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The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else Paperback – July 9, 2003
"Neverworld Wake" by Marisha Pessl
Read the absorbing new psychological suspense thriller from acclaimed New York Times bestselling author Marisha Pessl. Learn more
"A must read among the globalization jet set." -- Time
"A must-read among the globalization jet set." -- -Time
"A provocative and elegantly written book." -- BusinessWeek
"Fastidious in its search for the facts but passionate in spirit and language...the blueprint for a new industrial revolution." -- -The Times London
"Fastidious in its search for the facts but passionate in spirit and language...the blueprint for a new industrial revolution." -- The Times (London)
"If a nonmathematician can win a Noble Prize in Economics, I nominate de Soto." -- -Lawrence Minard Forbes Global
"Stunningly conceived, compellingly argued, and impressively written." -- Kirkus Reviews (starred review)
"The Mystery of Capital makes a powerful case.... An important book." -- Washington Post
"The blueprint for a new industrial revolution." -- The Times (London)
"The most intelligent book yet written about the current challenge of establishing capitalism in the developing world." -- The Economist
About the Author
Top customer reviews
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Although many portions of the book are bogged down in the admittedly necessary technicalities, he ties in meaningful conclusions and practical applications, making this book excellent for even those without a background in development economics.
I greatly enjoyed the way he addressed Smith, Marx, and modern capitalist thought. With each, he neither overstated their importance to our current economic situation nor underplayed their failings as philosophies of capital and trade.
Despite these difficulties, ownership still occurs. It does so, however, through extra-legal activities. Local cooperatives that enforce and provide dispute resolution are key aspects of this society. Mr. de Soto argues that these local cooperatives and organizations must be made part of the law; otherwise these countries will eternally lag the developed West. To stop here would have been quite a book, and one which would illicit much debate, but here the author shows himself to be a researcher of particular talent, by providing us with several extremely relevant historical examples. These examples, from the early US, show how extra-legal organizations, such as early mining organizations and land cooperatives in the frontier, came together to dictate how deeds were to be approved, provide safety to those who had settled and resolve disputes. The many acts of the US government that would dictate how these items were to be "officially" handled were more often than not several years lagging in their development, and were merely the `officialization' of pre-existing extra-legal institutions.
The author takes us through his argument using wonderful prose, a clear argument and poignant tables. Even those who might disagree with his point would appreciate this book. He does a magnificent job of referencing relevant modern economic works, particularly those of Ronald Coase. This book not only educates the reader about the argument the author puts forward, but also provides the reader with the education necessary to critically evaluate the method and supporting data of that argument. Such books as this are rare, and this is why I highly recommend this book.
Points of Interest:
Metcalfe's Law (also commonly known as the network effect) described in detail according to its official definition. "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." (Page 72)
The book contains the story of a slump in the Peruvian economy, with one of the indicators being a decrease in construction. Further inspection revealed that sales of bags of cement were actually increasing. The extra-legal economy was booming, but uncounted. (Page 76)
"Mandatory law is not enough. As Andrzeg Rapaczynski has pointed out:... `This is the old Hobbesian problem: when most people obey the law, the government can enforce it effectively and [relatively] cheaply against the few individuals who break it. But when obedience breaks down on a large enough scale, no authority is strong enough to police everyone....'" (Page 170)
"In the absence of legal protection from the state in most developing nations, it is extralegal law that regulates the assets of most citizens." (Page 175)
"One large [extra-legal] squatter settlement I visited recently was initiated by the city council itself to provide homes for some 7,000 families of government employees." (Page 177)
"Using economic data from fifty-two countries from 1960 to 1980, Samar K. Datta and Jefferey B. Nugent have shown that for every percentage point increase in the number of lawyers in the labor force (from say 0.5 to 1.5%), economic growth is reduced by 4.76 to 3.68 percent - thus showing that economic growth is inversely related to the prudence of lawyers." (Page 198)
Latin Americans do not have to be reminded. On at least four occasions since their independence from Spain in the 1820's, they have tried to become part of global capitalism and failed. They restructured their debts; stabilized their economies by controlling inflation; liberalized trade; privatized government assets; undertook debt equity swaps and overhauled their tax systems. At the consumer level they imported all sorts of American and European goods. But their lack of success is in their misplaced directive. Fact lifeblood of capitalism is placed in nothing but Capital.
Desoto has taken a very pragmatic approach to the problem; by taking both a historical approach as to how the West traveled the path of Capitalism and undertaking a detailed research in the extent of dead capital stagnant in the developing world. He professes that just like the west in the early days; in the developing world there was a migration of people to cities during the industrialization. This migration created squatter colonies; and around them developed supporting economy. Bureaucracy and painful property registration system (taking 14-17 years); prevents registration of property. In essence creating dead capital; in such a system nobody can identify who owns what; addresses cannot be verified; people cannot get credit or debits; resources (land assets) cannot be converted into money or securities, description of assets are not standardized and cannot be easily compared; and rules of property law changes from neighborhood to neighborhood. By streamlining the registration of dead property lying outside the legal system eliminates all the issues above; and benefits the people by making credit/debit easily accessible to them, by taking loans with property as a security.
Desoto from his years of research of underground economies taken from a very varied group of countries (Haiti, Egypt, Philippines, Peru) has found some very startling facts about dead capital.
In Egypt the Dead capital is 241,2 Billion, which is 55X foreign direct investment (FDI) up to 1996, 30X market value of Cairo Stock Exchange; 13X accumulated foreign reserves; 6X total savings in commercial banks in Egypt.
In Philippines the Dead capital is 132,9 Billion ; which is 14X total FDI; 7X total savings in commercial banks; 4X market value of Philippines Stock Exchange.
In Peru the Dead capital is 74,2 Billion; which is 14X FDI up to 1995; 11X capital of the largest public enterprises in Peru; 8X total savings in commercial banks in Peru.
Most recent customer reviews
First, there is no "mystery". According to the author, capital appears because you can use your house as collateral. That's it.Read more