Money, Minerals, and Economic Wealth: Understanding the Differences

There is a widespread misconception that equates money with wealth, particularly in countries heavily reliant on natural resource exports. This misunderstanding is prevalent in the public, academic, and policymaking spheres, leading to unsound policy decisions that often exacerbate economic situations rather than improve them. It is crucial to foster a better understanding of the nature and implications of money, even within the field of economics.

The misconception that money equals wealth is detrimental because it leads to the dangerous notion that a government or central bank can continually issue currency and credit to solve prevailing economic and social problems. These methods, however, tend to worsen economic conditions and can destroy the national currency and the economy through hyperinflation.

Another prevalent and detrimental misconception is the belief that mineral resources are synonymous with wealth. Many developing countries have abundant valuable mineral resources, yet poverty remains widespread in these regions, where economies are afflicted by rampant inflation, mass unemployment, and economic stagnation, among other issues. Despite having valuable mineral resources, most resource-rich countries have not achieved economic stability, prosperity, and social harmony.

Similarly, continued currency and credit creation has not improved economic stability and prosperity in the so-called developed world. The prevailing fixation on fiat money creation and mineral resources reveals a fundamental flaw in mainstream economic thought and underscores the urgent need for a new approach.

Just as issuing university diplomas does not increase society’s scientific knowledge and understanding, currency and credit creation (monetary inflation) will not raise society’s productivity, real wages, living standards, and socioeconomic well-being. Productivity increases, and greater production and trade expand the pool of economic wealth (goods and services) and raise society’s living standards, not money creation.

Likewise, having mineral resources is not a prerequisite for a nation to attain economic stability and prosperity, nor does having mineral resources necessarily translate into economic development and prosperity, as evidence from Africa and other regions demonstrates.

Understanding that economic wealth is the abundance, relative to scarcity, of goods and services available to a society to meet its needs and wants is crucial. More importantly, socioeconomic wealth and well-being encompass the presence of justice, prosperity, and peace in a society. People and human inventiveness are the most valuable natural resources for creating economic wealth and prosperity, not mineral resources or fiat currency and credit creation.

This article has four parts. The first explains that money is not economic wealth. The second clarifies that mineral resources are not economic wealth, nor do they necessarily translate into economic wealth and societal well-being. The third describes what economic wealth actually is. Finally, the fourth discusses the African fixation on mineral resources and its detrimental implications.

Money is Not Economic Wealth

Money is typically mistaken for wealth, but it is an essential tool that facilitates economic wealth creation and represents it. Money is a remarkable tool that enables modern societies to function and thrive. It allows for the exchange, account, transfer, and store of economic value (goods and services) across time and space. Understanding that money, whether a fiat currency like the United States dollar or a sound form of money such as gold or Bitcoin, is not wealth itself but rather a representation of it is crucial for sound economic policy formulations.

Human societies have been indirect exchange economies made possible by money for thousands of years. Money, as the cornerstone of indirect exchange societies and the fundamental good in the economy, plays vital and interconnected roles. It serves as a medium of exchange, an instrument of account, and a store of purchasing power.

This underscores the crucial and multifaceted nature of money, which can effectively be defined as a tool that facilitates economic activities and human collaboration within and among societies. Its value and attractiveness level are primarily tied to its purchasing power.

According to historical accounts, before the advent of money in ancient times, economic exchange occurred directly, without the intermediation role that money plays. This model of direct exchange societies is known as barter. A barter system is a primitive, subsistence economy with severely restricted production, trade, innovation, and human collaboration.

Money emerged naturally within markets and through gradual experimentation and adaptation over thousands of years, with commodities such as gems, beads, and shells being some of the earliest forms of currency. Silver and gold have naturally emerged as the primary forms of money, with universal acceptability and the longest track record of being used as currency across ages and cultures. The latest developments in monetary evolution are cryptocurrencies and central bank digital currency.

Since 1971, humanity has lived under a monetary system of fiat currencies anchored on and led by the United States dollar. Fiat currency is an unsound form of money with an unlimited supply typically issued and imposed by a government. It lacks a connection to an independent basis of stability, reliability, and honesty, such as a commodity. Although fiat currencies have been tried many times and in many places, the current monetary order, the fiat dollar standard, is the first-ever global experiment in fiat money.

