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1-Page Summary of The Mystery of Capital
The Importance of Provable Ownership
Ownership and the institutions that support it are critical for Western capitalism. It is an artificial construct, but a very important one. When communism fell in Eastern Europe, millions of people had no ownership rights because their property was not recognized by law or they did not have any formal address. This is common in much of the world where there are more people who do not own property than those who do.
The U.S. also had the same problem, but it was able to solve it in time by establishing a clear system of titles and ownership. Many developing countries are facing the same issue as they see people migrating from rural areas to cities where there is no clear legal system for property rights and businesses. Opening a business or acquiring property can be extremely expensive and time consuming, which makes it difficult for people living on low incomes to become entrepreneurs or own their homes legally. In Peru, becoming legal could take two years while in other countries such as Egypt, building without permits can lead to demolition of one’s home by authorities and even prison terms if caught violating certain laws.
No wonder migrants opt out of the legal system. They become extralegal, using informal rules to protect their rights. This sector thrives in many countries, where jitney drivers provide public transportation and hawkers sell interesting goods at markets. Mexico had an estimated 2.65 million such businesses in 1994.
Dead Capital
There are a lot of illegal homes and businesses that don’t have proper documentation. Therefore, they’re not registered in official records and can’t be used for tax purposes. They’re called “dead capital” because they don’t contribute to the economy. In Haiti, 97% of rural people live in unregistered housing; 92% of Egyptian urbanites live in unregistered housing as well. These dwellings individually aren’t worth much, but there are millions upon millions of them worldwide—worth $9 trillion total—quadruple the value of all legal companies combined!
It’s difficult to convert a house into capital. Western property systems make it hard to get beyond the physical presence of the house and instead focus on its value. The asset is not money or land, but rather something that produces more capital. These systems preserve the description of this thing as an asset so people can verify ownership through writing and provide titles for transactions with confidence they’re enforceable.
The value of a house can be created by the title to it. A title is different from shelter in that it represents ownership and capital, which can then be used for other purposes like obtaining loans or collecting taxes. The address also gives people access to utility services and creates more value beyond just the house itself.
There are two systems of law in the West. The official system is based on a single property system that aggregates all the facts about a property. In this system, there is only one law for each type of crime and it applies to everyone equally. However, there’s also an unofficial extralegal system where many laws compete with each other and have varying degrees of influence or power over people’s lives.
Legal titles ensure that people are held accountable for their actions. If they don’t follow through on a contract, then it’s recorded and punishable. The threat of losing property ensures accountability.
Property is critical in the modern world. It allows people to own and use things, as well as exchange them. People can buy shares of a property or a collection of properties. Property also creates connections between different places that are otherwise unconnected, such as timberland in Oregon backing financing for an investment in Chicago due to property laws.
