Hernando De Soto Analysis

Hernando de Soto stated that capital is like energy and that it is a dormant value. However, we know how to create energy like burning wood in stove produces energy in the form of heat to cook food, boil water, or warm a home. The same cannot be said with capital. We have a pretty good idea what it is, but we are not as good at turning capital into economic potential.
De Soto also defines capital as the parallel life of an asset. I think de Soto is referring to the journey or life story of an asset, and what becomes of it. According to de Soto, without a written record an asset is very difficult to exchange with other members of our society. A good example would be buying a pre-owned car. A pre-owned car loses value as soon as it leaves the …show more content…
De Soto, argues that property rights give entrepreneurs the opportunity to tap into the potential of the asset to create capital. The owner of an asset might not have the means to convert the asset into its full potential/value/income, but it can partner with another party to receive compensation for the asset, use the asset to the best of their ability, or combine resources/partner with another party. The economic purpose of valuation is for members of the economy to develop an understanding of what an asset is worth. Property rights and documentation provide a record and a history for assets and transactions. This gives money prices more stability, which helps grow and sustain an …show more content…
If the entrepreneur doesn’t have property rights to turn an asset into something else of more value or the ability to partner with another property owner the entrepreneur is limited to the valuation of the original asset. There is not an incentive to create something greater to benefit other members of the market and themselves. In Rob Harmon’s video, water is fungible because it is tangible, but more importantly people had rights to it. Those people could use that resource as capital to turn it into something more than just water. Those with property rights of the water in Prickly Pear Creek partnered with breweries that were concerned about their water print. They created a way to conserve water and help the brewers.
Sowell discussed the importance of money prices and that money prices are packages of information. This ties in with the idea that capital is the parallel life of an asset as it becomes money because prices will indicate an assets highest value. Entrepreneurs must properly value their assets and what they might give up in their decisions to use the assets a certain way or what they might gain if the maximize the assets