The Source of United States Wealth
Most people probably think the wealth of the United States,
and the strong and growing economy here is due to having free
markets. There is some truth in this. However, many other countries
have tried free markets and had much less success. Why?
Don't ask a U.S. economist for the answer. In my reading,
I have found that few of them can give you any clear answers
when it comes to capitalist ideas in practice. You have to look
south for that, because the cutting edge research on capitalism
is now being done at the Institute for Liberty and Democracy
(ILD), located in Lima, Peru.
Peruvian economist and writer Hernando de Soto and his group
have traveled the world, looking for the answers as to why free
markets work so well for the United States and not for many other
countries. One result of that research is De Soto's recent book,
The Mystery Of Capital.
His research is deep and the findings are not easy to explain
in a few paragraphs, so I will only drop hints here. I highly
recommend that anyone who wants to understand what makes this
country tick, read this book. The primary difference that is
being found over and over, is that most other countries don't
have established property law that is as conducive to wealth
creation. This, and not free markets, is the crucial distinction.
An example: Did you know that most entrepreneurial activity
in this country is financed in part from home equity, either
directly or indirectly? Indirectly would be with credit cards,
for example, that are rolled into a home mortgage consolidation
This doesn't happen in many other countries. Why? Because
of laws that make it hard for a person to lose their property.
Yes, you read that right. The ease with which we can be separated
from our property here is an economic strength.
If it is easy for a bank to take your house when you don't
pay on your mortgage loan, they are willing to make the loan.
Titles are much clearer here too. In my wife's native Ecuador,
by comparison, titles are not quite as clear yet, and you can
try to give your house to a person in your will, only to have
your son sue for possession by virtue of familial rights. Would
you want to get involved in lending on property if you were never
sure you could take your collateral?
In many countries it is very difficult to sell property outside
of your family. It is even difficult to get a title in many cases,
and you own the property only by virtue of living on it and possessing
it. You can never tap into the equity there for business purposes.
In the U.S., by comparison, you can almost always get clear
title and do anything you want with your property, including
letting the bank take it if you don't pay on your loan.
Easy assignment of property, and our well developed and defended
property rights in other areas (patents, trademarks, copyrights,
airwaves, mineral rights, etc.) are the crucial elements to our
economic success. It isn't just being able to sell things freely
that has caused the United State's to be so wealthy.