Published by BLACK SWAN, 2001, softcover, index, 256 pages, condition: as new. Why does capitalism triumph in the West but fail almost everywhere else? Elegantly and with clarity de Soto revolutionises our understanding of what capital is and why it does not benefit five- sixths of mankind. He also proposes a enabling the poor to turn the vast assets they possess into wealth.
In this book, de Soto examines the perpetual failure of capitalist systems in Third World and former communist nations, and asks why they work so much better in the advanced economies of the West. His assertion, is that the West was unable to tell these nations how to set up a good capitalist system, even if they genuinely wanted to, because they know so little of the history of how they started their own. In particular, he asserts that at one time economies such as the United States had much larger "informal" economies as well, with most of the population (and its resources) locked out of the formal sector (and thus from the formal sector's banking system). This is important because, for example, many new businesses in the United States are started with the money from a friend or family member mortgaging their home, but if you are squatting in a house which you have no legal title to, this option is closed off from you.
Many Americans are taught in school that Abraham Lincoln signed into law the Homesteading Act, which gave legal title to settlers in the West provided that they built homes on the land they were laying claim to (up to a certain size). What de Soto claims is not so often even known in the U.S. now, is that most of the homes which settlers gained title to using the Homestead Act, were ones they had already built and were living in, often for years. The Homestead Act was, in de Soto's telling of it, important not so much because it encouraged settling of the American West (that was happening already), but because it gave federal legal recognition to the property rights of the many, many settlers who had already take up residence there.
There are a host of other historical examples that he gives, for example of how miner's claims in California were recognized in the 19th century. The recurring theme is that whereas the law "requires" that you first gain legal title to the property, then move in, and then make improvements to that property, the actual process was roughly the opposite. Settlers built homes in uninhabited territory (regardless of who theoretically owned it), then moved in and lived there for years before they gained legal recognition of their right to be there. In many cases, there was an intermediate step of quasi-legality, in which local cooperatives or local government recognized their claim, in many cases even issuing formal documentation of it, and then years later the federal government recognized it as a fait accompli.
