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"The hour of capitalism's greatest triumph," writes Hernando de Soto, "is, in the eyes of four-fifths of humanity, its hour of crisis." In The Mystery of Capital, the world-famous Peruvian economist takes up the question that, more than any other, is central to one of the most crucial problems the world faces today: Why do some countries succeed at capitalism while others "The hour of capitalism's greatest triumph," writes Hernando de Soto, "is, in the eyes of four-fifths of humanity, its hour of crisis." In The Mystery of Capital, the world-famous Peruvian economist takes up the question that, more than any other, is central to one of the most crucial problems the world faces today: Why do some countries succeed at capitalism while others fail?In strong opposition to the popular view that success is determined by cultural differences, de Soto finds that it actually has everything to do with the legal structure of property and property rights. Every developed nation in the world at one time went through the transformation from predominantly informal, extralegal ownership to a formal, unified legal property system. In the West we've forgotten that creating this system is also what allowed people everywhere to leverage property into wealth. This persuasive book will revolutionize our understanding of capital and point the way to a major transformation of the world economy.


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"The hour of capitalism's greatest triumph," writes Hernando de Soto, "is, in the eyes of four-fifths of humanity, its hour of crisis." In The Mystery of Capital, the world-famous Peruvian economist takes up the question that, more than any other, is central to one of the most crucial problems the world faces today: Why do some countries succeed at capitalism while others "The hour of capitalism's greatest triumph," writes Hernando de Soto, "is, in the eyes of four-fifths of humanity, its hour of crisis." In The Mystery of Capital, the world-famous Peruvian economist takes up the question that, more than any other, is central to one of the most crucial problems the world faces today: Why do some countries succeed at capitalism while others fail?In strong opposition to the popular view that success is determined by cultural differences, de Soto finds that it actually has everything to do with the legal structure of property and property rights. Every developed nation in the world at one time went through the transformation from predominantly informal, extralegal ownership to a formal, unified legal property system. In the West we've forgotten that creating this system is also what allowed people everywhere to leverage property into wealth. This persuasive book will revolutionize our understanding of capital and point the way to a major transformation of the world economy.

30 review for The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else

  1. 5 out of 5

    Doug

    More than most conservatives, Hernando De Soto understands that, even with the death of Cold War socialism, the “advocates for capitalism are intellectually on the retreat” (209). “The hour of capitalism’s greatest triumph is its hour of crisis.” Perhaps this explains the recent rise in panicked defenses of free markets, though most of these defenses simply regurgitate Reagan-era arguments with no realization of how the debate has shifted and deepened. De Soto observes, “for those who have not n More than most conservatives, Hernando De Soto understands that, even with the death of Cold War socialism, the “advocates for capitalism are intellectually on the retreat” (209). “The hour of capitalism’s greatest triumph is its hour of crisis.” Perhaps this explains the recent rise in panicked defenses of free markets, though most of these defenses simply regurgitate Reagan-era arguments with no realization of how the debate has shifted and deepened. De Soto observes, “for those who have not noticed, the arsenal of anticapitalism and antiglobalization is building up. Today, there are serious statistics that provide the anticapitalists with just the ammunition they need to argue that capitalism is a transfer of property from poorer to richer countries” (214). So right. De Soto’s book, basically, has just one point throughout that he reiterates in several ways: that capitalism isn’t working in non-Western countries because, though they have wealth, they lack legally enforceable property rights. Obviously there’s truth here. Free marketers have been saying this for decades. And, to his credit, de Soto dismisses typical conservative explanations of poverty that blame poverty primarily on the poor – low I.Q.s, laziness, lack of entrepreneurial spirit. He just keeps pointing to a lack of clear property rights. But the counterexamples to his claim are easy. If clear property rights are so central, then why is there still serious poverty in countries, like the U.S. and Britain, with systems of clear property rights? It seems he’d have to revert to those old cultural explanations in those cases. Going the other direction, clear property rights haven’t seemed all that necessary in generating great wealth. The West started growing rich – take British, Dutch, and Spanish colonialism – long before any country had a clear system of property rights (in fact, such rights would have greatly hindered early wealth accumulation). This is due to the fact that great wealth has historically come from state interventions over centuries. That’s simply the plain history of capitalism starting from Henry VIII’s “redistributions” to the Bush-Obama bailouts. Great wealth has always depended on a very intrusive state. Strategically, de Soto’s prescriptions will fail because of his Pollyanna conservatism. He actually thinks this debate is about ideas. He thinks people just need to wake up and hear the stats and facts about clear property rights and then “the government will be in a position to move the whole issue of poverty dramatically into its agenda for economic growth” (191). I couldn’t believe a grown man wrote that line. He goes farther: his reformers can “use facts and figures to win over vested interests. The elites must support reform not out of patriotism or altruism but because it will enlarge their pocketbooks” (191). Enlarging pocketbooks more than by state interventions on their behalf? The elites didn’t exclude people from property and make complicated bureaucracies absent-mindedly. There’s a long, documented history of vested interests protecting themselves by laws and bureaucracies and special privileges (just one example, check Naomi Klein’s Shock Doctrine). Near the end of the book, de Soto says, “the goal of formal property is to put capital in the hands of the whole nation” (205). But capitalist nations have always gone to great lengths to do just the opposite. Why change something that works so well for the powerful? Capitalist nations have fought many wars and spent trillions, especially in South America, to restrict property and capital. Poverty is no accident. It was and is an important part of Western policy. This was not done in the dark. The U.S., itself, has time and again, before the Cold War and after, explained its need to hold down any competing nations. To think that cumbersome bureaucracy and unclear property rights in those circumstances are just accidental blindspots fixed with facts and figures is criminal naïveté. Perhaps that’s why de Soto can say such insanities as, “Looting, slavery, and colonialism now have no government’s imprimatur” (217). Ask Afghanistan and Iraq. No wonder “advocates for capitalism are intellectually on the retreat.”