Historically, societies have used currencies to quote goods, services, wages, businesses, personal net worth, credit, and other economic activities. A nation’s economic output is also quantified in currency units. Accustomed to thinking of wealth in money terms, people, including many economists and other scholars, tend to equate wealth with money. It is essential, however, especially for economists and policymakers, to better understand the nature, functions, and implications of money, in this case, that it is not economic wealth.

The prevailing incomprehension of money’s nature and far-reaching implications is detrimental, as it leads to policy choices that undermine economic stability, development, and prosperity. For instance, since the 2008 global financial crisis, the money supply of most countries has expanded exponentially as currency and credit creation (monetary inflation, money printing) have become more normalized.

This monetary policy is thought necessary to revive and stimulate economic growth. Yet, economic conditions continue to deteriorate despite significant fiscal and monetary policy measures to revitalize Western and other economies. Not only have economic conditions deteriorated significantly since the Great Recession (2007-09), but bank failures, financial market volatility, and overall economic instability and strain have also increased noticeably.

Figure 1: The risk of global economic stagnation increases as growth slows, high price inflation persists, and geopolitical tensions remain elevated. Economic conditions across Africa have worsened over the past decade, leading to increased economic instability, hardship, and social unrest.

The deteriorating economic situation in most developed or developing countries shows that money is not synonymous with economic wealth and that artificially expanding the currency and credit supply combined with increasing government (deficit) spending does not create economic wealth and prosperity.

The injection of large amounts of printed currency and credit into the economy does not stimulate economic activity or expand society’s economic wealth in a sound and lasting way. Instead, this monetary policy type leads to further economic distortions and instability, hinders economic development, and insidiously impoverishes society.

Indeed, despite large-scale money printing, accommodating lending conditions, and government spending to boost growth and address economic challenges, there are few signs of improved economic conditions. Since 2008, central banks have injected trillions of dollars, euros, yen, and other currencies into economies and continue monetizing high levels of government debt and spending to revitalize economic growth, but to no avail. Economic conditions continue to deteriorate, and stagnation risks increase.

In Money Demystified: Understanding Why, How, and What It Is, I discuss the nature, functions, and implications of money. A part reads:

Money plays an essential role in modern society as the tool that facilitates the exchange, account, transfer, and store of economic value. It enables large-scale labor division, human cooperation, knowledge sharing, economic development, cultural refinement, and other benefits. Money is a principal element enabling human progress and civilization. Therefore, given its crucial functions and far-reaching implications, money must be as honest, stable, and reliable as possible.

When corrupted and politically manipulated, though it does not cease to perform its vital functions, money becomes an instrument of nationwide fraud, structural injustice, and tyranny that leads to ruinous consequences. Money is the lifeblood of the economy. It represents purchasing power, facilitates economic transactions, and communicates crucial information that coordinates economic activity. When it is corrupted, the economy falters, and society suffers. Thus, maintaining a sound monetary system is morally and materially imperative.

Figures 2 and 3: During Zimbabwe’s hyperinflationary economic collapse, millionaires, billionaires, and even trillionaires lacked food and other essential products. Such events illustrate the difference between money and economic wealth.

Figure 4: Similarly, during Venezuela’s hyperinflationary economic collapse (ca. 2017 to 2022), Venezuelans had to carry large amounts of bolivar notes to buy basic items amid severe shortages of products.

Mineral Resources Are Not Economic Wealth

Crude oil is the principal commodity in the contemporary world and one of the most profitable for a nation to export. Venezuela has the largest proven oil reserves globally, surpassing leading oil-producing countries such as the United States and Russia in the amount of proven reserves. Nevertheless, Venezuela is not a stable and prosperous economy.

The enormous oil reserves have proven to be more of a curse than a blessing to the country. The late President Hugo Chavez's misguided attempt to usher in a socialist utopia resulted in a catastrophic economic collapse that caused Venezuela to drop from the top to the bottom as South America’s most impoverished country. The misguided notion that mineral resources are wealth or can automatically translate into economic prosperity played a significant role in causing the Venezuelan economic and humanitarian disaster.

