Reader Mike N. contributed this review of The Mystery Of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. Hernando de Soto, for those unfamiliar, is an interesting character in his own right.
We read about the new economy, cyber-squatting, e-cash, intellectual property, and the Wild West on the internet. How can we intelligently consider these concepts if we are unclear about what the old economy, or cash, or physical property (let alone the real Wild West) is?
Hernado de Soto addresses the latter questions while making the case for his central thesis: that Western property law and administrative infrastructure is the reason for the ascendency of the Western economy.
The book is framed as an investigation of the 'Five Mysteries of Capital' during which the author enthusiastically demonstrates the shortcomings of common knowledge on the subjects of poverty, money, law, and history.
De Soto's mysteries are, in short:
- The Mystery of Missing Information. How much poverty, and conversely, how much property is there in poor countries, and how do we measure it? Huge numbers of people live and work off the books: they have no clear title to their land and possessions, they pay no taxes, they have no credit. We're not talking about subsistence farming here, but about buses and taxis, repair shops, and light industry. This 'Shadow Economy' is explored, and the 'Dark Capital' bound to undocumented resources is examined.
- The Mystery of Capital. What is Capital, where does it come from? De Soto views capital as not just a proxy for physical assets, but as a side effect of of property laws and infrastructure. His explanation of capital amplification derived from the standardization, globality, and liquidity that is given to property by standard protocols and infrastructure echoes common reflections on the internet phenomenon.
- The Mystery of Political Awareness. Why have so many governments failed so badly at economic reform? Simply because they do
not realize they are in the midst of their own Industrial Revolution, 200 years late. De Soto argues that the true extent of
the shadow economy was unknown until recently, and methods of dealing with it are in process. It is refreshing to read something
on this subject that acknowledges the hard work and sincerity of many of these governments, rather than rehashing accusations of
incompetence and corruption.
4. The Missing Lessons of U.S. History. How did the U.S develop an infrastructure that nurtures successful Capitalism? This section is an entertaining overview of the evolution of U.S. property law (believe it or not). What I found interesting was the way that 'law' would spontaneously arise in circumstances where the existing system was inadequate or non-existent. Also of interest were the examples of legislation chasing and converging (roughly) with reality over a century long period.
5. The Mystery of Legal Failure. What legislation is required to = enfranchise the people of the Third World? Again, the author makes an argument for law tracking reality. In the Roman legal tradition, laws are not created, they are 'discovered'; the best laws are those that fit existing practice. Well intentioned land reform measures fail because they do not reflect the actual situation. People do not want to be uprooted, they want title to what they believe is theirs.
De Soto tells a story about walking through rice paddies in Indonesia - = there were no survey markers or fences, but he knew whenever he crossed a property line - a different dog barked at him. He tells a group of ministers working on land reform to start at the bottom; listen to the dogs. and work up from there. His message is simple -- discover the law, then write it.
In each of these sections the author firms up his arguments with a = unique perspective based on solid research as much as theory. The final section of the book gives sober and well thought out step-by-step directions to lift people out of poverty and invisibility, again based on experience in field programs, rather than ideology.
This book is infused with a sort of passion that gives the arguments and figures an unexpected fascination. It is neither an anti-globaliztion rail nor a 'greed is good' apologia, but a well thought out investigation into a subject the author cares deeply about. For myself, I care little for economics, but I am familiar with engineering. De Soto approaches his topic like an engineer; he is interested not in promoting a theory, but in solving a problem.
I would recommend this book to two audiences: anyone interested in world poverty or economics, or those interested in the interaction and evolution of laws (ill-informed or not) and the Web. I would also recommend that we start barking.
You may find out more about the author at www.ild.org.pe.
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