The Mystery of Capital

Just finished reading "The Mystery of Capital" by Hernando do Soto, a Peruvian economist. do Soto talks about capital in the economic sense as opposed to that of an accountant or a banker. the main theme of the book is property rights and property reform to enable the parallel economy to come overboard and take part in the development process. Basically he postulates giving property rights to squatters so that they are able to obtain bank loans on the basis of mortgages of the property. It does make sense to create capital within the country rather than depend on foreign investment. But the problem is not that simple as it was maybe 200 or so years ago, when land was aplently and it was okay for the politicians to grant squatter rights as was done in the US. India has adopted a novel way of giving squatter rights in that the govt. gives free housing with proper documents to people who have encroached public land before a certain cut off year. There is much heartburn in giving away anything free to people and it does hurt the middle class who have to slog their way out in difficult times.

The theme of the book being capital creation and improvement in the economy is good and undoubtedly examples in the western countries where extreme forms of capitalism thrive (for eg. bundling of mortgage rights in two or three tiers or unheard of rights in commodities and such exotic products as derivatives, options etc.) give credence to the research carried in the subject. The narrative of this book is very poor and de Soto repeats the same thing at many places.