  2. 4 out of 5

    Gordon

    Written by a Peruvian author, this book is wonderfully enlightening for anyone interested in issues of 3rd World economic development. De Soto's central thesis is quite simple: you can't solve the problem of stagnant, poverty-stricken economies unless you figure out how to make credit available so that people can start and operate businesses. But you can't get credit if you have no assets to secure it with. And you have no significant assets you can call your own if you can't establish title to Written by a Peruvian author, this book is wonderfully enlightening for anyone interested in issues of 3rd World economic development. De Soto's central thesis is quite simple: you can't solve the problem of stagnant, poverty-stricken economies unless you figure out how to make credit available so that people can start and operate businesses. But you can't get credit if you have no assets to secure it with. And you have no significant assets you can call your own if you can't establish title to your land and house. And that's precisely the problem of much of the 3rd world -- where you have vast squatter communities on the periphery of virtually every major city. Those squatters may have been there for decades, but no matter. They still can't establish title to land or house. Not only that, they're vulneable to eviction, which leads to another chronic problem of countries where property rights are shaky: violence. It takes armed force to protect your property, so societies without the rule of law for property rights also lack the rule of law for personal safety. It's a compelling argument. I recommend the book highly.

  3. 4 out of 5

    Veronica

    Given the immense value of savings, the dogged perseverance, thrift, and ingenuity of the people in developing countries, why have they continued to lag behind economically? This books answers that question by exposing the lack of property rights in the developing world. Most assets in the developing world are dead capital, and 80% of the world is undercapitalized. Discusses the rapid expansion of extralegal sector, the conceptual universe of capital, legal property as the key to surplus value (s Given the immense value of savings, the dogged perseverance, thrift, and ingenuity of the people in developing countries, why have they continued to lag behind economically? This books answers that question by exposing the lack of property rights in the developing world. Most assets in the developing world are dead capital, and 80% of the world is undercapitalized. Discusses the rapid expansion of extralegal sector, the conceptual universe of capital, legal property as the key to surplus value (so much for labor producing surplus value eh, Marx?), integration into formal representational systems, legal integration vs. legal pluralism, the economic potential of buildings by cementing their representations in an abstract network, Metacalfe’s Law again, as it relates to the network effects of capital, the unconscious evolution of integrated property rights in U.S. (1) The Mystery of Accumulating Information, (2) The Mystery of Capital, (3) The Mystery of Political Awareness, (4) The Missing Lessons of U.S. History, (5) The Mystery of Legal Failure (Why Property Law Does Not Work Outside West). The six property effects: (i) fixing the economic potential of assets, (ii) integrating dispersed information in one system, (iii) making people accountable, (iv) making assets fungible, (v) networking people, (vi) protecting transactions. • “Law is the instrument that fixes and realizes capital.” • “Capital is not the accumulated stock of assets but the potential it holds to deploy new production…Creating capital also requires a conversion process.” • “Property is not mere paper but a mediating device that captures and stores most of the stuff required to make a market economy run. Property seeds the system by making people accountable and assets fungible, by tracking transactions, and so providing all the mechanisms required for the monetary and banking system to work and for investment to function. The connection between capital and modern money runs through property.” • “As Adam Smith pointed out, money is the ‘great wheel of circulation,’ but it is not capital because value ‘cannot consist in those metal pieces.’ In other words, money facilitates transactions, allowing us to buy and sell things, but it is not itself the progenitor of additional production.” • “The notion that we organize reality in a conceptual universe is at the center of philosophy worldwide. The French philosopher Michel Foucault labeled it the région médiane that provides a system of switches (codes fondamentaux) that constitutes the secret network where society establishes the ever-expanding range of its potential (les conditions de possibilité). I see formal property as a kind of switchyard that allows us to extend the potential of the assets that we accumulate further and further, each time increasing capital. I have also benefited from Karl Popper’s notion of World 3—a separate reality from World I of physical objects and World 2 of mental states—where the products of our minds take on an autonomous existence that affects the way we deal with physical reality. And it is to this conceptual world that formal property takes us —a world where the West organizes knowledge about assets and extracts from them the potential to generate capital.” • "In Ronald Coase’s treatise 'The Nature of the Firm,' Coase established that the costs of carrying out transactions can be substantially reduced within the controlled and coordinated context of a firm. In this sense, property systems are like Coase’s firm—controlled environments to reduce transaction costs.” • “Representational systems such as mathematics and integrated property help us manipulate and order the complexities of the world in a manner that we can all understand and that allows us to communicate regarding issues that we could not otherwise handle.” • “The law that prevails today in the West did not come from dusty tomes or official government statue books. It is a living entity, born in the real world and bred by ordinary people long before it got into the hands of professional lawyers. The law had to be discovered before it could be systematized.”

  4. 4 out of 5

    Seth

    Best Economic Development book I ever read. It's thought provoking and it resonates. Third World poverty could dramatically shrink if property owners had a legitimate claim to their real property. I thought micro lending was the answer to most of Latin America's problems (it still is a partial answer), however, De Soto convinces me that most of the Third World already owns enough property to leverage themselves out of poverty if only formal property and legal systems could legitimize their prope Best Economic Development book I ever read. It's thought provoking and it resonates. Third World poverty could dramatically shrink if property owners had a legitimate claim to their real property. I thought micro lending was the answer to most of Latin America's problems (it still is a partial answer), however, De Soto convinces me that most of the Third World already owns enough property to leverage themselves out of poverty if only formal property and legal systems could legitimize their property enough to take a loan against it. This book changed my world view concerning poverty, Latin America, Capitalism, and Financial systems more than any other book or idea before it.

