Hernando de Soto is a Peruvian economist who specializes in black and grey markets, not because he’s obsessed with criminal activity per se, but because in most developing countries the informal economy is larger than the official legal economy. Many times bigger in many cases.   

There’s a whole narrative about “economic hit men” and the ways that West have deliberately kept these countries poor, even after open colonialism ended. It’s always easier to blame an obvious villain than it is to discover structural causes, especially when those structures grew gradually over hundreds of years, literally by trial and error, as precedents grew out of individual court cases. That’s right; de Soto’s position is that the cause of poverty is the law -- not in a conspiratorial way, but in an ignorant and unconscious way.   

One of the reasons that I came here is that we economists and lawyers, we have exhausted our capacity to convince. We have exhausted our capacity of seeing the big picture. That is why I got extremely confused when I saw the vigorous way in which certain philosophers—which includes Professor John Searle—were looking at these issues. They were looking at these issues in ways that made a lot of sense to people like myself; that bring it all together the way it was in the eighteenth and nineteenth century, and that we seem to have lost somewhere on the way.   

What de Soto doesn’t say is that it is precisely Adam Smith’s famous division of labor that creates the intellectual silos that get in the way of our understanding. Biologists know very well that specialization is a double-edged sword.    

[image from conservation organization cheetah.org]   

Cheetahs are the fastest-running animals on the planet, but their specialization for speed comes at a high cost. They are so light in their bone and muscle structure that they are unable to defend their own kills from other more heavy-duty predators like lions and hyenas. Their claws are blunt like a dog’s, which means they can’t hide their kills up in a tree like a leopard can. In the same way, becoming a specialist economist or lawyer causes us to lose the bigger picture.   

The technological development of the blockchain, which is less than a decade old, has pulled our focus back, allowed us to begin to ask basic questions again. Sure, there are levels of expertise, but in a new enough community, everyone is an amateur, a generalist, scuttling about looking for any information. This is a good time to be learning about how property works.   Property does not consist of assets alone; property must also include the legal infrastructure that connects assets and the communities of humans who hold those assets to the ecosystem of commerce.

De Soto is clear about why Western-style market reforms in developing countries have failed.   

What happens is that you cannot take a legal system from one country and just pass it to another one, because there is no such thing as a rule vacuum in any developing country. There are rules in all countries. The first thing that people do is create rules. What you have to make sure of when you bring in modernity is to find out what the grassroots rules are.   

In other words, the IMF and those institutions fail not because they are corrupt or evil but because they don’t listen. They assume they know what they’re doing, which causes them to put irrelevant things into place, which people ignore in favor of what they’ve already been doing. He supports this with examples from several countries, with Egypt being my favorite. 

 [image link]

Because there’s only the one big river flowing through the country, and a few oases, there’s a limited amount of agricultural land, and it’s not just dumb to put buildings on that valuable land, it’s actually unconstitutional.   

We say, “You’re absolutely right, it’s an outrage. Nevertheless, we have quantified it, and we have found that in Egypt since the 1950s you have built four million seven hundred thousand buildings on agricultural land, all of which are not only not legal, but perfectly unconstitutional. Four million seven hundred thousand buildings, at our evaluation of about 10,500 dollars per building. When you add up how much mortar, how much bricks, how much iron, without the furniture, without the factory that is hidden in the house (in 50 to 60 percent of them), you’ve got fifty billion dollars of dead capital, things on which you cannot, to use Professor Searle’s language, impose functions. You cannot use them as credit, you cannot use them as a guarantee, you cannot use them as collateral, you cannot use them as some kind of token.   

And because of the existing law, those illegal assets can NEVER be converted into capital. They are trapped in a legal limbo, along with their holders (I don't say owners, because without a title, they don't legally own it).

This is the biggest challenge that a blockchain financial system faces. In order to be more effective than the current system of banks and fiat money, it needs to flexibly interface with hundreds – thousands – of different local systems of finance and governance. Humility in the process of growing these connections is key.    

We have to be roaches, not cheetahs.

This post is Chapter 1 of a series, the master post for which is here.

https://steemit.com/philosophy/@plotbot2015/the-mystery-of-capital-and-the-social-construction-of-reality

REFERENCES

https://en.wikipedia.org/wiki/Hernando_de_Soto_Polar

https://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit_Man

https://cheetah.org/about-the-cheetah/