The Mystery of Capital
In this book I intend to demonstrate that the major stumbling block that keeps the rest of the world from benefiting from capitalism is the inablity to produce capital.Capital is the force that raises productivity of labor and creates the wealth of nations. It is the lifeblood of the capitalist system, the foundation of progress, and the one thing that poor countries of the world cannot seem to produce for themselves, no matter how eagerly their people engange in all the other activities that characterize a capitalist economy.
I will also show, with the help of fact and figures that my research team and I have collected, block by block and farm by farm in Asia, Africa, the Middle East, and Latin America, that most of the poor already possess the assests they need to make a success of capitalism. Even the poorest countries, the poor save. The value of savings among the poor is, in fact, immense - forty times all the foreign aid received throughout the world since 1945. In Egypt, for instance, the wealth that the poor have accumulated is worth fifty-five times as much as the sum of all direct foreign investment ever recorded there, including the Suez Canal and the Aswan Dam. In Haiti, the poorest nation in Latin America, the total assests of the poor are more than one hundred fifty times greater than all the foreign investment recieved since Haiti's independence from France in 1804. If the United States were to hike its foreign-aid budget to the level recommended by the United Nations- 0.7 percent of the national income- it would take the richest country on the earth more than 150 years to transfer to the world's poor resources equal to those they already possess.
But they hold these resources in defective forms: houses built on land whose ownership rights are not adequately recorded, unincorporated businesses with undefined liability, industries located where financiers and investors cannot see them. Because the rights to these possessions are not adequately documented, these assests cannot readily be turned into capital, cannot be traded outside of narrow local circles where people know and trust each other, cannot be used as collateral for a loan, and cannot be used as a share against investment.
In the West, by contrast, every parcel of land, every building, every piece of equipment, or store of inventories is represented in a property document that is the visible sign of vast hidden process that connects all these assets to the rest of the economy. Thanks to this representational process, assests can lead an invisible, parallel life alongside their material existence. They can be used as collateral for credit. The single most important source of funds for new businesses in the United States is a mortgage on the entrepreneur's house. These assests can also provide a link to the owner's credit history, an accountable address for the collection of debts and taxes, the basis for the creation of securities (like mortgage-backed bonds) that can be then rediscounted and sold in secondary markets. By this process the West injects life into assests and makes them generate capital.
Third World and former communist nations do not have this representational process. As a result most of them are undercapitalized, in the same way that a firm is undercapitalized when it issues fewer securities than its income and assets would justify. The enterprises of the poor are very much like corporations that cannot issue shares or bonds to obtain new investment and finance. Without representation, their assests are dead capital.
The poor inhabitants of these nations - five-sixth of humanity - do have things, but they lack the process to represent their property and create capital. They have houses but not titles, crops but not deeds, businesses but not statutes of incorporation. It is the unavailabiltiy of these essential representation that explains why people who have adapted every other Western invention, from the paper clip to nuclear reactor, have not been able to produce sufficient capital to make their domestic capitalism work.
This is the mystery of capital. Solving it requires an understanding of why Westerners, by representing assests with titles, are able to see and draw out capital from them. One of the greatest challenges to the human mind is to comprehend and to gain access to those things we know exist but cannot see. Not everything that is real and useful is tangible and visible. Time, for example, is real, but it can only be efficiently managed when it is represented by a clock or a calendar. Throughout history, human beings have invented representational systems - writings, musical notation, doub-entry bookkeeping - to grasp with the mind what human hands could never touch. In the same way, the great practitioners of capitalism, from the creators of integrated title systems and corporate stocks to Michael Milken, were able to reveal and extract capital where others saw only junk by devising new ways to represent the invsibel potential that is locked up in assests we accumulate.
[taken from The Mystery of Capital - Why capitalism triumphs in the west and fails everywhere else by Hernando De Soto]
In this book I intend to demonstrate that the major stumbling block that keeps the rest of the world from benefiting from capitalism is the inablity to produce capital.Capital is the force that raises productivity of labor and creates the wealth of nations. It is the lifeblood of the capitalist system, the foundation of progress, and the one thing that poor countries of the world cannot seem to produce for themselves, no matter how eagerly their people engange in all the other activities that characterize a capitalist economy.
I will also show, with the help of fact and figures that my research team and I have collected, block by block and farm by farm in Asia, Africa, the Middle East, and Latin America, that most of the poor already possess the assests they need to make a success of capitalism. Even the poorest countries, the poor save. The value of savings among the poor is, in fact, immense - forty times all the foreign aid received throughout the world since 1945. In Egypt, for instance, the wealth that the poor have accumulated is worth fifty-five times as much as the sum of all direct foreign investment ever recorded there, including the Suez Canal and the Aswan Dam. In Haiti, the poorest nation in Latin America, the total assests of the poor are more than one hundred fifty times greater than all the foreign investment recieved since Haiti's independence from France in 1804. If the United States were to hike its foreign-aid budget to the level recommended by the United Nations- 0.7 percent of the national income- it would take the richest country on the earth more than 150 years to transfer to the world's poor resources equal to those they already possess.
But they hold these resources in defective forms: houses built on land whose ownership rights are not adequately recorded, unincorporated businesses with undefined liability, industries located where financiers and investors cannot see them. Because the rights to these possessions are not adequately documented, these assests cannot readily be turned into capital, cannot be traded outside of narrow local circles where people know and trust each other, cannot be used as collateral for a loan, and cannot be used as a share against investment.
In the West, by contrast, every parcel of land, every building, every piece of equipment, or store of inventories is represented in a property document that is the visible sign of vast hidden process that connects all these assets to the rest of the economy. Thanks to this representational process, assests can lead an invisible, parallel life alongside their material existence. They can be used as collateral for credit. The single most important source of funds for new businesses in the United States is a mortgage on the entrepreneur's house. These assests can also provide a link to the owner's credit history, an accountable address for the collection of debts and taxes, the basis for the creation of securities (like mortgage-backed bonds) that can be then rediscounted and sold in secondary markets. By this process the West injects life into assests and makes them generate capital.
Third World and former communist nations do not have this representational process. As a result most of them are undercapitalized, in the same way that a firm is undercapitalized when it issues fewer securities than its income and assets would justify. The enterprises of the poor are very much like corporations that cannot issue shares or bonds to obtain new investment and finance. Without representation, their assests are dead capital.
The poor inhabitants of these nations - five-sixth of humanity - do have things, but they lack the process to represent their property and create capital. They have houses but not titles, crops but not deeds, businesses but not statutes of incorporation. It is the unavailabiltiy of these essential representation that explains why people who have adapted every other Western invention, from the paper clip to nuclear reactor, have not been able to produce sufficient capital to make their domestic capitalism work.
This is the mystery of capital. Solving it requires an understanding of why Westerners, by representing assests with titles, are able to see and draw out capital from them. One of the greatest challenges to the human mind is to comprehend and to gain access to those things we know exist but cannot see. Not everything that is real and useful is tangible and visible. Time, for example, is real, but it can only be efficiently managed when it is represented by a clock or a calendar. Throughout history, human beings have invented representational systems - writings, musical notation, doub-entry bookkeeping - to grasp with the mind what human hands could never touch. In the same way, the great practitioners of capitalism, from the creators of integrated title systems and corporate stocks to Michael Milken, were able to reveal and extract capital where others saw only junk by devising new ways to represent the invsibel potential that is locked up in assests we accumulate.
[taken from The Mystery of Capital - Why capitalism triumphs in the west and fails everywhere else by Hernando De Soto]
posted by cyph3rpunk at 1/27/2003 11:49:00 PM
0 Comments:
Post a Comment
<< Home