  5. 5 out of 5

    Vicky Sherwood

    everything your soc prof fails to consider

  6. 5 out of 5

    Rachel

    This book explains the importance of property rights to the success of capitalist systems. In order for a society to use its assets to their fullest potential, it needs a legal system that transforms wealth into "living capital." "Living capital" can be leveraged to create further wealth: for example, in the U.S. most new enterprises are funded by mortgages on the entrepreneur’s home. But in a society that does not clearly define and protect ownership, such strategies are impossible. This explain This book explains the importance of property rights to the success of capitalist systems. In order for a society to use its assets to their fullest potential, it needs a legal system that transforms wealth into "living capital." "Living capital" can be leveraged to create further wealth: for example, in the U.S. most new enterprises are funded by mortgages on the entrepreneur’s home. But in a society that does not clearly define and protect ownership, such strategies are impossible. This explains why market-type economies have brought enormous wealth to Western countries, but have failed to do so in most of Latin America, Africa, and the former Soviet block. The poor in those regions lack access to formal property systems. Regulations and red tape stop them from legally owning their land or starting a business. Consequently, huge “informal sectors” have developed in these countries – markets and neighborhoods buzzing with extra-legal activity. This activity will not lead to large-scale growth and development, however, because the size of markets are limited to the networks where individuals can develop trust and reciprocity, and because extra-legal businesses need to keep a low profile, preventing them from realizing economies of scale. The poor are left frustrated by the growing economic disparity between themselves and the fortunate few who live inside the “bell jar” of formal property rights, where capital creates wealth. This narrative, De Soto claims, describes struggling economies around the world, from Morocco to Peru. He repeatedly rejects the idea that economic performance is determined primarily by cultural factors. Experience shows that capitalism can succeed in diverse cultures, and the phenomena of failing capitalism are the same in countries with no common cultural heritage. Instead of turning to sociological details – such as colonization or religious philosophy – De Soto attributes poverty and the growth of the informal sector to a universal human characteristic: rational, maximizing behavior. The solution to failing capitalism and the growth of the informal sector, therefore, is the same throughout the third world. Governments need to lift the bell jar by creating coherent and inclusive property systems. It is a transformation that took place in the West only a few centuries ago, and Hernando De Soto spends some time in The Mystery of Capital describing how the United States’ property system developed. However, property rights are not an alien concept which third world governments must force on unwilling citizens. Informal sectors already try to clarify and protect ownership. Recreating property law involves adopting and integrating the laws and customs that the informal sector has already developed. The most intriguing concept in The Mystery of Capital is capital’s metaphysical nature. Although we may associate capital with money, capital is not something that we perceive with our senses. Rather, capital has to do with the potential value of an asset, and is something that we perceive with our minds. Property law is the symbolic system that unleashes economic growth. De Soto’s prose becomes near-mystical when he writes about capital’s transcendent nature, and he compares property systems to other symbolic systems that have empowered humans over the course of history, from musical notation to computer software. It is by our ability to create and manipulate symbolic systems that we can “soar into the future.”

  7. 4 out of 5

    Jessica

    "Capitalism stands alone as the only feasible way to rationally organize a modern economy." Sitting here marinating in late-stage capitalism, it is difficult not to approach a book with this statement in the first paragraph with a bit of suspicion and contempt. HOWEVER: - In order to move away from capitalism and fight for something better, you need to understand capitalism. - This book will help you understand capitalism. I definitely learned a lot. It is also organized well and fairly engaging. "Capitalism stands alone as the only feasible way to rationally organize a modern economy." Sitting here marinating in late-stage capitalism, it is difficult not to approach a book with this statement in the first paragraph with a bit of suspicion and contempt. HOWEVER: - In order to move away from capitalism and fight for something better, you need to understand capitalism. - This book will help you understand capitalism. I definitely learned a lot. It is also organized well and fairly engaging. - Soto is Peruvian and writes from a non-western point-of-view. A point of view not well-represented in English-language writing on capitalism. - His main point is that property bureaucracy in non-Western countries is a nightmare and could be streamlined so that poor people could build capital. - After opening with that statement, he does walk it back a bit by stating that he is not a "die-hard capitalist." However, it is the system we live and it could be optimized to help the poor and foster equal opportunity.

  8. 4 out of 5

    TC

    De Soto has a point, namely that the biggest reason for the continued laggardness of people in developing countries to "catch up" with those in the developed world lies in the convoluted local legal structures that favor those with the power, money, influence, and the wherewithal to navigate their way through the system. As in it is cheaper and easier to just stay outside of the legal system altogether and cobble together an implicit, grassroots alternative to it. Hence the overwhelming majority De Soto has a point, namely that the biggest reason for the continued laggardness of people in developing countries to "catch up" with those in the developed world lies in the convoluted local legal structures that favor those with the power, money, influence, and the wherewithal to navigate their way through the system. As in it is cheaper and easier to just stay outside of the legal system altogether and cobble together an implicit, grassroots alternative to it. Hence the overwhelming majority of economic activity that lies in the "informal sector," retaining people's assets in a form that doesn't lend itself to the multi-faceted liquidity engendered almost as an epiphenomenon by the legal system of personal property rights that we take so much for granted. What is frustrating is his willfully obdurate assertion that after the failure of state socialism, "capitalism is the only game around," especially when the full-throttle exploitation of the very liquidity that he touts as the way out of the poverty hole in which the majority of people in the developing world are stuck forms the core of what has led to the current financial crisis. It would be greatly interesting to see what he would have to say about the current state of affairs, given the book was published back in 2000.

  9. 5 out of 5

    Patrick

    A wonderfully argued book on the advantages that we westerners have over much of the rest of the world in firmly established, transferable, and accountable property rights. de Soto slashes away at the cultural arguments that many authors make in celebration of the west (I'm thinking of Niall Ferguson here), and instead focuses on the structures that allow for individuals to build up credit through the acquisition of property. It is this which enables risk taking and, and debt creation allowing f A wonderfully argued book on the advantages that we westerners have over much of the rest of the world in firmly established, transferable, and accountable property rights. de Soto slashes away at the cultural arguments that many authors make in celebration of the west (I'm thinking of Niall Ferguson here), and instead focuses on the structures that allow for individuals to build up credit through the acquisition of property. It is this which enables risk taking and, and debt creation allowing for such things as building legal business and loans for education. de Soto does a marvelous job of using fact and examples to demonstrate that work ethic is cross-cultural - many instead are trapped in that their investments in home and business cannot be transferred, because there is no legal designation for who actually owns what. By his estimation, there are trillions of dollars of uncapped capital in many parts of the world for the simple consequence of there not being sufficient legal institutions to ensure that transfer of property is recognized by state institutions, and therefor honored. This is not a left/right, conservative/liberal book, but I do detect some Hayek (not the ideologue) here. It clarifies the reasons why capitalism works, and what it takes to make it viable.

