
That’s why this post is going to focus on investable assets, a subset of the world’s wealth. Investable means that an asset can be legally owned and there is a market to trade it. The value of all the oil trapped under the polar ice caps is excluded. The value of all the beachfront homes that will be washed away into oblivion when said ice caps melt is included. When the ice caps melt, the oil underneath will be extracted and refined into petro-chemical feedstock used to fatten cows, who, once slaughtered, become McMuffins, a process that will initiate the Arctic oil into the realm of investable assets.
Even estimating the amount of investable assets in the world is tricky. McKinsey says $510 trillion, BCG says less than $200 trillion. There’s a few challenges here. First, different assets can net out. For example, if a bank lends me $500, then I have $500 cash but I also have $500 in debt. One could argue the net wealth is $0 (debt canceling out cash) or one could argue the total wealth is $1,000 (counting both debt and cash). There’s no “right” answer, it’s an accounting question. Second, the value of many investable assets is subjective. Van Gough’s paintings were worthless when he was alive and priceless after he died. The world’s Bitcoin was worth a few hundred million dollars in 2012 and worth over $1 trillion today. Value fluctuates.
MoneyLemma’s unpaid interns spent their winter break grinding through all the numbers and trying to get an accurate estimate of the world’s wealth (special thanks to Guy Fieri Middle School in Daytona for supplying the free interns). For what it’s worth, our final number was $218 trillion. The actual number is meaningless because it’s impossible to conceptualize anyways. The more important thing is how wealth is distributed.
Who owns all the world’s investable wealth?
First, let’s look at the eligible candidates. On a fundamental level, money can only be owned by three classes: people, governments, and non-profit organizations.
Let’s break that down:
People: this includes investable assets owned by any person in the world. Real estate, cash, stocks, rare holographic Charizards, property rights to abandoned mining towns, the original Scooby-Doo mystery van. Importantly, included here is ownership of all companies (and transitively, whatever those companies own).
Governments: Governments can hold all sorts of investable assets, including their own treasury bonds. Accounting for this gets really complicated really fast (more on this later).
Non-profit organizations: Nonprofits are a unique class of organizations because they aren’t owned by any persons or governments. Included here are foundations, endowments, organizations like the U.N. These entities are (usually) for the people, but they can own a ton of investable assets to promote and fund their mission. Some specific examples:
Yale University’s $50 billion endowment (that’s $2.3 million per student)
The Mormon Church has over $100 billion invested around the world
The Bill & Melinda Gates Foundation has over $50 billion in its endowment
Alaska (the state) has something called the Permanent Fund, which holds ~$100 billion in tax proceeds from the oil industry. Each year the fund pays anyone living in Alaska a “dividend” just for being a resident. 2019’s dividend was $1,606.
There are other entities that can hold money - corporations are an example - but these entities are in turn owned by governments, people, and nonprofits. Therefore, all the world’s money is owned, directly or indirectly, by these three groups. That’s a simplified view - next week’s post will break down these categories further.
Out of these three groups, people own the vast majority of the money. Again, a reminder that this is MoneyLemma’s estimate and should be taken with a mountain of salt. Order of magnitude is what matters:
What money do governments have?
Governments having so small a slice may surprise some. The US military budget was $725 billion last year. On top of that, the US government owns all the national parks (85 million acres of real estate) and runs Social Security ($1 trillion budget). Recall, though, that all of that is excluded. Those aren’t investable assets. Government debt is tricky because it can technically be negative net wealth for governments. The US government has a negative $30 trillion asset balance (national debt) but at the same time it can literally print money and owns $9 trillion of its own bonds - so the argument can be made that this visual understates (or overstates) governmental control of assets. The government money that is showing up here is mainly Sovereign Wealth Funds, which are state-owned investment funds. Norway has the largest one - over $1 trillion in its balance, the proceeds of oil, natural gas and, presumably, the remaining spoils of Viking raids.
Getting more granular on who holds the majority of the wealth, such as what type of professions they’re in and where their wealth comes from, is covered on MoneyLemma’s post on the 1%.
Sunday after next: where is the money?
This post established a definition of the world’s wealth and who owns that wealth. Next week’s sequel-post will cover what form that money takes. Stocks? Bonds? Convincing forgeries of rare art? Authenticated Colonial-era powdered wigs? Find out in two Sundays!
