The Mystery of Capital by Hernando De Soto

April 4th, 2012 at 3:00 pm

The Mystery of Capital was originally published in 2000 and I can only imagine that it is now horrendously out of date. All problems are solved about every decade, right?

The Mystery of Capital by Hernando De Soto

This book is not a Mystery or Thriller. It is not suspenseful. Rather, it is a economist’s straightforward assessment on yet another reason why our world is so fucked up. Yes, another stirring contribution to the ever-popular genre of Teen Lit, WOWISFU. WOWISFU is the next Hunger Games. (pronounced Wowzafoo.)

Regardless, I found The Mystery of Capital to be a worthwhile read. In a most obtuse, simplistic assessment, De Soto argues for government regulation and oversight to foster proper development in regards to property, real estate, and capital in general. (De Soto focuses entirely on Third World, Developing, and post-Communist countries.)

He supports a system of government aggregating, organizing, and facilitating the proper networks of legal framework, methodically opening up their bureaucracies to large swaths of populations currently operating on the periphery by adopting, co-opting, and implementing the frameworks already in place on such black markets. Using the Industrial Revolution of the 19th century as a model, De Soto speaks of a global industrial revolution in our common era in which life is now organized on a very large scale. In such, institutions are slow to adapt and therefore entrepreneurship triumphs, even if it means triumph in the black market, or “extra legal” sector.

Contrary to very popular and dominant arguments, De Soto insists that the world’s problems are not overpopulation, urban growth, and a poor minority, but rather, outmoded systems of legal property. Unfortunately, Legal Property is not near as sexy or easy to master as say, racism (ex: “The problem with the world today is that there are too many (name of color) people.”)

De Soto speaks of Metcalfe’s Law: “The value of a network – defined as its utility to a population – is roughly proportional to the number of users squared. An example is the telephone network. One telephone is useless: whom do you call? Two telephones are better, but not much. It is only when most of the population has a telephone that the power of the network reaches its full potential to change society.”

De Soto’s primary argument resides on an insistence in formalizing the property rights of so many “extralegal” citizens living and doing business outside of their population’s established networks of commerce, thus preventing their community from realizing the full potential of capitalism.

In simple math, legalization of property = creation of capital.

And while I do not have the intellectual capacity nor desire to fully engage in the nuances and complexities of this issue, this book was most rewarding to me in a conceptual manner. It was illuminating to immerse myself in the true nature of our Abstract World. De Soto has a comfortable grasp on how our systems of governance rely on symbols and abstraction to generate money, wealth, and affluence, what De Soto refers to as capital. It’s a twisted, mind-bending read. But it made me feel smarter and more informed. Which is what books are for in the first place, right? To make us feel better, smarter?

Reading is sexy.

Be Sociable, Share!

One Response to “The Mystery of Capital by Hernando De Soto”

  1. I only sorta remember the details on that book, but I do remember enjoying the read…

    On the economic topic, I just was reading about a conference on “gross national happiness” – which seems like an interesting turn on the idea of inevitable economic growth, globally. Over here, should you want to have a look.-

Leave a Reply