Hernando DeSoto's The Mystery of Capital... Through the Eyes of Quiddity

Below are a set of quotes (key ideas) that I have drawn from reading Hernando Desoto's book The Mystery of Capital. These key ideas inspired me over the last decade to establish the construct for a new human life value based formal property system called Quiddity™. I have not been able to discover a more powerful way to communicate the exponential potential of the Quiddity Human Life Value formal property system than by referencing it to Hernando's original narrative.

In order to establish the intellectual support for the value of creating, for the first time in history, a human life value based formal property system, I read and then re-read The Mystery of Capital multiple times. Initially, I wanted just to grasp its very powerful original message. Then once I had become more deeply familiar with his research findings, I began to apply his incredible work to intangible human life value property. I felt that the potential of establishing intangible human life value as a property system and its concomitant ability to produce what DeSoto has established as the true nature of capital (the latent, un-exploited potential inherent in assets of all kinds) was perhaps even exponentially greater in reference to human life value- based assets than to the proven system that DeSoto had researched and discovered existed as applied to land.

What follows is now just fragments of my translation of DeSoto's brilliant work as it can apply to human life value property. For the reader to understand which thoughts that I have added to his, I have put my additions in (parentheses). Without his prolonged study, magnificent reporting of his findings in The Mystery of Capital and practical application of land-based property rights to many countries around the world, my work would never even have been imagined. I encourage everyone to read Hernando's book in its entirety.

I hope that what I present here, even in its very rough form, helps to bring life to the idea and potential of creating human life value-based property representations and support systems and that in so doing it produces as much excitement for the reader as it has for me. The formal property system for land has been around for over 200 years. The proposed Quiddity Human Life Value property system is only just about to be birthed. All representations regarding the Quiddity Human Life value property system are based on the past historical performance of land-based property systems and are prospective in nature.

The way I have approached this rough draft is to begin with extracts of DeSoto's own words. I have then modified them in certain places, usually only slightly, with human life value language to help establish the concept of a human life value property system. I have tried to reference the page numbers in The Mystery of Capital from which each thought was taken and modified so that a reader can reference DeSoto's original text and see his original meaning.

Quiddity Systems, Inc.

Quiddity Systems, Inc. is the company that I founded in order to make practical and actionable the opportunities that I believe exist from formalizing Desoto's Mystery of Capital findings in application to human life value assets. I can supply more information about Quiddity upon request.

And so, we begin...

Hernando De Soto tells us in his book The Mystery of Capital that;

The major stumbling block that keeps the world from benefiting from capitalism is its inability to produce capital. Capital is the force that raises the productivity of labor and creates the wealth of Nations. (page 5)

But they hold these resources in "defective forms"... without "representations", their assets are dead capital. (page 5-6)

One of the greatest challenges to the human mind is to comprehend and gain access to those things we know exist but cannot see (for example: Human Life Value assets). Not everything that is real and useful is tangible and visible. (page 7)

Throughout history, human beings have invented representational systems — writing, musical notation, double-entry bookkeeping — to grasp with the mind what humans could never touch. In the same way, the great practitioners of capitalism... were able to reveal and extract capital where others saw only junk by devising new ways to represent the invisible potential that is locked up in the (human life value) assets we accumulate. (page 7)

But only the West has the conversion process required to transform the invisible to the visible... The absence of this process in the poorer regions of the world - where two-thirds of humanity lives is not the consequence of some Western monopolistic conspiracy. It is rather that Westerners take this mechanism so completely for granted that they have lost all awareness of its existence. (page 7)

How could something so important have slipped our minds? It is not uncommon for us to know how to use things (human life value) without understanding why they work... Even as the West prospers from abundant capital, do people really understand the origin of capital?" (page 8)

So far, western countries have been happy to take their system for producing capital entirely for granted and to leave its history entirely undocumented. That history must be recovered. (page 8)