While some apologists are quick to point to Western sanctions as the cause of Venezuela’s economic collapse, the truth is that no amount of aggressive Western sanctions could have devastated an economy to such a degree. The causes of Venezuela’s disastrous economic collapse are internal (populist but destructive policy choices), with sanctions playing a negligible role.

The United States and other Western states have applied the most aggressive barrage of sanctions on Russia, making it the world’s most-sanctioned country with 18,772 active sanctions. Venezuela is the world’s least-sanctioned country with 747. Despite this, the Russian economy remains relatively stable with improved permanence, having posted higher economic growth numbers than many Western economies. Socialist policy choices based on high oil revenues and money printing devastated Venezuela, not sanctions.

Figure 5: The tragic consequences of Venezuela’s hyperinflationary economic collapse and the subsequent humanitarian and migration crisis. Around 90 percent of the population lives in poverty. In 2012 the rate was 29 percent.

The prevailing notion that mineral resources are wealth or can automatically translate into economic prosperity can be severely detrimental, as Venezuela and other less catastrophic cases across the world illustrate.

This misconception and the prevailing lack of sound economic understanding leads to policy choices with destabilizing and impoverishing consequences. In the case of Venezuela, unsound government policy choices fueled by mineral resource revenue and money creation have been nothing short of catastrophic, leading to severe nationwide economic devastation instead of the socialist utopia Chavez planned.

About 7 million Venezuelans (approximately 20 percent of the population) have left the country since 2015. Venezuela is now a severely impoverished country under an authoritarian government with a devastated economy. Around 90 percent of the population lives in poverty (less than $5.50 per day) despite having the world’s largest proven crude oil reserves.

Venezuela and other mineral-rich countries demonstrate plainly that abundant mineral resources are neither economic wealth nor do they necessarily lead to economic prosperity. Sound policies are crucial. Venezuela is a cautionary tale for African policymakers with socialist views and a fixation on mineral resources as the primary catalyst for economic development.

Similarly, despite being Africa’s largest gold producer, Ghana has been an unstable and troubled economy for most of its postcolonial period, much like other African economies. The country is again embroiled in an economic crisis, struggling with debt issues, rampant inflation, and occasional social unrest.

Another noteworthy example is Angola, the second-largest oil producer in Africa and a major diamond exporter. The country’s already unstable and impoverished economy was further destabilized by the dramatic crude oil price decline in 2014, leading to a prolonged economic crisis and a significant rise in extreme poverty.

The situation in Nigeria, Africa’s leading oil producer, is similar. The country has been afflicted by rampant inflation, erratic currency fluctuations, foreign exchange volatility, and other issues that have led to widespread economic hardship.

Woeful economic conditions are the norm in contemporary Africa, a lamentable situation primarily due to existing statist economic models originating from the West. According to a recent (April 2024) IMF report, Nigeria has fallen from Africa’s largest economy to the fourth largest within a few years, reflecting a significant ongoing economic crisis.

State-directed economic development and raw material exports, models prompted by the West in Africa, have proven disastrous. Most African countries rely on mineral and commodity exports as a driver for economic development, yet stable and thriving African economies remain elusive decades later. Instead, Africa has been economically stagnant for the past three decades, marked by seemingly unending economic turmoil and hardship.

The largest share of extreme poverty ($2.15 per day) has shifted from Asia to Africa, where 60 percent of the world’s extreme poor live in 2020 compared to 14 percent in 1990. According to a 2023 article by the World Bank, this trend is expected to continue, underscoring the pressing need for a fundamental shift in economic thought and policy in Africa away from Western economics to Africonomics. The article points out:

In 1990, fifty-three percent of the world’s population living in extreme poverty were in East Asia alone and 14 percent in Africa. In 2019, only about 4 percent of the world’s population in extreme poverty lived in East Asia. The burden of extreme poverty has shifted from East Asia to Africa, where about 60 percent of the extreme poor were living in 2019. By 2007, Africa became second after South Asia. Africa has since 2011 been the region with the largest and growing share of the world’s extreme poor.

Countries with valuable mineral resources often have unstable, unproductive, and undiversified economies, particularly under autocratic government systems. The misconception that mineral resources equate to wealth and the reliance on exporting these resources perpetuate this issue. The grievous economic conditions in many resource-rich economies are a testament to this. The mistaken belief that mineral resources are wealth and lead to economic prosperity has influenced detrimental policy decisions in these nations, further exacerbating their economic struggles.

