“If you’ve got a business—you didn’t build that. Somebody else made that happen,” declaredPresident Barack Obama at a campaign stop last week in Virginia. Evidently, the president believes that economic growth and job creation are largely the result of actions taken by benevolent government agencies. But while it is certainly the case that good governance is essential, entrepreneurs engaging in voluntary cooperation coordinated through competition in free markets is what actually creates wealth and jobs.

In the Virginia speech, the president also observed, “Somebody helped to create this unbelievable American system that we have that allowed you to thrive.” As parts of “this unbelievable American system” that “allowed” businesses to “thrive,” the president cited “a great teacher” and that “somebody invested in roads and bridges.” With regard to building a business, the nebulous “somebody” who “made that happen” is, of course, government.

So what are the real background conditions for enabling economic growth and the production of increasing wealth? Intuitively most people think of wealth as chiefly consisting of material items, e.g., factories, farms, forests, mines, houses, ports, telecommunications networks, and yes, roads and bridges. However, research at the World Bank has found that once all of a country’s natural and produced capital is added up, they together generally constitute less than 20 percent of its actual wealth; the remaining 80 percent is intangible. What is intangible wealth? The World Bank study, The Changing Wealth of Nations [PDF], defines it as “human capital, social, and institutional capital, which includes factors such as the rule of law and governance that contribute to an efficient economy.”

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