  10. 4 out of 5

    Conrad

    This book puts forward the stunning notion that one of the things that keeps poor countries poor is that they have most of their value locked up in defunct land, which is tended (but not owned) by squatters and people who don't have titles to it. DeSoto's idea is that land reform in these countries would end up allowing the poor to buy, sell, and borrow the things they already have. All it would really take is streamlining title acquisition and land-use laws. I haven't really read much criticism This book puts forward the stunning notion that one of the things that keeps poor countries poor is that they have most of their value locked up in defunct land, which is tended (but not owned) by squatters and people who don't have titles to it. DeSoto's idea is that land reform in these countries would end up allowing the poor to buy, sell, and borrow the things they already have. All it would really take is streamlining title acquisition and land-use laws. I haven't really read much criticism on this book, though it feels like their must be some flaws. He thinks that the poor are the best caretakers of their own money, and if they were suddenly richer they'd take full advantage of ownership. While I tend to agree, this isn't really testable because not having much money to take care of is what makes them poor in the first place. Seems like there's a lot of conjecture here, but at the very least it reminds us that land reform is a key piece of development that we inheritors of the English legal system take for granted.

  11. 4 out of 5

    Douglas Wilson

    What an eye-opening book this one was! Everyone who has a heart for the globally poor needs to read it. Along with everyone who pretends to have a heart for the poor.

  12. 5 out of 5

    Shannon Appelcline

    This book presents the fascinating premise that capitalism only works due to abstract representations (and protections) for property. It's intriguing and well-argued. Unfortunately, it also gets a bit repetitive, restating some of the same ideas multiple times. So, neat stuff, but it outstays its welcome. This book presents the fascinating premise that capitalism only works due to abstract representations (and protections) for property. It's intriguing and well-argued. Unfortunately, it also gets a bit repetitive, restating some of the same ideas multiple times. So, neat stuff, but it outstays its welcome.

  13. 5 out of 5

    Mauro

    De Soto makes a convincing argument that the Third World stays poor because most economic activity happens in the extralegal sector, and the majority of people are denied access to the formal property system. This is very much the case in my country, even 20 years after this book was written. A very important book. I wish lawmakers in my country would read it.

  14. 4 out of 5

    Hotspur

    An amazing book that investigates the power of informal economic infrastructures. Latin America had a higher per capita income than North America in 1789. What happened? Why did capitalism take root in North America and why did it fail elsewhere? Now that Capitalism's big rival is for intents vanquished, the capitalist society is the only viable option for economic growth left for the developing countries. DeSoto's brilliant work examines the impediments to economic growth in the developing worl An amazing book that investigates the power of informal economic infrastructures. Latin America had a higher per capita income than North America in 1789. What happened? Why did capitalism take root in North America and why did it fail elsewhere? Now that Capitalism's big rival is for intents vanquished, the capitalist society is the only viable option for economic growth left for the developing countries. DeSoto's brilliant work examines the impediments to economic growth in the developing world, while examining the liberating effects of ownership of capital.

  15. 4 out of 5

    Miro Nguyen

    A must read book to understand how western countries are so successful, pointing out a way to help developing countries, not just copying blindly, have to understand the roots. A true manifestation of how brilliant human beings are.

  16. 5 out of 5

    Christopher Bauer

    Very important work explaining the role of property rights and fungibility in the lives of the poor. Haiti is demonstrated as having something like 600 bureaucratic steps to creating a business.

