THE MYSTERY OF CAPITAL

A provocative and revolutionary analysis of the nature of capital, the ineffectiveness of capitalistic reform in developing nations, and the ways in which those countries can harness their latent economic potential.

Peruvian economist de Soto (The Other Path, not reviewed) has shaken the world of economics and earned international acclaim with his innovative concepts for transforming the economies of underdeveloped countries. Here he again takes up the challenge posed by the struggles of the third world and the former Soviet satellite counties—this time by reimagining the nature of property and the ways in which it becomes actively productive in a capitalist country. The author claims that property only becomes useful capital when it is legally recognized by a formal legal system, since it is only when it is formally titled that its potential can be harnessed for loans, taxes, and security. As he traces the development of the US economy, it becomes apparent that American economic stability and growth only flourished once the majority of its citizens achieved property rights and were integrated into a legal titling system. Arguing outward from this model, de Soto demonstrates that underdeveloped nations fail to make trillions of dollars’ worth of capital available—largely because most of their citizens are refused legal rights to property. He builds on his argument by offering general rules for constructing a system that recognizes individual property rights and integrates those rights into a floundering economy.

Stunningly conceived, compellingly argued, and impressively written: de Soto offers a rare combination of vision and pragmatism in what will very likely stand as one of the most important economic texts of our era. (25 charts and tables)