The Western nations have so successfully integrated their poor into their economies that they have lost even the memory of how it was done, how the creation of capital began back when, as the American historian Gordon Wood has written, "something momentous was happening in the society and culture that released the aspirations and energies of common people as never before in American history. The "something momentous" was that Americans and Europeans were on the verge of establishing widespread formal property law and inventing the conversion process in the law that allowed them to create capital. (page 10)

What is capital? How is it produced? How is it related to money? (page 11)

Imagine a country where nobody can identify who owns what, addresses cannot be easily verified, people cannot be made to pay their debts, resources cannot be conveniently turned in to money, ownership cannot be divided into shares, descriptions of assets are not standardized and cannot be easily compared, and the rules that govern property vary from neighborhood to neighborhood. You have just put yourself into the life of a developing country! (or in terms of human life value property you have put yourself into the life of every person, country, company and institution on the planet) (page 15)

The result is that most people's (human life value) resources are commercially and financially invisible. (human life value assets are naturally intangible, invisible and illiquid). (page 32)

This picture of the under-capitalized sector is strikingly different from the conventional wisdom of the developing world. But this is where most people live. It is a world where ownership of assets is difficult to trace and validate and is governed by no legally recognized set of rules; where the asset's potentially useful economic attributes have not been described or organized; where they cannot be used to obtain surplus value because their unfixed nature and uncertainty leave too much room for misunderstanding, faulty recollection, reversal of agreement - where most (human life value) assets, in short, are DEAD CAPITAL. (page 32)

In the West, however, the same assets also lead a "parallel life" as capital outside the physical world. (Quiddity Productive Identity™ facilitates such a parallel life for human life value assets) They can then be used to put in motion more production by securing the interests of other parties as "collateral" for a mortgage, for example, or by assuring the supply of other forms of credit (or in our case the supply of relevant human life value assets). (page 39)

For accumulated (human life value) assets to become active capital and put additional production in motion they must be fixed and realized in some particular subject (Productive Identity™ fixes the assets in the particular subject of each unique person and then in a particular project that they are undertaking). (page 42)

Capital is not the accumulated stock of (human life value) assets but the potential it holds to deploy new production. This potential is, of course, abstract. It must be processed and fixed into a tangible form before we can release it (Productive Identity™). (page 42)*

Capital is now confused with money, which is only one of the many forms in which it travels. (page 43)

Money is the "great wheel of circulation", but it is not capital because value "cannot consist in these metal pieces" (Adam Smith). In other words, money facilitates transactions, allowing us to buy and sell things, but it is not itself the progenitor of additional production. (page 43)

What is it that fixes the potential of an asset so that it can put additional production into motion? (page 44)

...create a process! (Quiddity Augmented Essence™)... that allows people to convert and fix their (human life value) assets potential into a form that can be used to do additional work. (page 44)

Capital, like energy, is also a dormant value. Bringing it to life requires us to go beyond looking at our (human life value) assets as they are to actively thinking about them as they could be. It requires a process for "fixing an assets value", creating potential into a form (Productive Identity™) that can be used to initiate additional production. (page 45)*

"Although we use (property systems) all the time. We do not realize that they have capital generating functions because they do not wear that label. We view the property system as something that protects property, not as interlocking mechanisms for fixing the economic (or value creating potential of an asset) in such a way that it can be turned into capital." (page 46)

"What creates capital in the West, in other words, is an implicit process buried in the intricacies of its formal property systems." (page 46)

The formal property system begins to process assets and capital by describing and organizing the most economically and socially useful aspects about assets (Quiddity Code™), preserving the information in a recording system (Productive Identity™) And then embedding them in a title (Quiddity™ Blockchain). (page 47)

"Formal property records and titles thus represent our shared concept of what is economically useful about any (human life value) asset" (Productive Identity™). (page 47)

The (human life value) formal property system (Productive Identity™) is (human) capital's hydroelectric plant. This is the place where (human life value based) capital is born! (page 47)

What do formal property representations have that allows them to do additional work? Are they not just simple stand-ins for the assets? No, I repeat: A formal property representation such as a title (Productive Identity™) is not a reproduction of the (human life value) asset (person), like a photograph, but a representation of our concepts about the asset (person). Specifically, it represents the non-visible qualities that have potential for producing value. (page 50)

