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The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else [Paperback]

Hernando De Soto
4.2 out of 5 stars  See all reviews (167 customer reviews)

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Book Description

July 8, 2003
"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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Editorial Reviews

Amazon.com Review

It's become clear by now the fall of the Berlin Wall and the collapse of communism in most places around the globe hasn't ushered in an unequivocal flowering of capitalism in the developing and postcommunist world. Western thinkers have blamed this on everything from these countries' lack of sellable assets to their inherently non-entrepreneurial "mindset." In this book, the renowned Peruvian economist and adviser to presidents and prime ministers Hernando de Soto proposes and argues another reason: it's not that poor, postcommunist countries don't have the assets to make capitalism flourish. As de Soto points out by way of example, in Egypt, the wealth the poor have accumulated is worth 55 times as much as the sum of all direct foreign investment ever recorded there, including that spent on building the Suez Canal and the Aswan Dam.

No, the real problem is that such countries have yet to establish and normalize the invisible network of laws that turns assets from "dead" into "liquid" capital. In the West, standardized laws allow us to mortgage a house to raise money for a new venture, permit the worth of a company to be broken up into so many publicly tradable stocks, and make it possible to govern and appraise property with agreed-upon rules that hold across neighborhoods, towns, or regions. This invisible infrastructure of "asset management"--so taken for granted in the West, even though it has only fully existed in the United States for the past 100 years--is the missing ingredient to success with capitalism, insists de Soto. But even though that link is primarily a legal one, he argues that the process of making it a normalized component of a society is more a political--or attitude-changing--challenge than anything else.

With a fleet of researchers, de Soto has sought out detailed evidence from struggling economies around the world to back up his claims. The result is a fascinating and solidly supported look at the one component that's holding much of the world back from developing healthy free markets. --Timothy Murphy --This text refers to an out of print or unavailable edition of this title.

From Booklist

The author, president of an influential Peruvian think tank and a prominent Third World economist, sets out to solve the mystery of why some people in the world can create capital and others cannot. Outside the West, in countries as different as Russia and Peru, it is not religion, culture, or race issues that are blocking the spread of capitalism but the lack of a legal process for making property systems work. Implementing major legal change so as to establish a capitalist order involves changing peoples' beliefs, and de Soto contends this is a political rather than a^B legal responsibility. He believes such a change can be achieved if governments seriously focus upon the needs of their poor citizens for a legally integrated property system that can convert their work and savings into capital. Political action is necessary to ensure that government officials seriously accept the real disparity of living conditions among their people, adopt a social contract, and then overhaul their legal system. Mary Whaley
Copyright © American Library Association. All rights reserved --This text refers to an out of print or unavailable edition of this title.

Product Details

  • Paperback: 288 pages
  • Publisher: Basic Books; Reprint edition (July 8, 2003)
  • Language: English
  • ISBN-10: 0465016154
  • ISBN-13: 978-0465016150
  • Product Dimensions: 5.3 x 0.8 x 8 inches
  • Shipping Weight: 8.5 ounces (View shipping rates and policies)
  • Average Customer Review: 4.2 out of 5 stars  See all reviews (167 customer reviews)
  • Amazon Best Sellers Rank: #33,880 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews
83 of 85 people found the following review helpful
5.0 out of 5 stars This Ain't Your Father's Economics! January 31, 2004
Format:Paperback
In the past five years I've read a shade under a thousand books, and this is easily the most important of them. In it, Peruvian economist de Soto sets out to do nothing less than explain why capitalism has worked in the West and been more or less a total disaster in the Third World and former Communist states. This has long been a pivotal question for anyone interested in the world beyond their own back yard, and there have been plenty of attempts to explain it before (often in terms of history, geography, culture, race, etc.). However, de Soto's is the most compelling and logically argued answer I've come across. But it's not just me. I don't generally quote other reviews, but my general reaction echoes the most respected policy journals, newspapers, and magazines, who tend to repeat the same words in their reviews:"revolutionary", "provocative", "extraordinary", "convincing", "stunning", "powerful", "thoughtful". Perhaps my favorite line comes from the Toronto Globe and Mail: "De Soto demolishes the entire edifice of postwar development economics, and replaces it with the answers bright young people everywhere have been demanding." Of course readers (especially those on the left) will have to swallow a few basic premises from the very beginning, such as "Capitalism stands alone as the only feasible way to rationally organize a modern economy" and "As all plausible alternatives to capitalism have now evaporated, we are finally in a position to study capital dispassionately and carefully." And most importantly, "Capital is the force that raises the productivity of labor and creates the wealth of nations.......
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91 of 94 people found the following review helpful
5.0 out of 5 stars Trickle-Up Economics October 13, 2000
Format:Hardcover
The Mystery of Capital, by Hernando DeSoto, could be among the most important books on economics of any century. DeSoto 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 the third world or in the former communist states.

