The Mystery of Capital

The Mystery of Capital

Why Capitalism Triumphs in the West and Fails Everywhere Else

Book - 2000
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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 fail?In strong opposition to the popular view that success is determined by cultural differences, de Soto finds that it actually has 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, but 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.
Publisher: New York : Basic Books, c2000
ISBN: 9780465016143
0465016146
Characteristics: 276 p. : ill., maps ; 25 cm

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wrath231
Feb 09, 2015

Should be required reading for any of todays or future political leader. The only knock against it is De Soto beats us over the head with his thesis far too many times in the book...could have used a little editing.

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Leonardo7
Apr 15, 2010

In reading this book I found it to be a clear explanation of how capital is created in the capitalist system. He explains that it works in the west because we have developed a system that ensures that virtually everyone has ready access to and accepts the concept of title to property, thus greatly minimizing "extralegal" arrangements of title. This then allows this recognized physical capital to be leveraged. He compares this to the third world where most business activity is "extralegal" or "outside the belljar" of legitimate business. Such a system works within the confines of the local community, but it does not allow property to be leveraged beyond that community.He faults capitalism in many ways. for example
"The great contradiction of the capitalist system is that it creates its own demise because it cannot avoid concentrating capital in a few hands. by not giving the majority access to expanded markets, these reforms are leaving a fertile field for class confrontation - a capitalist and free market economy for the privileged few who can concretize their property rights, and relative poverty for a large undercapitalized sector incapable of leveraging its own assets."
He concludes by saying:
"I am convinced that capitalism has lost its way in developing and former communist nations. It is not equitable. It is out of touch with those who should be its largest constituency, and instead of being a cause that promises opportunity for all, capitalism appears increasingly as the leitmotif or a self-serving guild of businessmen and their technocracies...I am not a die-hard capitalist. I do not view capitalism as a credo. Much more important to me are freedom, compassion for the poor, respect for the social contract, and equal opportunity."
Yes, de Soto has demonstrated that capitalism is extremely efficient. So far, it has proven to be the best at consolidating resources. Unfortunately, this seems to be the root cause of the rapid depletion of the natural resources of the earth. We have become exceptionally good at exploiting these resources, but have not yet incorporated any recognition of the need for sustainability. Capitalism has never known how to cope with a finite system. That is what is leading not only to the collapse of capitalism, but the end of life on earth as we know it. As we rush to embrace the hyper efficiency of capitalism, we are like lemmings heading for a cliff. de Soto has made a compelling case for how to make capitalism work throughout the world, but, just because it is the best at exploiting resources doesn't mean that the earth can survive the onslaught of more than 7 billion people all pursuing the American Dream. It can't and, it won't.
The fact that de Soto makes no reference to the issue of sustainability leads me to conclude that he is like every other economist who seems to believe that continual economic growth is possible within the confines of a closed finite system, namely, Earth.

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