The reason capitalism has triumphed in the West and sputtered in the rest of the world is because most of the (non-human) assets in Western Nations have been integrated into one formal representational system. (page 52)

Formal (human life value) property representation (Productive Identity™) functions as a means to secure the interests of other parties and to create accountability by providing all the information, references, rules, and enforcement mechanisms required to do so. (page 51)

This pulling together of property representations, a revolutionary development in the history of developed nations, deposited all the information and rules governing the accumulated wealth of citizens into (one knowledge base). Before that time information about assets was far less accessible. (The Quiddity human life value property system, Productive Identity™ at the individual level and The Quiddity™™™ Common Wealth at the network/cooperative level) will accomplish this for human life value assets for the first time.) (page 52)

As we know all too well today, an abundance of facts is not necessarily an abundance of knowledge. For knowledge to be functional, advanced nations will have to integrate into one comprehensive system (Productive Identity™ and the Quiddity™ CommonWealth) all their loose and isolated data (about human life value property). In developing countries I've never found just one legal property system, but dozens or even hundreds managed by all sorts of organizations. Consequently, what people in those countries can do with their property is limited to the imagination of the owners and their acquaintances. In Western countries, where property information is standardized and universally available, what owners can do with their assets benefits from the collective imagination of a larger network of people. (This is the value of one standard language - the Quiddity Code combined with one standard property system- Productive Identity™). (page 52)

"The West's reliance on integrated property systems is a phenomenon of the last 200 years." (page 53)

As a result of integration, citizens in advanced nations can obtain descriptions of the economic and social qualities of any available (human life value) asset without having to see the asset itself. They no longer have to travel around to visit each and every owner and their neighbor; the (human life value) formal property system (Productive Identity™) lets them know what assets available and what opportunities exist to create surplus value. Consequently, a (human life value) assets potential has become easier to evaluate and exchange, enhancing the production of (human life value based) capital. (page 54)

By transforming people with (human life value based) property interests into accountable individuals, formal property created individuals from masses. People no longer needed to rely on neighborhood relationships or make local arrangements to protect their rights to assets. Freed from primitive economic activities and burdensome parochial constraints, they could explore how to generate surplus value from their own (human life value) assets. (page 54)

But... There was a price to pay: once inside a formal property system, owners lost their anonymity. By becoming inextricably linked to real estate and business that could be easily identified and located, people forfeited the ability to lose themselves in the masses. (In the Quiddity formal property system people will own and control their own human life value data. They will be able to choose whom they wish to share data with and whom not. They will also be able to parse their data into meaningful subsets so that they only share the data that is relevant to a particular situation and objective). Anonymity has practically disappeared in the West while individual accountability has been reinforced. Authorities are able to learn about legal infractions and dishonored contracts; they can suspend services, place liens on properties and withdraw some or all of the privileges of legal property. (page 57)

By providing standards, Western formal property systems have significantly reduced the transaction cost of mobilizing and using assets. (Productive Identity™ will accomplish the same outcome for human life value assets). (page 58)

By making (digitized human life value) assets fungible (freely tradable or exchangeable), by attaching owners to assets, assets to addresses, and ownership to enforcement, and by making information on the history of assets and owners easily accessible (by permission), formal property systems converted the citizens of the West into a network of individually identifiable and accountable business agents. (human life value assets become the basis for understanding each person's value creating ability (their Productive Identity) as a "personal, digital micro-economy). The formal property process created a whole infrastructure of connecting devices (The Quiddity CommonWealth network) that, like a railway switch yard, allowed the (human life value) assets (trains) to run safely between stations (people). (page 59)

Property's real breakthrough is that it radically improves the flow of communications about assets and their potential (Productive Identity). It will also enhance the status of their owners, who will become economic agents able to transform (their human life value) assets within a broader network. (page 59)

