• Read de Soto, Chapter Three "The Mystery of Capital"

Heads of cattle:  capital as the dual sense of the thing itself and its potential to create goods.  Note connection with other terms:

• "Stock"
• Chattel:  tangible property not land or buildings;  movable property;  slaves (chattel slavery)

The difference between those assets that are dead capital and those that are live capital.  (Although this is a continuum, as we shall see.)  De Soto's example of a mountain lake enlivened by someone figuring out how to harness it.  Human effort required to invent & construct what was only potential before.

[Parallel image exercise:  come up with an image that conveys the same lesson as the mountain lake image.]

Distinguishing mercantilism and capitalism:  the distinction between use value and exchange value;  the distinction between reshuffling ownership of use value (which might increase an asset's exchange value) and increasing use value.  Especially we want to look at increasing overall use value;  distribution and increase of use value for many vs. concentration and decrease of use value for many.

People have the following picture of capital:

However, this neglects the mediating role of social relations.  As the film about Ayolé showed us [or will show us], physical assets have to be grounded in a social context in order to be productive.  If you give me control over the social context, I can control any physical asset you name.

These are important distinctions.  Here are various ways they are conceptualized:

• Law-creating vs. law-maintaining
• The transition from home to school:  the problem of dealing with roommates
  
• Defining Political Development (Chapter 3):  Kohlberg's Stage 4 reasoning ("Law & order") vs. Stage 5 reasoning ("prior rights or utility").  Note the unfortunate confusion between the Stage 5 TV show, "Law & Order", and the similarly-named Stage 4 level of reasoning.
• Systemic thought
• Durkheim & the problem of suicide:  morality or society?
  
• Systemic thought = seeing society as a black box:  what structure creates these results w/o regard for praise and blame.  "Society has to meet morality half-way" (Habermas 1983).

[Exercise:  apply systemic reasoning to the number of parking tickets issued by the UMD police.]

[Exercise:  apply systemic reasoning to the problem of extralegality in the Third World:  Complete the following table:]

The distinction between capital and money.  Money as a medium of exchange and a signaling mechanism to reduce transaction costs [Define].  But money is an imperfect signaling mechanism, and this gives rise to various "market failures" [Define;  give example] and other injustices [Give example].

The West's concept of capital is a mystery because it is hidden in the Western system of private property:  "What creates capital in the West ... is an implicit process buried in the intricacies of its formal property system" [46/2/end;  emphasis mine].  The "river delta" image of why Western attempts to transplant its model of development fail in non-Western societies.

The advantages of (and need for) a system of private property;  how it enlivens dead capital:  the six effects of formal private property systems:

• Fixing the economic potential of assets.  It limits them too, but the tradeoff should be a good one.
• Protecting transactions (as well as ownership, although de Soto claims that Western systems emphasize the former over the latter, which doesn't seem correct to me)
• Integrating dispersed information into one system.  Ease of exchange;  mobile capital, not just capital.
• Making people accountable individually;  now they are individuals with rights courtesy of the State, not their neighbors.  (This is not an unalloyed benefit, of course.)
• Making assets fungible:  representation (instead of reality) of asset and its significant features;  loss of richness of description but ease of understanding.  Money (price) is one such signal system, even if an imperfect one.
• Networking people:  places people in relationship to each other as fellow citizens, no matter what their other relations.  All are citizens together.

"Braudel's Bell Jar" image:  the question of why, in countries like Peru, formal property systems aren't extended beyond a small elite.  [Bring a bell jar to class.]

[The following is a hasty transcription from written notes I found:]

What creates capitalism's benefits?  Entrepreneurship, ingenuity, efficiency, incentives (both rewards for success & punishments for failure)

Relies on:

• ownership
• free flow of trade (open markets), both buying selling, manufacturing, working.  This free flow can be aided by the infrastructural elements of transportation, communication, security of contract, information

Where's the problem in the Third World, according to de Soto?

• Ownership:
  • competing claims;  claims acknowledged only locally
  • legal maze to own
  • ownership means more taxes and regulation
• Transaction costs [= information]
  • no infrastructure (transportation, communication)
  • no security (enforceability) of contract
  • information scattered, not organized representation

Capital is not equal to things.

Capital is not equal to money.  Money is a signal system — highlights some things, obscures others.  "Market failure" of impure foods

Capital is equal to productive stuff.

• Overall question:  Explain what de Soto means by the title of this chapter.  What does he mean that capital is a mystery?
• De Soto distinguishes between capital and money, saying that they are not the same thing.  Draw a Venn diagram that shows the relationship between these two concepts, and use that to explain what de Soto means.
• De Soto illustrates aspects of capital by using the example of a mountain lake.  It has its intrinsic value (fishing, canoeing, and so on), but it cannot produce anything -- i.e., act as capital -- until some means is found to harness it (figuring out how to generate electricity from it), thus producing extrinsic value.  Construct another example by which you distinguish the intrinsic and extrinsic value of something.
• A harder question:  Doesn't de Soto's "mountain lake" example fall apart on closer inspection?  After all, the elements he sees as constituting the lake's intrinsic value (fishing and canoeing) are just as much the product of human creation as hydroelectricity is.  Someone had to figure out how to catch fish, and someone had to figure out how to construct a canoe.  Can you create any example in which the intrinsic-extrinsic distinction really holds water?  (Har har har)  Does anything have an intrinsic value, i.e., a value separate from human use of it?
• Are "capital" and "the Western system of private property" the same?  Or to put this another way, can there be a concept of capital divorced from (or not relying upon) private property?  What would this look like?  [Would it be useful to look at Ayolé in this regard?  At the end of the video the villagers were working on their communal plots in order to grow things that could be sold and used for projects benefiting the village:  pump repair, of course, but also a health clinic and perhaps a school.  This "dead" capital -- the land -- had begun to produce wealth.]
• What would be the pros and cons of this conception of capital if it were used as a way for (at least some) non-Western societies to develop?
• What is the cost of a "modern market economy" [47/2/3-4]?  What are we giving up?  To answer that, we have to compare it to other possible forms of social organization.  What are some such forms of organization?  How does the modern market economy compare to them?
• What does de Soto mean when he says, "No one can see property" [49/1/-2]?  I look at my computer screen and I say, "That's my property!"  Is de Soto blind?

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