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The Mystery of Capital
from the richest-man-in-babylon dept.
| The Mystery of Capital | |
| author | Hernado de Soto |
| pages | 276 |
| publisher | Basic Books |
| rating | 8.5 |
| reviewer | Mike N |
| ISBN | 0465016146 |
| summary | A take on the abstraction of 'Capital' |
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.
You can purchase The Mystery of Capitalism from bn.com. Slashdot welcomes readers' book reviews. To see your own review here, carefully read the book review guidelines, then visit the submission page.
Capitalism is necessary, but not sufficient (Score:5)
survival of the fittest (Score:3)
or most logical system, but the most successfully
expansive. It grows beyond everyhting else.
Hernando De Soto (Score:3)
amazon reviews (Score:3)
Re:Rather a USA-Centric world view, no ? (Score:5)
What a steaming, stinking, unsightly pile of inaccurate information.
America has the largest tax receipts of any country in the world.
That receipts are irrelevent. America has only moderate tax rates (although still too high). They're not even close to the highest in the world.
America spends more on its miltary than any other country in the world. What exactly does this contribute to free trade ?
You're joking, right? How about, for one, the free-flow of oil at market prices? Or do you forget that Saddam dude who tried to take over a large majority of the world's oil supply? If the US hadn't stepped up, you would have a king of the "United Kingdom of the Middle East" by now. Stable economies require a stable world. A strong military is critical to stable economies.
When forced to compete on a level playing field, US corporations fail dismally. E.g. the auto industry.
The car companies don't care about exporting their cars. I was reading an article a few years ago about how the American car companies only recently produced a car that could be changed to have the steering wheel on the right side. The problem is that Americans like big cars, and the rest of the world doesn't. So it's not all that profitable for American car companies to produce tiny euroboxes that all have to be exported, since there is no market here.
In any case, I believe the Ford Fiesta (?) is one of the best, if not the best, selling cars in Europe, so they can do it if they care.
But going beyond cars, the US dominates in almost every industry that matters, particularly the leading edge ones like software.
America leads the world in the destruction of the natural environment.
Cite some proof. American is one of the cleanest countries in the world. In fact, I remember a british engineer who I met about 10 year ago who came over for some temporary work. I asked him what struck him the most about the US, and remarked he couldn't believe how clean everything was. Just an anecdote, but telling.
If you want to see pollution, take a look around Europe some time.
--
Theories of development (Score:5)
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.
There are two main theories on how the developing world should move into the developed world. Currently, only 30 countries are considered "devloped," while the rest are divided among groups such as "developing," "not developing," and "less-developed."
MT prescribed that economic development requires the rejection of traditional behavior and orginizations, and acceptances of new behavior and orginizations that futher economic growth. The culture of a nation must change to the accepted western ideas of devlopment. A partial list of the requirements that Modernization theorists agree on include:
In a nutshell, a acceptance of western culture and western sytle economic and policital thought lays the foundation of economic development.
DT is a ideology that critisizes the MT approach. Two main tennents of Dependency theory: The development of third-world nations did not resemble the development of the west. The west's development for instance did not have external influences. The second tennent is that developed countries exploited the third-world in their own economic rise. Therefore any economic structure that may exist in a developing country is set up to enrich the industialized nations, not develop the third-world nation.
Dependency theorists see the western exploitation of third-world nations as the primary roadblock to economic sucess. By removing the foundations rooted in imperialism, third-world nations and develop the economic structure that moves them forward.
I have not placed any value judgements on these two theories. All I can say is that I agree with the statement that there are no easy answers to how to develop the third-world.
Capitalism and culture (Score:4)
This shows up in many controversial areas.
For example, take the immigration from poor areas of the world to the richer areas of the world. The question here is how the culture of these immigrants is different from the country they are going to, and how important is this differance.
For example, if you have a town or village where the immigrants predominate, and have become a political force, what does the community look like? Does it look like and reflect the country that they are in, or where they came from? Typically, it looks like where they came from.
The problem is when this results in the same conditions that they left in the first place. Actually, it never gets that far, because of local ordinances, etc. but it does produce dramatic culture clashes. Southern California is an example of this. Xenophobia and prejudice are easy to develop under these conditions because in a democratic society, those moving in want things their way, similiar to what they are comfortable with, the way they knew it in their former homelands.