As Tyler Bonin notes in a piece discussing the “Resource Curse”:

In a recent paper, Peter Kaznacheev argues that the quality of political and economic institutions (defined and measured by such things as rule of law, property rights, size of government, soundness of money, and trade/business regulation) is a strong determinant of economic growth and overall social development within resource-based economies. Resource-based economies with a high degree of economic freedom have achieved considerable economic growth and social development. Increasing economic freedom in resource-rich developing countries means more economic opportunities. Cronyism and its attached corruption must be eliminated in favor of strengthening property rights and the rule of law, and by reducing regulatory and trade burdens that ultimately serve the interests of the political elite while reducing prosperity for the majority of citizens. The “resource curse” should be called what it is: bad political institutions [and unsound economic policies].

While having abundant mineral resources can be advantageous, it is essential to understand that they represent potential wealth, not actual wealth. The value of a commodity can change drastically over time, potentially becoming worthless in light of technological advancements. For instance, the production of lab-grown diamonds has the potential to disrupt the natural diamond industry.

Structuring an economy based on the export of one or more commodities is imprudent and self-defeating. This approach leads to undiversified, low-productivity economies highly dependent on imports and other external factors, making them more vulnerable to external shocks. Mineral-rich countries such as the United States, Canada, Norway, and others are more stable and prosperous economies, not necessarily because of mineral resources but despite them.

Another example worth noting is the Soviet Union, officially the Union of Soviet Socialist Republics (1922 to 1991). It was the largest country by surface area, giving its totalitarian state access to nearly all minerals, commodities, and natural resources a country could wish for. Despite these abundant mineral resources, the Soviet Union was not a stable and prosperous economy. Quite the contrary, the vast socialist country struggled with widespread poverty, instability, and severe economic problems.

What Economic Wealth Is

Economic poverty is the scarcity of goods and services that society needs for nourishment, enjoyment, and well-being. These include foodstuffs, housing, clothing, energy, healthcare, and sanitation, among other essential and nonessential items. Economic wealth is the pool (the abundance or scarcity) of available goods and services a society can access to meet its needs and wants.

In other words, economic wealth is the quantity and quality of goods and services people in a given polity can access and enjoy. Note that society’s stock of capital goods is included in goods and services as economic wealth. Even a relatively single consumer good like bread reflects a long production process that involves many inputs (capital goods) before it becomes available for consumption.

In the current statist global order established by Western imperialist states, most government systems, even those seemingly democratic, are autocratic. Contemporary governments heavily repress free enterprise and free trade and maintain fiat monetary systems. The systematic repression of free enterprise, free trade, and sound money leads to artificial, government-induced economic instability and poverty, causing suffering, destruction, and loss of lives.

Anti-free enterprise and free trade systems, combined with other unsound policies such as a fiat currency system and excessive taxation, hinder economic wealth creation and impoverish society. This results in artificial scarcity and limited access to goods and services for people to choose from and appreciate.

Artificially created scarcity leads to higher levels of economic poverty and related effects like increased unemployment, criminal activities, domestic abuse, and alcoholism, among other detrimental issues that destroy lives and families. Policy decisions directly impact society for the better or worse, hence the need for sound economic understanding. The authorities promote a more prosperous and peaceful society by adopting policies that foster economic stability and wealth creation.

Conversely, socialist and other statist policies lead to economic instability, crises, impoverishment, and social tensions. A government that genuinely serves the people facilitates a growing pool of goods and services that society members can access by maintaining a socioeconomic system of free enterprise, free trade, and a sound monetary system.

Understanding that neither money nor mineral resources are economic wealth is especially crucial in policymaking. Most politicians and state economists have yet to consider this consequential distinction. The confusion regarding what economic wealth actually is and how it is most effectively generated also underpins another harmful policy choice, namely protectionism. With its roots in mercantilist thought, protectionism is particularly detrimental to less developed economies.

Some critics of free trade argue for protectionism because Western and other countries maintain an extensive apparatus of subsidies, tariffs, and other protectionist measures in their economies. While it is true that Western countries have preached free trade while not practicing it, this does not mean that African economies should maintain the same rivalrous and belligerent economic posture, especially among themselves.

