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I wish I could remember the footnote, but a few years back a colleague of mine was all excited about a "save the third world poor" book (written by a N Am neolib of course);  the thesis of the book was that 3rd world people were so poor because too many of them owned their homes outright!  they should, so said the author, take out mortgages and go into debt to liberate capital for investment and thereby achieve lots of prosperity.

When my colleague told me this remarkable theory, after politely replacing my jaw (Marley style), I said that the author must be either a loan shark or the consigliere for loan sharks.

What we have right now is the messy end state of an economy run by and for loan sharks.  Usury was rightly, imho, regarded as criminal in previous centuries.

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Sat Feb 14th, 2009 at 01:04:56 PM EST
Missed you!!!  Welcome back and wish you'd write about your new life.

Our knowledge has surpassed our wisdom. -Charu Saxena.
by metavision on Sat Feb 14th, 2009 at 01:58:06 PM EST
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personal blog here for those who want to hear sailing stories, etc.

The difference between theory and practise in practise ...
by DeAnander (de_at_daclarke_dot_org) on Sun Feb 15th, 2009 at 01:50:42 AM EST
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You must be referring to Hernando de Soto Polar's The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else.  (That link is to a World Bank roundtable). The following (friendly) review would serve as a summary of the book's thesis
CONSIDER THE TERM "the Third World." Most people probably would conjure up in their minds the image of tens of millions of poverty-stricken people living in Asia, Africa, and South America possessing no means for survival other than their unskilled and primitive labor. Property ownership, in this image, is limited to a select few extremely wealthy individuals and families, who exploit others in societies so they may live lives of comfort and luxury.

Hernando de Soto, Peru's leading free-market economist, says this image is both false and misleading. The ordinary peoples in the "undeveloped countries" of the world, in fact, have a vast amount of wealth. And this wealth enables a flourishing world of trade, commerce, industry, and employment.

Indeed, if one adds up the estimated value of real estate held by "the poor" in these countries, the total value comes to something in the neighborhood of $9.3 billion. The only problem is that most of this wealth is not in the form of legal titles to property; instead, these are "informal" ownerships not recognized or enforced by the political authorities in these parts of the world.

...

The heart of de Soto's argument is that under this informal system, a vast amount of private wealth exists as "dead capital." Without legal title to real property -- residential homes, retail businesses, factories, apartment buildings -- the informal owners are unable to tap into either the national or global financial markets. Normal loans or lines of credit with real property as the collateral are difficult to acquire.

...

So his recipe for economic development is to formally recognize all this "informal wealth" so that people in poor countries can then mortgage their homes and land to "access the national or global financial markets".

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Mar 15th, 2009 at 07:47:31 AM EST
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