A less touchy example is when rich successful people buy a house in the country, after having lived in the cities all their lives. They get all freaked out by things like the smells of the local farms, and complain to the local town council, or whatever.
This becomes important when you are talking about things like how people deal with the basics of their lives, the economics, and how they create their own community.
Part of the problem is that many lack the lifetime of education in the culture of the country the aspire to, thinking that they must hold on to what they know already out of pride. They think in terms of either/or, or at least some political leaders do. The better would be knowing both.
This gets flipped on its head when we take this into another context completely. For example, the arena of the software market, open source vs proprietary software, etc.
As some may say, this is another can of worms entirely.
Re:Rather a USA-Centric world view, no ? (Score:3)
It also has the largest economy in the world. It's percentage of GNP collected as taxes is much lower then most other industrialezed countrys. (16% of 8 trillion is a lot more (dollar for dollar) then even 50% of 2 trillion)
2) America spends more on its miltary than any other country in the world. What exactly does this contribute to free trade ?
While I would be first to agree that the lobbying power of the military industrilal complex first warned about by eisenhower is too great. The military is frequently used to directly intervene when americas intrests or americas allies (who are usually are trading partners) are threatened.
3) American corporations are amongst some of the most monopalistic in the world. Is this the free market ?
America is the one maybe the only nation that actually says a corporation must justify its monopoly is in the public interest (and meet conditions about not expanding, you know that lawsuit against microsoft?) in other nations paticullary in canada and europe, state enterprises are allowed to be as inefficient and damaging to consumers and the economy as a whole. On this point a little more, monopolies can't flurish in a economy without goverment protection even the much maligned standard oil was disintergrating at the time the goverment decided to enact anti-monopoly regulation (of course you can trace the standard oil monopoly to the monopoly granted to the rail roads by various goverments).
4) When forced to compete on a level playing field, US corporations fail dismally. E.g. the auto industry. You will not see ANYONE driving an
Amercian car in Europe. Like most Amreicans, we would prefer a quality vehicle from BMW, Mercedez-Benz, Volkswagen, Seat, Skoda,Porshe, or even a Japanese made vehichle rather than the American low quality product.
Well, considering Diamler-Chrysler are merged, Diamler-Chrysler owns Mitsubishi, other of the big three own various japanese car companies (lexus and nissan), ford is a huge player in europe as well. Indeed american companies don't market american cars in europe because of narrow minded biggoted opinions such as this, american cars are probably not built aswell but they are built so that as many people as possible can afford them, you also ignore brands like cadillac.
Americas strong belief in capatilism and education allwos american companies to thourly trump any competitor we are far more productive that any nation in europe, machine tools, electronics, computers (funny because they basically originated in britain), optics, fibre optics, medical science, biotechnology, and on and on and on.
5) Exploitation of resources and inefficiency. America leads the world in the destruction of the natural environment. Like the farme who eats his
seed corn, they will surely reap their rewards.
Actually there are many countries with far worse enviromental records then the U.S. even in "enlightened" countries such in europe or canada, canadians by the way waste far more watter then americans per captia, and there corporations are responsible for some verry disgraceful enviromental and human rigts abuses in africa and elsewhere. Infact many of the "enlightened" nations practice NIBYISM (not in my backyard) but there (even state owned) business are perfectly willing to fund or even praticipate in the pilliging of other nations.
>Anyway In conclusion. There is little that the >rest of the world can learn from America. Europe >rejected Fascism in the 40's, America seems
>hell-bent on re-learning the same lesson Europe >learned so long ago. It pains me to see it as I >feel a moral reponsibility (since around 70% of >Amercians come from my homeland).
Europe rejected fascism ? maybe britain did but most of europe was pefrectly happy to run away from the defence of freedom. Not to mention the fact that after we one the war (not of course dismissing the importance of britain, but you needed not just are milltary might but our industrial might to defend yourselves, you know the thing your maligning.) Indeed no good deed goes unpunished we also spent 50 billion dollars rebuilding western europe, yet all we have ever got is grief.