He and his team are convinced that the problem is the lack of well defined property rights. He notes that the poor in under-developed countries have assets, but that their real property is often owned informally, and thus cannot be used to generate capital. As a result, the crucial role of real property is simply absent in under-developed countries.

He proposes the obvious solution --- formalization of informal property rights and notes that acquisition of property through informal means (squatting) has a storied history in the United States and other developed nations. DeSoto understands that formalization will be politically difficult, but points out that both rich and poor will benefit economically. One might call it "trickle up economics."

Finally, formal property rights are under attack in developed nations, through overly intrusive land use and environmental regulations. It is well to reflect upon the potential for slipping toward a system that allows virtual squatters to seize or nullify property rights through regulation, threatening a principal source of national income.

Wendell Cox

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277 of 298 people found the following review helpful
4.0 out of 5 stars Two Cheers for de Soto November 25, 2000
Format:Hardcover
Attempts to explain why the 3rd world (and the 2nd world, now that communism has largely collapsed) is different from the developed world tend to fall between two poles. At one end are those who seek an Archimedean point--a single underlying cause which, once grasped, will allow us to quickly move developing countries up the socio-economic ladder. Such explanations have the virtue of being useful to people who actually work in 'development', because they convince us that we know how to produce fundamental change. But they run the risk of oversimplifying and, if taken as a guide to policy, of raising expectations only to see them dashed by the complexities and historical quirkiness of the real world.

At the other pole are holistic, multifaceted explanations, taking into account history, culture, economics, religion--the whole nine yards. Such accounts may be more intellectually satisfying, but often lead to frustration by convincing us that the problems are too complicated, too resistant to quick fixes, for practical solutions.

The Mystery of Capital falls for the most part in the first camp. It's author, Hernando de Soto, is one of the 3rd World's most dedicated and intelligent reformers. He wants desperately to do something to help the poor, and has been heroically influential--and successful--in arguing against the failed statist solutions long in vogue in Latin America. Now he wants to move beyond criticism to a positive agenda for change. De Soto's impeccably pro-capitalist credentials make his initial criticism especially convincing: actual capitalism in most of the world is restricted to a small elite, while most remain on the outside looking in.

The question is whether de Soto's solution is equally convincing....

It is hard to argue, looking at the real experience of the undeveloped or maldeveloped world, that the lack of property rights is not a huge impediment to economic growth. De Soto and his team have done tremendous work in documenting exactly how this holds back and frustrates the poor and disenfranchised.

But it is equally hard to believe that this is the key or only reason. More accurately, it seems--from de Soto's own account of what is required--that having property rights is a sort of 'meta-cause'. It depends on such a host of other developments in the economy, in society, in the political system (where access historically often depended on property, limited to a few), in the legal system, in the informal norms and mores, that it is hardly practical to point to it as 'the solution' to 3rd world poverty. For this reason, it seems unlikely that simply pointing out that developed countries have complex systems of property rights, though useful, will be enough to allow for the development of similar systems in the developing world.

If de Soto is right, why is China developing so fast, without anything like the formal, all-encompassing property system he thinks is essential? Why did European economic development begin to outpace the rest of the world centuries before the property systems which, he points out, in most Western countries were only arrived at within the last 100 years?