  17. 5 out of 5

    Matthew Raketti

    November 20, 2014 My reactions to reading Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else by Hernando de Soto originally written for a Readings in Legal Thought Seminar with Judge D. Ginsburg of the U.S. D.C. Circuit Court of Appeals; Readings in Legal Thought – George Mason University School of Law In the course of my learning I have, on rare occasion, had the good fortune to read texts that affect something of a paradigm shift in how I think about the world. Whi November 20, 2014 My reactions to reading Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else by Hernando de Soto originally written for a Readings in Legal Thought Seminar with Judge D. Ginsburg of the U.S. D.C. Circuit Court of Appeals; Readings in Legal Thought – George Mason University School of Law In the course of my learning I have, on rare occasion, had the good fortune to read texts that affect something of a paradigm shift in how I think about the world. While I still need time to digest The Mystery of Capital by Hernando de Soto, I suspect that I will ultimately view this text as falling within such a category. This is, in some respects, surprising — as the text itself doesn’t necessarily communicate anything in particular that I was not already, in some sense, cognizant of. Indeed, it is not uncommon, among proponents of free market economics, to emphasize the importance of providing individuals with the capacity to effectively start businesses and leverage equity — key facets of de Soto’s arguments. Moreover, it seems not unreasonable to view de Soto as building on key insights already arrived at by earlier thinkers. His discussion on “discovering the law”, for example, sounds in a thoroughly Hayekian perspective (180-181). Be that as it may, it is also clear that de Soto’s contribution is of profound importance to understanding what is at stake when establishing the rules upon which an economy is to be ordered — particularly its treatment of the individual in relation to property. Moreover, the research underlying his text provides much of what is lacking economic theory: empirical grounding. At its core, de Soto’s work seems to provide a true account of the underlying processes and institutions necessary to create human flourishing (in terms of material prosperity). In some respects we could even say de Soto provides a reliable answer to many of the vexing difficulties raised by Noonan in Masks of the Law. Although not directly on point, de Soto’s analysis as to the ways whereby a consistent regime of property rights — accounting for all assets owned within a society — can, under certain circumstances, create an order that enables even the most underprivileged to undertake creative and entrepreneurial activities. Indeed, upon reviewing the graphical representations of what is involved in undertaking independent commercial activities many of the world’s poorest nations, due to ill-conceived and corrupt political systems, it is clear that rule of law organized according to rational, albeit abstract and syllogistic principles, offers much more than mere empathy ever could. Beyond my praise for the text and the tremendous contributions to the field, de Soto’s discussion on culture struck me as somewhat underdeveloped. In some respects it was necessarily underdeveloped, because the foundational principles de Soto proposes are of universal import and variation in cultural contexts ought not to pose a serious impediment in most situations. Interestingly, this universal proposition seems to echo elements of Fukuyama’s “end of history thesis”. Yet it is a focused echo. De Soto provides the empirical anchor whereupon the contention that ordering a polity to allow for liberalized markets and property rights — characteristics certainly contemplated in Fukuyama’s seminal analysis of the post-Cold War political order – provides an unrivaled mechanism for generating prosperity. That is to say, de Soto’s exhaustive fieldwork persuasively demonstrates his central claims and the reasons why such a liberal order, predicated on property rights, is preferable to all other organizations hitherto tried. In particular, his discussion as to the development of the capital process within the United States, as in contrast with its development within communist regimes, gives weight to Fukuyama’s earlier “end of history” claim. Yet, just as Fukuyama’s thesis has, in the new millennium, been severely undermined by the apparent reemergence of “history,” so too have recent events and global trends cast doubt as to practical implications of de Soto’s view. Indeed, in reacting to the Arab Spring and its aftermath, de Soto convincingly employed his framework to explain the source of the revolutionary spirit that was ignited in Tunisia: the legal uncertainty faced by the over 200 million individuals operating in the informal economy of the Maghreb and Middle-East. My own view is much in line with that expressed by de Soto (backed-up by his research). Yet, I fear that he may underestimate the extent to which cultural cleavages may very well work to sabotage his proposed solution. De Soto contends that the West must be cognizant of the sources of the Arab Spring, and indeed it must! But, the mere fact that there exist many grievances within this region are grounded in the injustice brought on by the informal economy, does not overcome the reality that there are much stronger rallying points for accounting for the Arab Spring — many of which are inimical to any proposed rule of law framework emphasizing Western style property rights regimes. All of this is not to say that de Soto is wrong to admonish the West to emphasize the role property rights and rule of law can, and should, play in creating a more stable (and prosperous) international order – and the extent to which much instability across the world is in fact directly linked to deficits in such legal institutions. Rather, it is simply to point out the fact that developments, such as the Arab Spring, are ultimately overdetermined. De Soto is surely aware of the difficulties that exist insofar as it concerns persuading the non-Western world as to the universal merits attending the legal recognition of property rights. It is for this reason that I am intrigued by de Soto’s discussion on culture and his attempt to articulate his message in such a way as to appeal across cultural contexts. In particular, I was struck by his acknowledgment to a professor of philosophy, Dorothee Kreuzer, who led him “through the subtleties of the French post-structuralists” (242-243). This impressed me mostly due to an undergraduate project I undertook concerning “cultural translation.” Put simply, “cultural translation” is a subfield of literary theory that seeks to find modes of expressing meaning between cultures (often differing in language) in such a way as to not dilute its essence. To my mind, finding ways to express core principles underlying the Western tradition of property, and rule of law more generally, to the non-Western world, is one of the most pressing objectives presented to the internationally-minded legal community today. In some respects much of the legal academy, although attuned to the nuances of cultural variations and the sensitivities that must attend thereto, seem overly reluctant to consider seriously what the Western tradition can bring to the table. In light of history, this is understandable. De Soto readily acknowledges in his discussion on the “Enemies of Representations” (e.g., enemies of commercial paper?), has been rightfully criticized for working to undermine the interests of the underprivileged, often colonized, peoples across the world (222-223). De Soto chose well to conclude In choosing to conclude his text with a discussion on culture. The nuances that must attend to any conversation we have on the topic of law and its application to diverse cultural contexts, while important, ought not to blind us to what is really at stake when it comes to effecting a legal order. The rules that are established, and the agents who are represented (or not) as recognized legal entities (capable of owning and transferring property) will, de Soto shows us, have a determinative impact on the quality of the society implementing said rules.

  18. 4 out of 5

    Kristen Cray

    What a refreshing discussion about capitalism from someone who's taken a chill pill. Criticism of conservatives and leftists alike - yum. Stresses the importance of government-enforced private property rights, as well as the power of social contract. Very repetitive, but he does have the experience and numbers to validate his research. What a refreshing discussion about capitalism from someone who's taken a chill pill. Criticism of conservatives and leftists alike - yum. Stresses the importance of government-enforced private property rights, as well as the power of social contract. Very repetitive, but he does have the experience and numbers to validate his research.

  19. 5 out of 5

    Paul

    Insightful, creative and novel thinking about why the developing world struggles so much to attain prosperity. An important book for anyone confronting questions of global poverty and development.

  20. 5 out of 5

    Nitin

    The central concept in this book is - It is essential to have formal integrated property system backed by sound legal setup to fully utilise potential of assets in economic system. It is this property system which converts assets into capital and runs the wheels of capitalism. Unfortunately in today's underdeveloped and developing countries; due to high cost of getting into formal setup; many people have been running their businesses in extra-legal manner which restricts their ability to convert The central concept in this book is - It is essential to have formal integrated property system backed by sound legal setup to fully utilise potential of assets in economic system. It is this property system which converts assets into capital and runs the wheels of capitalism. Unfortunately in today's underdeveloped and developing countries; due to high cost of getting into formal setup; many people have been running their businesses in extra-legal manner which restricts their ability to convert assets into capitals and create extra value & wealth for themselves. Throughout the book this central concept is reiterated multiple times and parallel has been drawn between today's developing world with US & Europe of 18th/19th century and what made today's developed countries (west) to transition from system with high proportion of extra legal sector, poverty to today's capitalism driven wealth . Finally, the book argues Capitalism is the only option available in today's globalized world and with proper implementation of formal integrated property system, the poor people can become part of the formal system which will enable them to convert their assets into capital and generate wealth for generations.

