In his 2016 annual letter (pdf, 28 pp) to the shareholders of Berkshire Hathaway, Warren Buffett makes this observation about America’s economic dynamism.
“One word sums up our country’s achievements: miraculous. From a standing start 240 years ago – a span of time less than triple my days on earth – Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers.
“You need not be an economist to understand how well our system has worked. Just look around you. See the 75 million owner-occupied homes, the bountiful farmland, the 260 million vehicles, the hyper-productive factories, the great medical centers, the talent-filled universities, you name it – they all represent a net gain for Americans from the barren lands, primitive structures and meager output of 1776. Starting from scratch, America has amassed wealth totaling $90 trillion.”
Buffett is right about the factors that create wealth — ideas (or human ingenuity), ambition, the free market system, and the rule of law. Let’s explore some of these in more details.