As a recipe for action, The Mystery of Capital is excellent in pointing to a dimension of development that has been neglected, and for its path-breaking research on the ground, discovering what it takes to bring the newly urbanized poor into the modern economy. But as a satisfying account of what ultimately causes poverty and why some countries are rich and others are not, it falls short. For this, one should go to books like David Landes' The Wealth and Poverty of Nations, or Jared Diamond's Guns, Germs and Steel. Read more ›

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42 of 44 people found the following review helpful
5.0 out of 5 stars A book by an economist May 26, 2001
Format:Hardcover
The Mystery of Capital is recommended, among others, by no less than Milton Friedman, Ronald Coase, Margaret Thatcher, and William F. Buckley Jr. That's not why you should read the book. De Soto examines a necessary and misunderstood topic: why are poor countries poor? His arguments and insights make the book a necessary read for the economist, or other educated person.

The main point of The Mystery of Capital is that the seemingly intractable and hopeless situations in Third World countries is due in large part to one common problem: the issue of property rights. Macroeconomic policies make piecemeal improvements (or may improve nothing at all). Money is not the source of the wealth in a nation. Capital is the source of the wealth of nations! Facilitating the proper legal environment is an integral part of the creation and growth of capital, something First World nations had to develop, and something de Soto argues that Third World nations can develop.

The book gets a bit dry in the latter half, but is definitely worth the read. De Soto covers legal ramifications and reforms that will help build a bridge for "dead capital" to be converted to "live capital". The Mystery of Capital will be a surprise for some, because of de Soto's synopses here and there about what life is like for those who live in Third World countries, and the enormous amount of (untapped) wealth the people of Third World Nations possess.

De Soto is a decent economist, in part because he draws from so many disciplines and sources. He also did a prodigious amount of observation and collection of data (hardly an ivory tower academic). If you have an interest in developmental economics, law and economics, entrepreneurship, History of Thought, Economic History (especially that of the U.S....

econ Read more ›

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Most Recent Customer Reviews
5.0 out of 5 stars Great Book
Still not done because I received it when I was in the middle of moving from Nevada to Texas! As soon as I am settled in I will continue! Read more
Published 1 month ago by John C. Strassner
5.0 out of 5 stars Wow I should have read this years ago!
I must read for anyone interested in why 3rd world countries have a difficult time becoming a free market economy. I learned so much from this book!
Published 1 month ago by Doug Allen
5.0 out of 5 stars A game changer
"The Mystery of Capital" explains the importance of property ownership is terms that even politicians can understand. Read more
Published 4 months ago by W. McConnell
4.0 out of 5 stars The Foundation of Inclusive Economics!
This book, unveils the basis of why capitalism was successful as an econo-socio-political system in the West, but continues to struggle in the developing world. Read more
Published 4 months ago by Omar Halabieh
3.0 out of 5 stars Bought this for class
Bought this for class. It worked well.
It is of a great author and is excellent, but you have to be interested into this topic. It is well-written in an easy manner. Read more
Published 5 months ago by Elvis
5.0 out of 5 stars Good global view of development and what it will take.
Nice global view of development and progress. Anti-corruption, need for rules of law that facilitate capital exchange and ownership and interest in capital production. Read more
Published 5 months ago by Dallas
3.0 out of 5 stars bought for college
this book was simply just ok. nothing very interesting about the theory involved and it was a requirement for my economics class.
Published 5 months ago by Daniel Sekerak
4.0 out of 5 stars A little redundent
The book was an interesting read for the first 5 chapters, but the end is just a reideration of the beginning of the book.
Published 12 months ago by DMP635
3.0 out of 5 stars Nice explained concepts, but claims more than it can explain
The book is a simple read on the text part, but it seems to over claim that everything attached to real estate is the way to have orderly managed of wealth. Read more
Published 13 months ago by Prabhu Ram
4.0 out of 5 stars The People's Law
I give this book four stars because it does have an original, unique conceptual viewpoint regarding the West's formal property system and how exactly that system is missing from... Read more
Published 16 months ago by G. Charles Steiner
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