  21. 5 out of 5

    Tony Cohen

    A strong and insightful book, doing well to smash one of the tired old shibboleths (non-white people just can't 'get' capitalism) by instead offering a strong rational reason why they currently are unable to do so: property rights. The author, and a horde of assistants, estimated the value of third world dead capital at 10 trillion dollars. Dead capital consists of real, tangible assets, that do not exist in an integrated, 'fungible' sense due to the lack of legal property rights. Without legal d A strong and insightful book, doing well to smash one of the tired old shibboleths (non-white people just can't 'get' capitalism) by instead offering a strong rational reason why they currently are unable to do so: property rights. The author, and a horde of assistants, estimated the value of third world dead capital at 10 trillion dollars. Dead capital consists of real, tangible assets, that do not exist in an integrated, 'fungible' sense due to the lack of legal property rights. Without legal deeds and what not, a whole horde of activities are prevented: one can't borrow against the value of your home; provide a legitimate outlet to receive public utilities; but most critically, can't be recognized as a universal asset which fails to allow it to be measured against a universal standard by those who haven't seen it and therefore, it can't have external value and become an asset. The latter inability he likened to a lake high in the mountain. As an object alone, it has value, like a house's existence providing shelter, but the lake could also turned into a source of hydro-electric power. This added value is what a legalized property system allows a home do to: become a wealth generating asset in addition to its physical value. This transformation is unavailable to those in the third world; although not for a lack of desire. In several, powerfully painful and ridiculous examples, the author set out trying to go through the byzantine steps of registering property in the third world, in Peru, Egypt and Philippines: a combined 50 + years later they were, and no that number is not a typo, although it is an aggregate. So poor people do the rational thing; they go extralegal, because that is all that they can do. The book then goes on showing that the West's current integrated, and exceptional property system is a recent phenomenon, but by no means longstanding. In fact, the author claims the genius of America was in recognizing the validity of extralegal property rights and gradually integrating, making people accountable to the law, by first making the law relevant to them, through honest awareness of how people actually lived. But the true wisdom of the book is recognizing and stating that there is nothing inherently flawed or lawless about the behaviour of the extra-legals in the third world: they are merely acting rationally in a seemingly irrational world, and we would be smart to remember that is it a current and treatable condition, not a permanent state of affairs. After all, the late great founding father, George Washington complained about the 'banditti' who had taken up squatting on his residence. When informing his lawyer about his desire to rectify the situation, our country's first president was told that the squatters would probably burn his fences and barn as retribution. For whatever reason the image that struck in my mind was Dark Helmet getting shoved out of the escape pod: "I'm the bearded lady, who are you...one of the freaks!"

  22. 5 out of 5

    Andrew

    This book makes only one point: countries need robust, accessible-to-all property systems to succeed at free-market capitalism. This is, of course, the answer to the question in the book's provocative subtitle. But the book's singular focus does not hinder it from being thorough or effective: de Soto draws from both personal experiences working on extralegal property systems in Peru and a wide range of historical and economic sources. Quoted include economists, legal experts, politicians, histor This book makes only one point: countries need robust, accessible-to-all property systems to succeed at free-market capitalism. This is, of course, the answer to the question in the book's provocative subtitle. But the book's singular focus does not hinder it from being thorough or effective: de Soto draws from both personal experiences working on extralegal property systems in Peru and a wide range of historical and economic sources. Quoted include economists, legal experts, politicians, historians, and several philosophers (Foucault, Derrida, Levi-Strauss!) to make his case. In fact, I came a way from this book feeling I had learned a great deal not only about property systems but about the role of squatters in US history and, more broadly, how to think about the role of extralegal systems more broadly. One primary thesis of the book describes first how social groups react to legal systems that don't address the group's needs (answer: by ignoring government laws and building social institutions and property conventions at a local level), then argues that official response to the extralegal systems is critical. In the US, a key example was the Homestead Act, which de Soto argues was more a reaction to what settlers were already doing (squatting on land and improving it) than an encouragement to initiate settling (how I've always been taught it). The book is much more pro-capitalism than much of my economics reading, and modulo a few issues the author makes a convincing case for an effective, populist free-market "capitalistic" system. Criticisms: * The concluding chapter could be renamed "Free-Market Capitalism Rules, Marx Drools." The book focuses entirely on property systems and their accessibility to the world's poor, but turns around at the end and uses this as a generic defense of free-market capitalism and globalization, equating an effective property system with "writing" and "language" (they're just systems of representation, and systems of representation maybe used negatively by bad actors, but the whole system can't be bad, right?) * The author cites every single quotation in the book, but almost none of the included economic figures. Seriously, who does that? * On a related note, the author early on describes inaccessibility by mentioning "hundreds of bureaucratic steps" to do things like registering a business on Peru, but nowhere defines a "bureaucratic step" or provides a baseline value in a "successful" western country. Minor criticisms, but overall would recommend.

