Assignment:
MYSTERY OF CAPITAL
Question 1
Capital is defined in different ways in the society. Most people in society define capital according to the wealth that they posses. For instance, the seminal meaning of capital in Latin means the head of cattle or any other livestock that they poses which represented the other source of wealth apart from meat which they provided to the people.
Latin view capital in two ways just like the way they valued cattle as providing meat and other sources as well as providing surplus resources that are used in other industries. This makes the economy to grow well. Assets are viewed as capital in the developing and former communist countries.
These assets include houses that were used for shelter, lands that people tilled, sow and harvest produce. The assets also include merchandise that were being bought and sold by the individuals in the country. This is not the case to the western countries as the assets that they posses lead a parallel life as capital which is outside the physical world.
The assets in the western countries can be used to get the interests of other parties as they can be used as securities which are referred to as collaterals for mortgage to get other forms of credit and public utilities.
This indicates how capital is treated differently in the western countries and the other countries. This is what is referred to as the mystery of capital which is the question why capitalism is doing well in western countries which is not the case for the other countries.
The main issue is to find out why a particular sector in the society which practiced capitalism separates itself from the rest of the society and it did not identify or involved in the activities with other countries so as to expand and conquer the entire society.
There was capital formation in particular regions of the country and it existed only in a particular society and not in the entire economy of the country. When capitalism is doing well and is at its peak that is the time in which it face crisis. Many western countries take capitalism as the only possible way to organize the society with a modern economy.
Western countries are mistreating the developing countries who are trying to balance their budgets, welcome investment from foreign countries, reduce subsidies, and do away with the tariff barriers so as to make their economy to improve and to perform well in the world.
Though they have applied so many effort and tactics to improve their economy, the west stocks and bonds are still viewed as haven for international money. There is a need for the rest of the world to implement capitalism which is practiced only in the west because failure to do so, it will make the rich economies to be on recession.
To ensure that the issue of recession is not occurring, America and European leaders who represent the west are advising the rest of the countries who are still developing to stabilize their currencies, not to take serious actions on the food riots and to wait for the foreign investors to invade their countries to undertake all forms of investment.
The issue of global capitalism has been tried many times by the developing countries but it has been failing. The countries have been trying to be part of the global capitalism but after the initial euphoria, they usually get back to their state. Westerners have been blaming the developing countries bringing out the issue of lack of entrepreneurial spirit or they are not market oriented.
Third world countries are not able to be part of the capitalism because they lack the required process to represent their property which will enable them to create capital. The houses that they posse’s houses that they do not have title, their crops do not have deed while their businesses lack statues and incorporations. All these issues are what bring out the mystery of capital.
To solve the issue of mystery of capital, there is a need for the third world countries and the developing countries so as to make sure that they understand why westerners are able to see and draw out capital by representing assets with their titles.
The westerners have the ability to extract and process capital from the assets which is not possible to the third world countries and the former communist nations.
The five mystery of capital include the mystery of missing information where the third world countries and the former communist countries have information on the dead capital, the mystery of capital is another issue where countries do not know what is capital and how it is produced, the mystery of political awareness where government is not playing any role in the creation of capital to the citizens, the mystery of legal failure which is the question that address the issue of property law which does not exist outside the west and lastly the missing lesson of US history which address the issue of the other countries not learning from US how it made it.
Question 2
According to De Soto money is not capital but capital is the assets that the country has and the assets should have title to enable the user to extract and transform capital from them.
This is the reason why there is mystery of capital, though all the countries has assets, the westerners are the only one who have assets that have title and they are able to extract and transform capital form the assets that they posses.
Question 3
The life of the law has not been logic but it has been experience, this is according to justice Oliver Wendell Holmes who was US supreme court justice. In the context of US history and property law, the former communist countries and the third world countries are not learning from the history of the US who failed so many times before they became capitalized.
The countries are mesmerized by the failure of the countries which failed in the process of being capitalized and forget that the westerners failed before they succeed in capitalism. This show that for them to succeed they have to get the experience instead of just taking it in a logical way.
The property law which is used in the west is being copied with the other countries which is not applicable as many citizens cannot convert the savings they have into capital using the law. There is a need for the countries come up with their own institutional framework to enable them to produce wealth.
The countries fail as they try to copy the property law from the west which they do not know the origin and how it was established. This shows that the life of the law has not been logic it has been experienced.
Question 4
Economic freedom involves the freedom in which the individual of a society have; they are free to control their labor and property. They are free to work, consume and invest in the way that they want.
They have the ability to undertake the economic actions in the society. The freedom is parallel to the understanding of the mystery of capital as individuals have to use their property and labor to create capital in the society. This indicate the freedom that individuals have on their property which represents that capital they have because it is from the assets, they extract and transform capital.
The westerners have to free the other countries to make them to be able to extract and transform their own capital from the assets and labor that they poses. The former communist countries and third world countries has to learn from the history of the west and be able to capitalize their economy well.
Question 5
From the mystery of capital there is a need for the former communist and third world countries to aadd the fourth pillar to the three pillars of economic growth. They should add people as their fourth pillar to the economic growth. People as the fourth pillar represent the workforce in which the individuals have towards the development of their economy.
The people plays an important role as they have to ensure that all their properties have title which will make them to extract and convert capital from them. The individuals should make sure that they are using their talents and skills to use the assets that they have to get the capital which will make the country to be capitalized.
The mystery of capital tries to address the question of why the west countries and capitalized while the former communist countries and the third world countries are undercapitalized. There is a need for the countries to learn from the history of the west and understand how the property law works so as to be able to capitalize their countries.
By having the required information, the countries will be able to understand what capital is and they will avoid working with dead capital which will fail them. Mystery of capital plays the main role of giving insight to the former communist countries and third world countries on the issue of capital.
References:
KEREKES, C. B., & WILLIAMSON, C. R. (2008). Unveiling de Soto's mystery: property rights, capital formation, and development. Journal of Institutional Economics, 4(03), 299. doi:10.1017/s1744137408001100
Velasco, M. A. (2013). Unlocking the Mystery of Capital: A Case Study on Property Rights and Capital Accumulation. Asian Journal of Business and Governance, 3(1). doi:10.7828/ajobg.v3i1.350
Visser, W., & De Soto, H. (n.d.). The Mystery of Capital. The Top 50 Sustainability Books, 158-161. doi:10.9774/gleaf.978-1-907643-44-6_34