barriomulas.com - Hernando de Soto's "The Mystery of Capital"

While waiting for my grandmother at one of her medical appointments, today I finished reading Hernando de Soto's "The Mystery of Capital". For those of you who don't know,

Mr. de Soto is probably today's most renown and famed latin American economist and a poster boy for Western diplomats and international banking officials (the back of his book features praising quotes by both Bush Sr. and Clinton.) De Soto is a genius, I must clarify, for his exhausting statistics and social experiments are quite respectable.

De Soto's theory is that the main reason why Capitalism functions in the West and fails in the Third World and former Communist countries is not because of a lack of entrepreneurial drive, but due to the presence of a legal system where property can be trades, sold, bought, defended, and rented in a legal market. De Soto states:

"You cannot walk through a Middle Eastern market, hike up to a Latin American village, or climb into a taxicab in Moscow without someone trying to make a deal with you... most of the poor already possess the assets they need to make success of capitalism... [but] because the rights to these possessions are not adequately documented, these assets cannot readily be turned into capital. (pp. 4-6)

De Soto cites the sprawling Brazilian favelas and the informal economy as evidence. Very true, but there are a few points that I would like to add. First of all, I totally endorse de Soto's call for the state to acknowledge such an unformal sector, attempting to include it into the legitimate economy. Favelas and the informal market - which I often refer to as "la economia del pueblo" covers needs that the market nor the state can provide. They represent a sort of truly authentic third way that can be hailed by both Ludwig von Mises followers and anarcho-communists. What I do disagree with is his straight forward rejection that culture might have anything to do with it.

De Soto speaks as if by simply inacting uniform property codes that the problem would fix itself. In fact, he speaks of the Third World as if it was British and the U.S. shortly before their industrial revolutions, making plenty of relations and parallels. This legal system itself represents an entire body of cultural values and norms, of which cannot be put in motion with a simple piece of legislation from top-to-bottom sources of power.

Also, de Soto's books speak strictly of legal economies and legal property exchange in a strict capitalist context. He speaks as if free market capitalism has become the sole and only option available to mankind. (I'm not bashing on de Soto for believing so, I'm simply interested in seeing how he would apply his theories to modern day leftist states such as those of Brazil and Venezuela where the state has approached the informal sectors in a way that he seems to not have bothered outlining.)

The concept is a fascinating one, but the book fails to keep the reader interested beyond the first chapter or two. He pretty much gets to the point and follows it by stating an endless stream of statistics and data. Don't buy it - the Wikipedia article probably suffices.