Monday, May 15, 2006

Hernando de Soto Interviewed

“The Poor are the Solution, not the Problem, Hernando de Soto interviewed:

R&L: And finding this missing thing is the mystery of capital.

De Soto: That’s right. What the book tries to convey is that the traditional reforms associated with establishing a capitalist system—monetary stability, fiscal equilibrium, privatization—are definitely not enough. What makes the capitalist system function well in the United States, Western Europe, Japan, and the four Asian tigers is a very good property and transaction legal system. As both Adam Smith and Karl Marx explained, what gives the market economy system its power is essentially the wide-spread division of labor, what we today call specialization. Specialization has been possible in the Western world throughout these last two centuries because of the ability of specialists to create and exchange capital among themselves, and that ability exists because the West has good property law, which allowed for good market transactions. For at least 70 to 80 percent of the world’s population, for former communist nations and developing countries, a legal system allowing for the definition of property rights and their transaction in an orderly market is not in place.

R&L: What is this property and transaction legal system?

De Soto: It is what you in the United States have right under your noses. Every asset, from a bicycle all the way up to a nuclear plant, is essentially titled within the law. Every act inside your legal system is done according to written rules and can be followed within up-to-date records, where transactions, debts, and investments can be tracked. Every company is owned by people represented in its shares. Every home and automobile has a recorded property title or deed, which allows the identification of who owns what and where. All developing and former communist nations, with the exception of maybe 10 to 20 percent of their population, do not have such records or rules.”

From: Acton Institute: for the study of religion and liberty at:

This is excellent applied Smithian material. It is definitely worth reading more about De Soto’s work. Start with Google and follow the trail.


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