>Perhaps Americans who reject the direction their >society has taken should return to the Motherland >England, to like a more socially acceptable >lifestyle.
Funny, really, what europeans don't really seem to realize that wealth == freedom, you complain about our excess but the excess that allows the even a realitvely poor person to buy a car and have gas to put in it, why is this important well it means that with this car if there are no jobs where the person currently resides can travel somewhere else . Same goes for many other things, computers and internet access for instance.
Re:No mystery (Score:3)
Remains to be seen.
the incredible growth of homo sapiens have enjoyed over the last 200 years
... has nothing to do with capitalism. In fact the capilistic countries have the lowest population growth rates.
human population continues to grow *expontentially*
Bzzzt. Population growth rates are declining. In fact some western countries have birth rates lower than the replacement rate, and are only maintaining their population through immigration.
If by "capital" you mean money,
No, we don't mean money. Any jackass with a printing press can make money. Money existed long before capitalism.
Isn't it time we figure out a different economic system that is sustainable, and less violent?
Sounds good. Do you have any ideas? We've already tried a variety of methods including feudalism, tribalism, and communism.
Capitalism supports slavery.
What capitalistic countries currently use slavery?
"Property Rights" are paradoxical, since the enjoyment of this right must deny this very same "right" to another.
True enough, except that the concept of 'Rights' itself implies that you have taken away something from another individual. For example, my right to life means that you do not have the right to kill me. Are you really proposing that indivduals should have no rights?
Come back when you have a premise that is not filled with logical fallicies and factual error.
MOVE 'ZIG'.
Oversimplification .... (Score:4)
- alienation - or the separation (and resulting specialisation) of powers. The modern corporation essentially has 3 functional components - owners (shareholders), governance (directors) and operators (managers). Through legal mechanisms, the transfer of powers and associated trust allows more complex structures to be established. Due to historical baggage of feudal governance structures and patron-style relationships, the East has yet to develop a culture which separates the State from the individual biases. Even if you look at places like Singapore, it is essentially a city state driven by a family core (think Italty) and as a result some financiers are rather disparanging of the capital utilisation rate (compare growth in TFP against other states after discounting human and capital mobility). The alienation eliminates (at at least checks to a large extent) influences such as religion, tribalism, etc from economic factors. The downside is that the government is less powerful than many people think.
- agency costs - consequent to this is how do you ensure that the remote agents (managers/financial brokers) work for your aims (wealth creation) rather than pissing off to South America with your loaned capital. Again the rise of a professional management class as distrinct from a family owned firm with a tendency to treat OPM (other people's money) as personal disposable income allows larger scaling of enterprises. This has been aided by the significant reduction in the cost of internal communications due to technology and now you have firms which number employees in the hundreds of htousands (as compared with 100-1000's early last century). Scale matters and family firms don't have guarentee of talent.
- universal education and democratisation of capital - one of the biggest hinderances towards an efficient market is information asymmetry. What you don't know *WILL* hurt you when it comes to insider information, scams, and other forms of white collar crime. By giving the middle class the chance to pool funds into mutual investments, and the transparency to assess companies in their own right, a more accurate picture of the economy can be reflected in the prices that people are willing to lend at. If you take a look at the share-market in say China/HK, if you are not a professional market specialist, you might as well be gambling at your local casino as minority shareholders get screwed big-time.
- credit creation - the unbundling of the currency from any tangible asset such as the gold standard. This is a rather contentious fiscal "innovation" as it creates inflation (e.g. 70's) but the upside is that greater individual risks can be undertaken (with resulting higher returns). There are some serious side effects (financial crisis/flutuating financial securities) but the industry has developed more advanced liquidation techniques to reallocate capital as a result. As a result, the US financial markets have been more efficient at directing capital to product uses (c.f Japan industry boondoggles) despite its current lower (negative?) savings rate.