  23. 5 out of 5

    Kudakwashe Manjonjo

    The Mystery of Capital by Hernando De Soto- Review How to drive the masses out of poverty is an issue that has affected intellectuals, poets, academics, politicians and anyone who cares about their neighbour for millennia. The growth of capitalism over the last 500 years, especially in the era of globalization is what De Soto has tried to explain as to why it has only happened in the West and not the rest of the world. He brings it down to analysing property as a key litmus. Using a local peri-ur The Mystery of Capital by Hernando De Soto- Review How to drive the masses out of poverty is an issue that has affected intellectuals, poets, academics, politicians and anyone who cares about their neighbour for millennia. The growth of capitalism over the last 500 years, especially in the era of globalization is what De Soto has tried to explain as to why it has only happened in the West and not the rest of the world. He brings it down to analysing property as a key litmus. Using a local peri-urban area called Domboshava, I’ll dissect through the main arguments De Soto makes and how it may be linked to improving developing countries such as Zimbabwe. De Soto’s key notion is the inability to create capital. Capital which is the fuel that moves capitalism and consequently development needs to be constantly produced. The question then is, what is the source of capital? Capital is produced according to De Soto by turning the physical assets of the poor into transferable, fungible assets that can acquire loans, used as collateral as occurs in US and the rest of the west. THis only happens in the west, but in the rest of the world, nations are trying to be build “capitalism without capital.” That is, the majority of people in the developing world hold assets such as businesses, land and houses out of the legal framework from which they are legally recognised. This is exacerbated by the fact that it is close to Impossible to easily legalise a business (as shown by the ease of doing business) and housing statistics in most developing nations. This fundamental argument is by in large brilliant. In Domboshava, which is 30km from the Harare CBD, more than 25 000 households that could be worth as much as $400-500 million are worth less than 10% of that. That value can be unlocked and used as a new access of development funding that developing countries are failing to currently find. As iterated by De Soto, instead of moving around the world seeking capital, the diamonds we need are home and this can be done by transforming assets into live capital. As put across already, what the poor lack are the mechanisms that allow them to legally fix the value of their property so that they can gain, secure or guarantee greater value in the expanded market. This is because of their inability to access the pre-requisites of property capital which are legal protection of assets, integration of assets, fungibility of assets, network to link assets, and people being held accountable for assets. The poor and their property do not have these features. This creates what de Soto terms “dead capital”. This then leaves two camps in the economy, the haves and the have nots. Termed by Fernand Braudel as the “bell jar”. De Soto uses the analogy defining those in the bell jar (the haves with legal protection) and the have nots being outside of it. For the poor, there is an apartheid of formal law against the rural people, migrants and poor people which adds costs of corruption and also keeps them in the informal business with little access to capital markets. This argument is similar to Kanyenze’s argument in his book “Beyond the enclave” where colonialism created white vs black but post-colonialism the political elite (ZANU-PF) have and the rest do not. Domboshava is 15 from the affluent neighbourhood of Borrowdale but the lack of property protection in the former has made its people disproportionately poorer. By showing the problems, De Soto moves on to detailing how the USA over two hundred years solved this problem since now 70% of businesses in U.S. use mortgages as collateral to start a business. He details how those outside the bell jar (the poor) created systems of “extra legality”, or social agreements/contracts in their community where everyone agrees to upholding them. This was seen in the miners associations during the gold rush in California and the history of Homestead act which gave the masses property rights. Those social contracts are very much alive and functioning albeit inefficiently in Domboshava. The local laws of chiefs and sabhukus keep a semblance of order in Domboshava. The problem then is “the problem with extra-legal laws is that their property is isn’t sufficiently codified and fungible to be used outside their geography.” How did the aforementioned American associations deal with this? There were efforts from the national, local governments to formally legalise the local social contracts but this was based on the people standing for their social contracts to be kept in place and government. Essentially, “extra-legality can be codified into law by notes of customs.” That isn’t happening in Domboshava or most of the developing countries where the national legal laws disregard local social contracts. As well argued by De Soto, “There is a gap between what the mandatory law demands and what is needed for the law to work…laws are formed not acknowledging social contracts already in place…(ultimately)…laws must be discovered rather than enacted.” This also includes the issue where The ability to move from the extra-legal situation to a legal one is succinctly called the capitalization process. That process requires three essential ingredients of taking the perspective of the poor, co- opting the elite and dealing with legal and technical bureaucracies. The most important aspect of this book for me was this line, “property is not a primary quality of assets, but the legal expression an economically meaningful consensus about assets.” This harps on the issue that property with no ability to use it in the economic and legal systems is pointless. Like any good reader, I did have my ideas around this book which de Soto somewhat answered as the book finished. Firstly, is capitalism the only way? He argues yes and actions by China post 1970, the fall of the Berlin wall etc seem to prove that. For me however, its not only that capitalism is bad but its lack of inclusivity. De Soto argues that this does not have to be the case but it is hard to see how not. Capitalism thrives on exclusion, be it by race (apartheid), nationality (colonialism), gender (patriarchy), knowledge or age. So even when the majority as helped into the capitalist system as in USA, the “bell jar” is alive and well as seen by the growing inequality in the West. The last major critique for me is that in Zimbabwe atleast, dead capital is political capital. De Soto does speak about the fact of co-opting the elite and show them the benefits they have, but what happens if the immediate cost-benefit analysis isn’t in their favour? This is the case I believe with the lack of property rights for land, or peri-urban areas. The system benefits from keeping the status quo as is. But that would be very pessimistic of me to say that cannot be changed. Conclusively, this book has challenged me ideologically very much. I have had to re-consider some strongly held beliefs on private property and how it works; whether property is best managed privately or co-operatively (I still mainly support the latter) or whether that argument is old school and there really is no difference, just a matter of power and not tangible results. A book that leaves you with questions about yourself is always the best.

  24. 5 out of 5

    Sanford Forte

    This is an important book; perhaps one of the most important books written about economic development and capitalism in the last few decades. Anyone who studies or has an interest in how Capitalism works (or could work) in developing economies - and, what optimal preconditions are necessary for the success of Capitalism, will profit from reading this book. Hernando de Soto is a Peruvian economist whose research clearly shows that coordinated, legally-encoded, well-understood-and-agreed on rights This is an important book; perhaps one of the most important books written about economic development and capitalism in the last few decades. Anyone who studies or has an interest in how Capitalism works (or could work) in developing economies - and, what optimal preconditions are necessary for the success of Capitalism, will profit from reading this book. Hernando de Soto is a Peruvian economist whose research clearly shows that coordinated, legally-encoded, well-understood-and-agreed on rights to private property; and, transparent access to capital are key ingredients to success under the Capitalist model. Of special note: unlike many books that tackle economic development, this book is a page-turner. De Soto's writing style is easy to negotiate; his economic insights are striking; his research is thorough; and, his enlightening conclusions help to remove much of the mystery about why some nations just can't seem to make capitalism work, while others thrive. One of the most interesting parts of the book comes when de Soto shows how a young America had a very disjointed and uncoordinated economic infrastructure - and how the hard work to coordinate that infrastructure helped make American capitalism flower. I would go so far to say that de Soto deserves a Nobel Prize for the work he has accomplished, because policy makers all over the world can use the information that de Soto (and his research team) gleaned as a template for how to do Capitalism right. De Soto shows how dysfunctional underground economies - often made necessary due to poor financial and policy making transparencies - contribute to the loss of valuable financial and social capital. This book will bring the reader many rewards and new insights into an ever-growing and dynamic international economic system.

  25. 4 out of 5

    Cambridge Programme for Sustainability Leadership

    One of Cambridge Sustainability's Top 50 Books for Sustainability, as voted for by our alumni network of over 3,000 senior leaders from around the world. To find out more, click here. The Mystery of Capital argues that capital is the engine of a market economy and that property rights - namely, the ability to have secure title over land and housing - provide the mechanism. De Soto notes that, more than a decade after the fall of Marxism, the expected capitalist revolution has not occurred. Capita One of Cambridge Sustainability's Top 50 Books for Sustainability, as voted for by our alumni network of over 3,000 senior leaders from around the world. To find out more, click here. The Mystery of Capital argues that capital is the engine of a market economy and that property rights - namely, the ability to have secure title over land and housing - provide the mechanism. De Soto notes that, more than a decade after the fall of Marxism, the expected capitalist revolution has not occurred. Capitalism has been successful only in the developed nations and has made little progress in developing or transition economies. The problem, according to De Soto, is that 'you cannot carry out macroeconomic reforms on sand. Capitalism requires the bedrock of the rule of law, beginning with that of property. This is because the property system is much more than ownership: it is in fact the hidden architecture that organises the market economy in every Western nation.' He argues that the poor in under-developed countries have assets, but that their property is often owned informally. Through this failure to achieve legal property rights and ownership, these classes are greatly restricted in acquiring capital to improve their properties or grow their business. De Soto proposes the obvious solution: formalisation of informal property rights.

