BetterBizBookClub

May 2002 BetterBiz "Book of the Month" - The Mystery of Capital by Hernando De Soto

Full Length Review Here!

The Mystery of Capital
By Hernando De Soto 
Basic Books, 2000 - 276 pages

In this book Mr. De Soto seeks an answer to why capitalism is succeeding in the West and not in many former communist nations. In general I learned quite a bit from the book and found the sections on law development/social contracts and American property history to be a HUGE learning experience full of insight. If you read this book you can truly learn a lot but you have to read it with an open mind.

At times Mr. De Soto is VERY REPETITIVE. Chapters 1-4 keep on repeating his conclusion in different manners and I found that reading those chapters was like him trying to beat his conclusion into my head.

His conclusion: Such countries have yet to establish and normalize the invisible network of laws that turns assets from "dead" into "liquid" capital, specifically as it pertains to property and ownership of land. 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.

Mr De Soto backs up his claims with some profound numbers too. For example, in Egypt, the wealth the poor have accumulated via real estate/property is worth 55 times as much as the sum of all direct foreign investment ever recorded there. He also provides data in the countries of Haiti and Peru.

Mr. De Soto provides insights as to how these countries are currently organized/operate via an "extra legal" sector. Rather than operating under a formal code of law local cooperatives enforce and provide dispute resolution and he argues that, since law evolves out of social contract that property laws/organizations could be made a part of the law to help unleash capital through the economy.

If you want to read a good book on socio-economics or a book that deals with the economic abstract thought of representational systems I highly recommend the book.

Hernando de Soto is President of the Institute for Liberty and Democracy (ILD), headquartered in Lima, Peru. He was named one of the five leading Latin American innovators of the century by Time magazine in its May 1999 issue on "Leaders for the New Millennium." De Soto played an integral role in the modernization of Peru's economic and political system as President Alberto Fujimori's Personal Representative and Principal Advisor. His previous book, The Other Path, was a best seller throughout Latin America as well as in Washington, D.C. He and ILD are currently working on the practical implementation of the measures for bringing the poor into the economic mainstream introduced in The Mystery of Capital. He lives in Lima, Peru.