I'm sure any professional accountants and economists will harp on about a number of other factors such as anti-trust law (one advantage over Europe), intangible property rights (branding, etc) or derivatives to transfer/concentrate risks but IMHO the above are the main structural elements. This is not to say that all is milk and honey, governments, corporations and individuals have been known to screw up but at least the system has a chance to self-correct. However, it should be noted that people in other countries are not stupid and they can read the books on financial as well as any other capitalist. It also discounts certain elements such as social capital whcih is prized much more highly in the East due to higher population concentrations. The other potential problem I see is institutional arrogance
LL
Re:Rather a USA-Centric world view, no ? (Score:3)
You're joking, right? How about, for one, the free-flow of oil at market prices? Or do you forget that Saddam dude who tried to take over a large majority of the world's oil supply? If the US hadn't stepped up, you would have a king of the "United Kingdom of the Middle East" by now. Stable economies require a stable world. A strong military is critical to stable economies.
The fact that you feel the 'free flow of oil' or 'stable economies' are reasons to FUKCING KILL PEOPLE is exactly why you are disqualified from this conversation. Twit.
The problem is that Americans like big cars, and the rest of the world doesn't
The problem is that ONLY Americans would kill people so they can drive big cars that needlessly burn gas. The fact that you support a Plutocratic Government to use its Military to subsidize oil prices so you can drive a big car is amazing. When violence breaks out in other places; sane, stable and wise people are concerned for the citizens of the region, and are hopefull to participate in peace. Only Americans see Market opportunities and 'stable economies' as concern in these cases.
Protestant thought instrumental (Score:3)
His book The protestant ethic and the spirit of capitalism [virginia.edu] traces the historical antecedents very clearly. Check out Chapter 2 [virginia.edu] (54k) in particular for an exposition of how maximising business profit became a devout obligation.
Ironically, now we anticipate the Flood (global warming) that is the direct consequence of this sequence of thoughts and behaviours.
Re:No mystery (Score:3)
There have been gloomy talk about running out of oil for a long time:
1885, U.S. Geological Survey: "Little or no chance for oil in California."
1891, U. S. Geological Survey: Same prophecy by USGS for Kansas and Texas as in 1885 for California.
1914, U. S. Bureau of Mines: Total future production limit of 5.7 billion barrels, perhaps 10 years supply.
1939, Department of the Interior: Reserves to last only 13 years.
1951, Department of the Oil and Gas Division: Reserves to last 13 years.
The truth is that as oil reserves are continuing to increase because new technology is applied to new areas.
We don't actually know 100% how oil was formed (no one has ever been able to produce the equivalent of crude oil, yet we can make man-made diamonds). One particular theory [cornell.edu] claims that the lower crust of the planet is bathed in hydrocarbons from the time of planet formation, and the oil we see is only the little bits that get caught in traps near surface. In that case we'd never run out of oil. Who knows?
Nobody knows. Nobody knows how much oil is left, until a well runs dry. You can guess about it, but you are often wrong, because we can't count the drops of oil in every crack and crevice thousands of feet below the ground/ocean. Then once it "runs dry," you begin pumping in water to displace more oil, and you don't know how much more will come out. Nor do we know how much natural gas might be present, nor oil in oil shales.
I suggest reading Julian Simon's When will we run out of oil? Never! [umd.edu].
Other interesting tidbits: The trends in energy costs and scarcity have been downward over the entire period for which we have data. These "high oil costs" Americans complain about today are, after adjusting for inflation, not much different than 20 years ago. Energy has become less and less important as measured by its share of GNP.
And let's say we do run out of oil. Well, we'll have to get by somehow, perhaps nuclear/fusion using batteries, hydrogen, or other chemical energy storage technique. Long before the oil really runs out, there will be an economic incentive to build these devices (well, there will be in capitalist countries anyway). Looking at the price of oil right now, I don't expect to see them much in the near future.
Capitalism encourages unsustainable population growth, depletion of natural resources, and the creation of waste products.
The first part of this is really wrong. Capitalism increases the supply and efficiency of use of mineral resources. It also increases the size of sustainable populations. You may also want to compare starvation rates of US versus Mao's farming policies that killed 30 million people [hvk.org] by starvation.
Capitalism does increase the creation of waste products, but as you mentioned, it does produce a market incentive to deal with them in a halfway reasonable way. The greatest environmental problems exist in situations where there is not ownership (waterways and multipoint atmospheric pollution).