• Read de Soto, Chapter One

We are entering the section on "Capitalism as Both Form and Agent of Development".

My position on the value of capitalism:  it's good for what it's good for.

We will talk about development, but mostly in the context of the Third World (particularly Latin America), so we will be learning about the Third World as well.

The nature of wealth:

• Note Adam Smith The Wealth of Nations
• static vs. dynamic wealth;  gold (mercantilism) vs. productive capacity (capitalism);  dead capital vs. live capital
• Live capital (the free market) produces wealth (i.e., increases overall productive capacity) by providing both a carrot and a stick to force the creation both of new technologies (in Marxist terms, "forces of production") and of new ways of organizing production (in Marxist terms, "relations of production").

Capitalism is thus an agent or engine of development:  it works to create wealth.

It is also a form of development, in that it creates a certain form of society, a certain way people are to relate to each other.  We can't forget this; wealth isn't the only issue. Even the distribution of wealth isn't.

The Third World lacks live capital, even if it has much potential wealth, both in natural resources and in human creation.  Why is this so? The growth of capitalism means the growth of wealth.  (It does not mean an equitable distribution of it, but we will discuss that issue later.) Overview of de Soto's prior understanding:  the power of live capital through the story of my friend "Sergio" in Florianópolis.

This implies de Soto's central question:  Why, despite many efforts (including de Soto's own) to bring the benefits of capitalism to the Third World, has it never really penetrated the Third World and brought its benefits?  Why has capitalism not brought wealth to the Third World?

de Soto's book talks about five "mysteries", that is, five ways in which we in the West do not understand capitalism and thus don't communicate it well to the Third World.  (Note his earlier work, The Other Path.)  Capitalism is seen as meaning steel mills, or wealth, or pumps.  We are successful in doing it, but like the fish that doesn't know the water it swims in, we don't really understand certain key aspects.  Recall Edmund Burke:  society undergoes slow, organic development;  we can't just theorize our way to a better society, because society is too complex to understand.  These key aspects are his "mysteries" of capitalism:

• The mystery of missing information:  we just don't have the real, relevant data.  Hidden wealth;  "informal" wealth.  Braudel's "bell jar"
• The mystery of capital:  we don't understand how capitalism really works.  Hidden in private property law.  And even more than property, hidden in that law's facilitation of exchange as above mere ownership.
• The mystery of political awareness:  politicians don't understand how the power of the poor can be mobilized through policies advancing capitalism
• The missing lessons of U.S. history:  we don't understand our own history and thus can't take the necessary lessons from it to understand ourselves and to pass along those lessons.
• The mystery of legal failure:  why, despite legal systems emulating those of the United States, the citizens of other countries are unable to use their legal system.  How to make it easy, profitable, and appropriate.

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