Western legal property also provides businesses with information about assets and their owners, verifiable addresses, and objective records of property value, all of which lead to credit records. This information and the existence of integrated law make risk more manageable by spreading it through insurance type devices as well as by pooling property to secure debts. (Future value to be developed from the Quiddity System). (page 60)

Properly understood and designed, a (human life value) property system (Productive Identity™) creates a network through which people can assemble their assets into more valuable combinations. (The Quiddity CommonWealth). (page 61)

One important reason why the Western formal property system works like a network is that all the (human life value) property records (titles, deeds, securities, and contracts that describe the economically significant aspects of (human life value assets) are continually tracked and protected as they travel through time and space. Their first stop is the (Quiddity CommonWealth Blockchain - an open source distributed autonomous organization) public agencies that are the stewards of an advanced nation's (digital human life value) property representations. Public record keepers (Quiddity CommonWealth block chain miners) administer the files that contain all the economically useful descriptions of (human life value) assets. (page 61)

A well-integrated legal property system in essence does two things: first, it tremendously reduces the cost of knowing the economic qualities of (human Life value) assets by representing them in a way that our senses can pick up quickly; and second, it facilitates the capacity to agree on how to use (human life value) assets to create further production and increase the division of labor. (page 63)

The genius of the West was to have created a system that allowed people to grasp with the mind (human life) values that human eyes could never see and manipulate things that hands could never touch (Productive Identity). (page 63)

Centuries ago, scholars speculated that we use the word "capital" (from the Latin for "head") because the head is where we hold the tools with which we create capital. This suggests that the reason why capital has always been shrouded in mystery is because, like energy, it can be discovered and managed only with the mind. (Productive Identity™ facilitates this mental discovery process for our human life value assets.) (page 63)

The only way to touch capital is if the property system can record its value creating aspects on paper and anchor them to a specific location and owner. (Productive Identity™ takes intangible human life value assets and makes them digitally tangible). (page 63)

Property, then, is not mere paper but a mediating device that captures and stores most of the stuff required to make a market economy run. Property seeds the system by making people accountable and assets fungible, by tracking transactions, and so providing all the mechanisms required for the monetary and banking system to work and for investment to function. The connection between capital and modern money runs through the formal property system. (page 63)

To create credit and generate investment, what people encumber are not the physical assets themselves, but their property representations the recorded titles or shares - governed by the rules that can be enforced nationwide. Money does not earn money. You need a property right before you can make money. Even if you loan money, the only way you can earn on it is by loaning or investing it against some kind of property document that establishes your rights to principal and interest. To repeat: Money presupposes property. (page 64)

Capital is therefore not created by money; it is created by people whose property systems help them to cooperate and think about how they can get the (human Life value) assets they accumulate to deploy additional production. The substantial increase of capital in the West over the past two centuries is the consequence of gradually improving property systems. (page 65)

We know through the sophisticated use of property institutions, how to give the things we accumulate (in the Quiddity human life value formal property system, knowledges, behaviors, beliefs, relationships and artifacts) a (digital) parallel life. (page 65)

When advanced nations pull together all the information and rules about their known (human life value) assets and establish a formal (human life value) property system that tracks their economic evolution, they will have gathered into one order the whole institutional process that underpins the creation of capital. (This is what the entire Quiddity System is designed to do) (Page 65)

But like most things pertaining to the mind, much of "capitalism" today operates at a subconscious level. (Quiddity intends to change this to raise our understanding of human life value assets to the conscious level.) (Page 65)

Why did the classical economists, who knew capital was abstract and had to be fixed, not make the connection between capital and property? One explanation may be that the battle for the future of capitalism shifted from the book-lined studies of theoreticians into a vast web of entrepreneurs, financiers, politicians, and jurists. The attention of the world turned from theories to the real deals being made on the ground, day by day, fiscal year after fiscal year. Once the vast machine of capitalism was firmly in place and its masters were busy creating wealth, the question of how it all came into being lost its urgency. (Page 65)

