The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else Paperback – July 9, 2003

A fantastic read. Certainly it was worth the time to devour this fascinating look at asset accumulation in the developing world. De Soto asks why these assets are not being translated into capital, and how we can change that.

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.

De Soto is lauded as a genius in the field. Frankly I found his "brilliant insights" rather obvious, once extracted from his turbid writing style. Maybe an ESL problem? Reminds me of my long-ago Econ 101 text, the ubiquitous Samuelson. Another man who was brilliant at making the obvious incomprehensible. Is it an occupational disease with economists?

In many poor economies capital exists as dead capital, locked up in extralegal arrangements and as such is unable to be leveraged. DeSoto describes the problem in clear terms with field research and suggests clear steps toward implementing capitalism as a tool that can be used in poverty alleviation and transformation. His last chapter foreshadows the activity from 2009-2015, as the gulf foreclosure rate increased and the gap separating the wealthy and poor expanded.

A very interesting observation at how western law has defined what capital is, and how the west is able to use it. Allows a better understanding of what capitalism is and how it is used. I've given at least four copies to friends and family.

A thorough explanation of complexity and necessity of third and second world governments to establish foundations needed to support prosperity through capitalism. Anyone who is either interested in economics or international welfare and aid policy must read this book. It should be a requirement for all college Human Rights, Economics, Political Science and International Affairs students -- important information, based upon reality and actual experience.

This book is absolutely essential to anyone who wants to speak intelligently about capital. So many people lack that skill but continue talking. This book actually gives you some knowledge so you won’t sound like a horse’s behind.

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. The book is much more than the criticism gives it credit for, most of the criticism focuses on other instances of corruption and failure of land reform; but the book is more than just land reform and is clear that it does not support corrupt land usurping under the name of land reform. Rules of law. Facilitation of ownership and participation in recognized legitimate economy. Removal of bureaucracy that inhibits small business and the poor for exercising legal ownership... Good review of US history of expansion and the wild west of US land reform/ownership/squatting/homesteading.

This is a truly outstanding book. Very rarely does one encounter a socio-economic book that has outstanding narration, solid historical perspectives, and clear, relevant data. Mr. de Soto's thesis is beautifully simple, "Extra legal activities, those activities that exist outside of (not necessarily against, such as illegal) the law, are a fundamental aspect of society. Those societies that have flourished (Europe, the US and developed Asia) are those that have broadened their legal sectors to incorporate and legalize those extra-legal activities." The author then goes on to demonstrate his point by focusing on property laws throughout the third world, documenting in fascinating detail the steps required to own a house in Egypt or the Philippines.
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)