Wealth
Intangible capital
17% of S&P 500 value in 1975, 92% today sits in software, brands and patents. Half of investment is no longer physical, and that value concentrates in a few firms and countries.
The accumulated wealth of Layer 2 is increasingly detaching from physical assets. Most of the value of listed companies now sits in intangibles such as software, brands, patents, data and organisational capital; half or more of business investment goes to non-physical items. And that value concentrates in a few firms and a few countries.
Listed-company value: tangible → intangible
The share left when book (tangible) value is subtracted from the S&P 500's total market value. It has inverted over 50 years.
Ocean Tomo's method: subtract book (tangible) value from an index's total market value and treat the remainder as intangible. The same direction is milder for the S&P Europe 350: 71% in 2015, 74% in 2020.
The intangible share of investment
An economy invests not only in plant and machinery but in R&D, software, brand and organisational capital, and the latter now exceeds tangible investment in the US, UK and Sweden.
The same order of magnitude as US business investment in tangibles (structures + equipment) over the period. Includes computer software, scientific and non-scientific R&D, brand, design and organisational capital.
The narrow definition capitalised in the national accounts; on its own level with equipment investment and above structures investment. Brand, design and organisational capital are still excluded from this figure. The US began capitalising R&D and artistic originals in the 2013 comprehensive revision (software since 1999); that revision raised the level of US GDP for 2012 by 3.6% ($559.8 billion).
In the market sector, intangible investment exceeds tangible investment in the US, UK and Sweden; it is lower but rising in continental Europe. Since the Global Financial Crisis the ratio of tangible investment to value added has fallen markedly, while that of intangible investment has edged up.
The value in a few hands
Intangible value does not just accumulate, it concentrates: four fifths of the world's PCT patent applications come from five countries, a third of the S&P 500 from ten companies.
PCT international patent applications filed worldwide in 2023
Share of PCT applications from the top 5 origins (China, US, Japan, Germany, South Korea)
Published PCT applications by the single largest applicant (Huawei Technologies)
Share of the S&P 500's market value held by its 10 largest companies, It was 19% in 2010; it has surpassed the dot-com bubble peak.
Weight of US equities in the MSCI World index (23 developed markets)
Intangible value does not just accumulate, it concentrates in a few firms and a few countries: four fifths of the world's PCT patent applications come from five countries, and a third of the S&P 500 from ten companies. Market-value concentration is a figure that moves year to year; the shares above are of 2023-2024 vintage.
Even without matter, value is a claim. A line of code, a brand or a patent has zero physical weight; but as a claim staked on future flows of labour and energy it can absorb trillions of dollars of market value.
Layer 2 methodology · §10 →