Extensive protectionist measures and continued currency debasement are central features of the existing Western global order, which is rooted in racism, statism, and militarism. The Western approach to economics and the other social sciences rests on utilitarian and positivist frameworks, disregarding ethics and justice considerations.

A static and zero-sum view of wealth contributes to the misconception that money and minerals are wealth. This view forms the basis of protectionism and other prevailing statist models originating from the West. The Western worldview is racist, rivalrous, and aggressive, based on a Darwinian conception of humans and human relations. These perspectives have impacted Western philosophical and economic models and driven policy choices of Western imperial states, resulting in the current statist global order mistakenly perceived as capitalist.

Economic wealth and prosperity are not static, and they are not a zero-sum game where one person’s (or nation’s) gain is necessarily another’s loss. In economic relations and commerce, unlike in sports, one person’s and nation’s economic prosperity does not have to come at the expense of another.

Openness and trade with others enhance a nation’s economic wealth and prosperity. Protectionism, economic rivalries, and closedness hinder economic wealth creation and prosperity, leading to increased artificial economic scarcity and poverty.

Economic wealth is expanded through a free enterprise and free trade system, benefiting the societies involved and the world. Moreover, maintaining a free trade policy fosters peace, cultural exchange, and friendship among trading economies. Unfortunately, the West, led by the United States, has pushed the world in the opposite and destructive direction: statism, protectionism, currency debasement, and economic warfare.

Mineral resources are not a prerequisite for achieving economic development and prosperity. A society needs a stable and reliable currency system, the rule of law, property rights, and market-oriented policies to achieve and maintain economic prosperity, regardless of abundant mineral resources.

Adopting policies that facilitate economic wealth creation and expand the pool of goods and services available to people is crucial. Maintaining free enterprise, free trade, and sound money policies is the most effective approach to creating the broadest economic prosperity and fostering a more prosperous, equitable, and peaceful society.

People and human ingenuity are the most valuable natural resources for creating economic wealth and prosperity, not mineral resources or currency and credit printing. Natural resources are inputs that entrepreneurial individuals use and transform into goods and services. They are potential sources of wealth but are not wealth in themselves.

It is worth reiterating the distinction between economic and socioeconomic wealth. Economic wealth is the level of abundance of goods and services a society can access to meet its needs and wants. More importantly, socioeconomic wealth and well-being involve the presence of structutral justice, peace, and a stable and prosperous economy.

The African Fixation on Mineral Resources

There is a widespread belief in and reliance on mineral resources as the primary catalyst for economic development in Africa. This focus is insidiously detrimental to achieving integrated, stable, and thriving African economies. It prevents African leaders from recognizing and adopting the approach that can effectively transform African economies in a unified and collaborative manner.

Moreover, the preference of many African academics and policymakers toward statist/socialist systems further reinforces the emphasis on mineral resources, perpetuating economic turmoil, stagnation, and dependence. In other words, the African fixation on mineral resources and inclination toward statist/socialist systems impede African economic development, prosperity, and independence.

As noted earlier, it is crucial to understand that having abundant mineral resources does not ensure economic stability and prosperity. African economies would benefit tremendously if African policymakers shifted their focus away from mineral resources and statist/socialist systems and adopted Africonomics. Africonomics presents a fundamentally different paradigm and a new path forward for African nations, offering a transformative economic model for achieving integrated, stable, and thriving African economies.

Although more pervasive in Africa due to historical and contemporary reasons, fixation on mineral resources is not unique to Africa but stems from a more widespread lack of understanding of sound economics. Unsurprisingly, in a statist global order, statist economics dominate, and people are conditioned into statist economic thought through most schools and universities. However, statist economic models are coercive, confiscatory, and repressive, leading to ruinous consequences.

The entrenched view that minerals are the key to achieving economic development is mistaken and detrimental. It leads to the adoption of unsound economic policies, or outright socialist ones, as in the case of Venezuela, which ended in economic disaster. These policies are typically based on nationalist and protectionist attitudes toward mineral resources. Africa’s most valuable natural resource is its people. The continent’s youthful population and their productive capacity hold the key to Africa’s economic transformation and prosperity, not the mineral deposits in African soil.

