Assignment Based on the video, The Power of the Poor, and using the arguments an
Based on the video, The Power of the Poor, and using the arguments and evidence in the Hernando de Soto chapters, craft an essay that answers this question:
What is the mystery of capital—and why are property rights a fundamental part of the answer?
(Hint: Why does De Soto stress the idea of assets having a double life and what does that imply for the entrepreneurial exploration of the adjacent possible?)
Another way of asking the essay question is: How does capital beget capital? As part of your response, apply Irving Fisher’s definition of capital/wealth. Also be sure to comment on why, from the perspective of an entrepreneur exploring the adjacent possible, Property Effect #4 (“Making Assets Fungible”) may be the most important effect—but also why this effect necessarily relies on the systemic support of the other five effects.
Request: Don’t simply make assertions; explain the step-by-step economic logic of your response. With regard to the Power of the Poor video, don’t simply report what happened in the video; rather, use an episode in the video to help explain your answer to the question about the mystery of capital. The episode about the LP Gas company or the pottery manufacturing company make for good examples. How do those examples relate to Fisher’s concept of capital? Think back to the meaning of entrepreneurial profit.
source => https://www.freetochoosenetwork.org/programs/power_poor/
Suggestion: Read pp. 1-13 carefully; skim pp. 15-37 for context; read 39-67 carefully.
If you wish, here’s an outline you can use to organize your thoughts:
What does Hernando de Soto mean by his statement: “Capital, like energy, is . . . a dormant value”?
How does this meaning compare and/or contrast with what de Soto means when he defines capital as the “parallel life” of an asset?
If Fisher’s concept of capital is, in effect, driven by Alchian’s idea of valuation, how do you harmonize the idea of valuation with de Soto’s idea of the parallel life of an asset? In other words, when de Soto’s entrepreneurs use property rights to an asset to tap into that asset’s parallel life, what is the entrepreneur valuing and planning to do? What is the economic purpose of the valuation—and why do property rights matter for that purpose?
Based on your response to the previous bullet-point, under what conditions will the entrepreneur create capital (= wealth) and when will he or she destroy capital? Under what conditions does the “invisible, parallel life” create new wealth or capital, as Fisher would define the term? [Hint: The businessman in the video that owned the propane business had created capital, but that outcome was not certain. How does your explanation relate to de Soto’s comment “that capital is not the accumulated stock of assets but the potential it holds to deploy new production”?]
Property Effect #4 deals with the idea of making assets fungible. Why is fungibility important from the perspective of an entrepreneur that wants to act on his or her valuations of a perceived opportunity to create capital? [Hint: If money is fungible in a way that Sowell might describe, and the parallel life of an asset becomes represented by money (financial liquidity), how does that empower the execution of entrepreneurial valuation?]
What arguments would de Soto make about why Property Effect #4 cannot operate in isolation from the other Property Effects he describes?