Why was it that a significant rate of capital formation was possible only in certain sectors and not in the whole market economy of the time? I believe the answer to Braudel's question lies in restricted access to formal property, both in the West's past and in developing and former communist countries today. Local and foreign investors do have capital; their assets are more or less integrated, fungible, networked, and protected by formal property systems. But they're only a tiny minority -- those who can afford the expert lawyers, insider connections, and patience required to navigate the red tape of their property systems. The great majority of people, who cannot get the fruits of their labor represented by the formal property system, live outside Braudel's bell jar. The bell jar makes capitalism a private club open only to a privileged few, and enrages the billions standing outside looking in. (Quiddity hopes to break open this private club by creating the formal human life value property system and let more of the "enraged billions" in. To facilitate social flourishing) (Page 65)

The time is right to find out why most people have not been able to engage in open formal property systems. (Page 65)

Integrated legal property systems destroyed most closed groups while inviting the creation of a larger network where the potential to create capital increased substantially. In this sense, property obeys what is known as Metcalf's law. According to Metcalfe's law, the value of a network -- defined as its utility to a population-- is roughly proportional to the number of users squared. An example is the telephone network. One telephone is useless: whom do you call? Two telephones are better, but not much. It is only when most of the population has a telephone that the power of the network reaches its full potential to change society. (The Quiddity human life value formal property system creates the standard informational back bone that facilitates the emergence of a human life value based "value creation" network that will benefit exponentially from Metcalfe's Law.) Like computer networks, which had existed for years before anyone thought to link them, property systems became tremendously powerful when they were interconnected in a larger network. Only then is the potential of a particular property right not limited to the imagination of its owner, his neighbors, or his acquaintances, but subject to a larger network of other imaginations. (This is the genesis of the exponential value that can be generated by the Quiddity human life value formal property system.) (Page 72)

Many of the problems of non-Western markets today are due mainly to the fragmentation of their property arrangements and the unavailability of standard norms that allow assets and economic agents to interact and governments to rule by law. (Page 72)

Why has everyone missed the real problem? Most of us are like the six blind men and the presence of an elephant: one grasps the animal's searching trunk and thinks the elephant is a snake; another finds its tail and thinks the elephant is a rope; the third is fascinated by the large, sail like ears; another embraces its leg and concludes that the elephant is a tree. No one views the elephant in its totality, and thus they cannot come up with a strategy for dealing with the very large problem at hand. ("Human Capital" has had billions of dollars applied to an on-going attempt to bring out its most productive potential. However, up to this moment in time no one has grasped the importance of the capital creating capabilities of applying a standard formal property system to human life value assets. Without such a foundational system human life value assets will continue to be under known, under supported, underutilized and undervalued. Human life value assets need to be "unlocked and unleashed" by a formal property system in order to exhibit their full potential). (Page 74)

Creating an integrated formal property system is not about drafting laws and regulations that look good on paper but rather about designing norms that are rooted in people's beliefs and are thus more likely to be obeyed and enforced. (the Quiddity Common Wealth self-regulatory governing structure is intended to accomplish that very important process) (Page 61)

Had the advanced nations of the West not integrated all representations into one standardized property system and made it accessible to all, they could not have specialized and divided labor to create the expanded market network and capital that produced their present wealth. The inefficiencies of non-Western markets have a lot to do with the fragmentation of their property arrangements and the unavailability of standard representations. (the Quiddity Common Wealth intends to overcome the same inefficiencies that plague human life value assets) (Page161)

This means that property arrangements work best when people have formed a consensus about the ownership of assets and the rules that govern their use and exchange. (The Quiddity CommonWealth is the place where these (human life value) rules can be formed and governed by and for the benefit of its members) (Page171)

Formal property is more than a system for titling, recording, and mapping assets -- it is an instrument of thought, representing (human life value) assets in such a way that people's minds can work on them to generate surplus value. (That is why the Quiddity Augmented Essence Social Architecture which includes the Quiddity™ Code, Productive Identity™, the Quiddity™™™ Human Life Value Token system and the Quiddity™ Human Life Value CommonWealth (a distributed autonomous organization) is designed to be, open source, universally accessible and owned by its members for the benefit of its members in order to bring everyone into one social flourishing network where they can both develop themselves autonomously and cooperate without restraint or oversight to generate surplus value.) (Page218)