Recognizing that Africa is not unique in endowment with vast mineral resources is also beneficial. The United States, Canada, Russia, Brazil, Kazakhstan, Australia, Mexico, Afghanistan, and many other countries also have abundant mineral resources. The tendency to overestimate the value and significance of minerals is a common mistake in Africa. Africa must abandon its fixation on mineral resources as the primary catalyst for economic development and adopt policies that foster economic wealth creation and sound development.

The West consistently promotes the focus on mineral resources because it is in the Western interest to maintain the commodity export model in Africa. A key strategic goal of the West is to keep Africa as a source of inexpensive raw materials and not much else. Thus, African economies must abandon Western statist economic models to escape their woeful conditions.

A minerals-based approach will not lead to stable, productive, and prosperous African economies. Economic conditions across the continent have worsened significantly over the past decade, and social unrest has increased due to continued economic turmoil and hardship. The global economic landscape is also increasingly precarious, with stagnating growth and increasing protectionism and economic warfare.

The current geopolitical situation is perilous and marked by elevated tensions and fragmentation. In light of deteriorating local and global conditions, African policymakers are encouraged to prioritize African economic development and prosperity by abandoning Western economics and embracing Africonomics. Africonomics offers a transformative economic model for achieving integrated, stable, and thriving African economies.

Africa’s true wealth and most significant advantage are not in mineral resources but in its people, particularly its youthful demographic profile and the creative and productive capacity that comes with it. Tragically, the coercive, confiscatory, and repressive statist/socialist systems imported from abroad and maintained by neo/post-colonial African governments continue to repress, afflict, and squander this invaluable resource severely. African people, not African minerals, are Africa’s greatest asset and most valuable natural resource.

The most valuable natural resources are people and human ingenuity. There is a pressing need to shift the focus from mineral resources to Africa’s invaluable resource: its youth population. African policymakers are morally obligated to create stable, conducive, and attractive economic environments by adopting the nilar, a sound (gold-based) currency system formulated for African economies, and a free enterprise and free trade policy through the AfCFTA. Only with this approach can a new reality of integrated, stable, and thriving African economies be achieved.

African nations have much to gain from moving away from the focus on mineral resources and Western statist economic models and instead adopting the transformative economic model Africonomics offers. This shift will enable African economies to prosper by providing a stable and reliable common currency and economic freedom, which are crucial for fostering African capital formation, investment, free enterprise, production, and free trade.

Embracing Africonomics is essential for achieving integrated, stable, and thriving African economies and unlocking Africa’s unparalleled potential to create economic wealth and prosperity.

Conclusion

Money and mineral resources are typically confused with wealth. This misconception is detrimental as it leads to unsound policy choices with ruinous consequences. These are distinct concepts with different meanings and implications.

Money is not wealth itself. Money is the cornerstone of indirect exchange societies and the fundamental good in the economy. It represents purchasing power, intermediates economic transactions, and communicates crucial information, providing an ethical and effective system for economic decision-making. It is a remarkable tool enabling modern societies to function and thrive. Economic wealth is the pool (the abundance or scarcity) of available goods and services a society can access to meet its needs and wants. More significantly, socioeconomic wealth is the prevalence of structural justice, peace, and a stable, prosperous economy.

Many people, including some economists, mistakenly believe that mineral resources are the cornerstone of economic development and prosperity. Natural resources such as minerals are not economic wealth, nor do they guarantee a stable and thriving economy. They are valuable inputs, nothing more. Despite abundant mineral resources, numerous mineral-rich nations face rampant economic instability and poverty due to unsound policies and autocratic systems. This underlines the importance of sound economic policies over minerals for achieving economic stability, development, and prosperity.

Focusing on minerals as the primary economic development catalyst is misguided and detrimental. The fixation on mineral resources hinders the continent’s economic integration and transformation, as it prevents African policymakers from adopting sound and liberating policies. Africa must shift its focus away from reliance on mineral resources and Western statist economic models. African people, not African minerals, are Africa’s greatest asset and most valuable natural resource.

The centralized, confiscatory, and oppressive statist systems of the postcolonial era have severely repressed and thus squandered this invaluable resource. Africonomics provides a new path forward, a transformative economic model for achieving integrated, stable, and thriving African economies, leading to a prosperous and dignified postcolonial Africa.