  26. 5 out of 5

    Scott Goddard

    Property rights, de Soto posits, are the sine qua non to achieve economic development. For this reason, countries that are bereft of such arrangements - namely developing and socialist-leaning nations - have not experienced rapid growth in spite of embracing the free-market. The function or rather, functions, of property rights is/are multifarious; they serve the purpose of improving civil order and mitigating crime, allowing individuals to borrow through credit intermediation, and making the pr Property rights, de Soto posits, are the sine qua non to achieve economic development. For this reason, countries that are bereft of such arrangements - namely developing and socialist-leaning nations - have not experienced rapid growth in spite of embracing the free-market. The function or rather, functions, of property rights is/are multifarious; they serve the purpose of improving civil order and mitigating crime, allowing individuals to borrow through credit intermediation, and making the provision of public utilities to the greater population possible. A large part of the book, in spite of being informative on the subject of property rights, consisted of too many iterations, vacuous remarks, and abstractions. Contrary to the other reviews (at least the ones I read), I didn't finish the book thinking de Soto had a provided a novel analysis of property rights. Perhaps he is the first to systematise the theory into word, and for that he warrants credit; but I feel as if the majority of the points were simply common sense. There didn't seem to a constructive recommendation on how to ameliorate the problem, on how to institutionalise property rights. That is not to say that he did not provide some steps on how to address the quagmire of property rights, as he did, but that they weren't, in my opinion at least, as overwhelmingly foolproof as I would expect.

  27. 5 out of 5

    Michael Connolly

    The author identifies two of the main obstacles to economic development in Latin America: (a) the lack of government records giving poor people official ownership of their home and work buildings, and (b) the large amount of red tape required to start a business. The English-speaking part of the Americas has the advantage of the history of English common law and its extension of the right to own property from the nobility to the commoners. Property in Latin America is owned mainly by the descend The author identifies two of the main obstacles to economic development in Latin America: (a) the lack of government records giving poor people official ownership of their home and work buildings, and (b) the large amount of red tape required to start a business. The English-speaking part of the Americas has the advantage of the history of English common law and its extension of the right to own property from the nobility to the commoners. Property in Latin America is owned mainly by the descendants of the European colonists. Unlike most writers on this subject, de Soto talks not mainly about land reform, but rather pushes for official recognition of the de facto situation on the ground. The author advocates that the poor be given official ownership of the houses that they occupy and the businesses that they run. He also advocates a reduction in the large number of forms that need to be filled out, offices that need to be visited, and permissions that need to be obtained before a poor person can register a business.

  28. 4 out of 5

    Charles Allan

    Here's an argument for individual rights, openness and equality before the law: Hernando de Soto: The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else De Soto is a Peruvian economist that tackles one of the oldest mysteries: how can societies unlock their human potential? The answer, as he argues, lies in individual rights and a predictable, open legal system. Which the third world poor lack. But how do you establish such a thing? De Soto's central idea is that the Here's an argument for individual rights, openness and equality before the law: Hernando de Soto: The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else De Soto is a Peruvian economist that tackles one of the oldest mysteries: how can societies unlock their human potential? The answer, as he argues, lies in individual rights and a predictable, open legal system. Which the third world poor lack. But how do you establish such a thing? De Soto's central idea is that the poor need titles for their often informally owned land and property. If you have legal title, you can get loans, and grow economically with that capital. But obtaining titles to some of these holdings would be fraught with controversy and entanglement.... This book is more of a thought piece and critics have noted De Soto's lack of empirical data in his work. But it's an interesting idea and ideas have to start somewhere.

  29. 5 out of 5

    Rachel

    I'll admit. I didn't completely finish this book. The first few chapters summarized the overall theory, which I found fascinating, but I got bored with all the detailed economics in the last 3/4 of the book and felt ready to move on. The general theme of this book is that 3rd world/post-Communist countries are in fact extremely wealthy (they have a lot of things), but because they don't have the legal framework to make property ownership and the representation/transferring of assets possible, it I'll admit. I didn't completely finish this book. The first few chapters summarized the overall theory, which I found fascinating, but I got bored with all the detailed economics in the last 3/4 of the book and felt ready to move on. The general theme of this book is that 3rd world/post-Communist countries are in fact extremely wealthy (they have a lot of things), but because they don't have the legal framework to make property ownership and the representation/transferring of assets possible, it is nearly impossible to create a thriving capitalist economy. "The challenge developing and former communist countries face is not whether they should produce or receive more money but whether they can understand the legal institutions and summon the political will necessary to build a property system that is easily accessible to the poor."

  30. 4 out of 5

    Brad

    I'm very sympathetic to his argument, and his clarion call to action in the last section was very important. However, the book was simply too long. Over and over and over again he harps on the fact that poor people don't have any assets. Well, that's obvious. Or, at least, any legal protection for the assets they do have. Again, right-o. His proposed solutions would be a step in the right direction, no doubt. However, I can't help but think that he ignores the critical role that an effective jud I'm very sympathetic to his argument, and his clarion call to action in the last section was very important. However, the book was simply too long. Over and over and over again he harps on the fact that poor people don't have any assets. Well, that's obvious. Or, at least, any legal protection for the assets they do have. Again, right-o. His proposed solutions would be a step in the right direction, no doubt. However, I can't help but think that he ignores the critical role that an effective judiciary would have to play -- maybe I say that just because I work for a court system myself, I grant you. Maybe adverse possession is an arcane rule of the common law -- but I doubt it. It can be found in the code of Hammurabi, after all. The book seems largely to be a call for simplified adverse possession, so why can't he call it that?

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