What distinguishes a good legal property system is that it is "mind friendly." It obtains and organizes knowledge about recorded (human life value) assets in forms we can control. It collects, integrates, and coordinates not only data on (human life value) assets and their potential but also our thoughts about them. In brief, capital results from the ability of the West to use property systems to represent their resources in a virtual context. Only there can minds meet to identify and realize the meaning of (human life value) assets for humankind (and truly aim at a goal to establish human flourishing on a mass scale). (Page 218)

We need to have the economic facts about ourselves and our (human life value) resources boiled down to essentials that our minds can easily grasp. A good property system does that -- it puts (human life value) assets into a form that lets us distinguish their similarities, differences, and connecting points with other (human life value) assets. It fixes them in representations that the system tracks as they travel through time and space. In addition, it allows (human life value) assets to become fungible by representing them to our minds so that we can easily combine, divide, and mobilize them to produce higher valued mixtures. The capacity of property to represent aspects of (human life value) assets in forms that allow us to recombine them so as to make them even more useful is the mainspring of economic growth, since growth is all about obtaining high valued outputs from low valued inputs. (Page 219)

A good legal property system is a medium that allows us to understand each other, make connections, and synthesize knowledge about our (human life value) assets to enhance our productivity. It is a way to represent reality that lets us transcend the limitations of our senses. (Page 219)

Well-crafted property representations enable us to pinpoint the economic potential of resources so as to enhance what we can do with them. They are not "mere paper": they are mediating devices that give us useful knowledge about things that are not manifestly present. By representing economic aspects of the things (human life value assets) we own and assembling them into categories that our minds can quickly grasp, property documents reduce the cost of dealing with (human life value) assets and increase their value commensurately. This notion, that the value of things can be increased by reducing the cost of knowing them and transacting with them is one of noble laureate Ronald Coase's major contributions. In his treatise "The Nature of the Firm", Coase established that the costs of carrying out transactions can be substantially reduced within the controlled and coordinated context of a firm. In this sense, formal (human life value) property systems are like Coase's firm - controlled environments to reduce transaction costs. The capacity of property to reveal the capital that is latent in the (human life value) assets we accumulate is born out of the best intellectual traditions of controlling our environment in order to prosper. For thousands of years our wisest men have been telling us that life has different degrees of reality, many of them invisible, and that it is only by constructing representational devices that we will be able to access them. (Page 219-220)

Ironically, the enemies of capitalism seem more aware of the virtual origin of capital than capitalists themselves. It is this virtual aspect of capitalism that they find so insidious and dangerous. (Page 222)

"This fear of the virtuality of capital is understandable. Every time civilization comes up with a novel way of using representations to manage the physical world, people become suspicious." (One of Quiddity's biggest challenges). (Page 222)

New forms of property derivatives (such as mortgage-backed securities) may help form additional capital, but they also make understanding economic life more complex."

"I am as aware as any anti-capitalist of how representational systems, particularly those of capitalism, have been used to exploit and conquer, how they have left the many at the mercy of the few. And yet the art and science of representation is one of the girders of modern society. No amount of ranting and raving against writing, electronic money, cyber symbols, and property paper will make them disappear. Instead we must make representational systems simpler and more transparent and work hard to help people understand them." (The big goal of Quiddity!!) P 223

"I am not a die hard capitalist. I do not view capitalism as a credo. Much more important to me are freedom, compassion for the poor, respect for the social contract, and equal opportunity. But for the moment, to achieve those goals, capitalism is the only game in town. It is the only system we know that provides us with the tools required to create massive surplus value."

When (human life value based) capital is a success story not only in the west but everywhere, we can move beyond the limits of the physical world and use our minds to soar into the future!

Copyright Quiddity Systems 2019 All rights reserved. Content from The Mystery of Capital is used by permission from Hernando DeSoto and Publishing Company.

Written By Paul M. Brooks Founder of Quiddity Systems, Inc.