Mystery of CapitalCRev 2/18/08 11:13 AM Page i The Mystery of Capital and the Construction of Social Reality Mystery of CapitalCRev 2/18/08 11:13 AM Page ii Mystery of CapitalCRev 2/18/08 11:13 AM Page iii The Mystery of Capital and the Construction of Social Reality Edited by Barry Smith David Mark Isaac Ehrlich OPEN COURT Chicago and La Salle, Illinois Mystery of CapitalCRev 2/18/08 11:13 AM Page iv To order books from Open Court, call toll-free 1-800-815-2280, or visit our website at www.opencourtbooks.com. Open Court Publishing Company is a division of Carus Publishing Company. Copyright © 2008 by Carus Publishing Company First printing 2008 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher, Open Court Publishing Company, a division of Carus Publishing Company, 315 Fifth Street, P.O. Box 300, Peru, Illinois 61354-0300. Printed and bound in the United States of America. Library of Congress Cataloging-in-Publication Data Bird, Graham, 1930- The revolutionary Kant : a commentary on the Critique of pure reason / Graham Bird. p. cm. Includes bibliographical references and index. ISBN-13: 978-0-8126-9590-8 (trade pbk. : alk. paper) ISBN-10: 0-8126-9590-9 (trade pbk. : alk. paper) 1. Kant, Immanuel, 1724-1804. 2. Kant, Immanuel, 1724-1804. Kritik der reinen Vernunft. I. Title. B2798.B57 2006 121—dc22 2005036614 Mystery of CapitalCRev 2/18/08 11:13 AM Page v Contents Introduction xi 1. What I Do, and How Philosophy Has Helped Me Hernando de Soto 00 2. Social Ontology and Political Power John Searle 00 3. Searle and de Soto: The New Ontology of the Social World Barry Smith 00 4. The Construction of Social Reality: Searle, de Soto, and Disney Jeremy Shearmur 00 5. How Philosophy and Science May Interact: A Case Study of Works by John Searle and Hernando de Soto Ingvar Johansson 00 6. Language and Institutions in Searle’s The Constructionof Social Reality Iosef Moural 00 v Mystery of CapitalCRev 2/18/08 11:13 AM Page vi vi Contents 7. The Mystery of Human Capital as Engine of Growth, or Why the U.S. became the Economic Superpower in the Twentieth Century Isaac Ehrlich 00 8. Allocation and Misallocation of Human Capital: Some Lessons from Japan and Russia Serguey Braguinsky 00 9. On the Essential Nature of Human Capital Gloria Zúñiga y Postigo 00 10. Property Law for Development Policy and Institutional Theory: Problems of Structure, Choice, and Change Errol Meidinger 00 11. The Institutionalization of Real Property Rights: The Case of Denmark Erik Stubkjær 00 12. A Case for Simple Laws Andrew U. Frank 00 Postscript by Carlos Alejandro Cabrera Del Valle 00 13. Sovereigns, Squatters, and Property Rights: From Guano Islands to the Moon David R. Koepsell 00 14. The Property Rights Prescription and Urban Migrant vs. Rural Customary Land Tenure in the Developing World Jon D. Unruh 00 15. Geographic Regions as Brute Facts, Social Facts, and Institutional Facts Daniel R. Montello 00 Mystery of CapitalCRev 2/18/08 11:13 AM Page vii Contents vii 16. Collective Intentionality, Documentation, and Real Estate Dan Fitzpatrick 00 17. Real Institutions, and Really Legitimate Institutions Eric Palmer 00 Contributors 00 Index 00 Mystery of CapitalCRev 2/18/08 11:13 AM Page viii Mystery of CapitalCRev 2/18/08 11:13 AM Page ix Introduction In his book The Construction of Social Reality, John Searle has advanced a new way of understanding human society and its institutions: What holds a human society together? What factors lead to the collapse of a society? What are the roles of power, belief, and trust in sustaining social institutions? Hernando de Soto’s bestselling book The Mystery of Capital has con- tributed to refocusing the attention of development economists and policy makers on the role of property rights in economic development. The somewhat provocative subtitle of de Soto’s book is: Why Capitalism Triumphs in the West and Fails Everywhere Else. His thesis is simple. The poor in developing countries often have many assets—homes, informal businesses, plots of land. What they lack is formal property rights to these assets. This deficiency diminishes their potential worth as financial assets (for example, by blocking their use as collateral for borrowing) or even as real assets (for example, by preventing utilities such as gas and electricity from being legally connected to them.) Another asset that the poor in developing countries almost universally lack is human capital including, but not limited to, formal schooling and continuing technological advance. Any solution to the “mystery of capital” thus must address how this intangible, but critical, human asset is pro- duced and accumulated. The main goal of this book is to discuss the ideas on social ontology proposed by Searle and de Soto, and to further explore the implications of their views, and those of other contributors to this volume, for the under- standing of economic growth and development, and the philosophy of social institutions. While de Soto’s Mystery of Capital was in part influ- enced by Searle’s ideas on social ontology, and while a number of impor- tant interconnections between Searle’s and de Soto’s work can be seen, these interconnections have not hitherto been subjected to analysis. ix Mystery of CapitalCRev 2/18/08 11:13 AM Page x x Introduction Contributions to this book also expand de Soto’s approach to “capitaliza- tion” of tangible assets to include the capitalization of intangible assets such as information and knowledge, or human capital, which are identified as the long-term engine of growth in the fast-growing endogenous- growth-and-development literature in economics. The prime focus of the volume is: how can philosophers learn from economists, and how can economists learn from philosophers, in under- standing what works and what does not work in human societies? De Soto and Searle have themselves provided chapters presenting definitive accounts of their recent thinking on these topics. In the remaining chap- ters, experts on ontology, information science, land registration, geogra- phy, and endogenous growth and development present their views, commenting primarily on the work of de Soto and Searle but also offer- ing their own original contributions to the new social ontology and endogenous economic growth paradigm, which are currently being established. A Huge Invisible Ontology Searle begins The Construction of Social Reality with the following simple scene: “I go into a café in Paris and sit in a chair at a table. The waiter comes and I utter a fragment of a French sentence. I say, ‘un demi, Munich, à pression, s’il vous plaît.’ The waiter brings the beer and I drink it. I leave some money on the table and leave” (Searle 1995, 3). He then points out that the scene described is more complex than at first appears: “the waiter did not actually own the beer he gave me, but he is employed by the restau- rant which owned it. The restaurant is required to post a list of the prices of all the boissons, and even if I never see such a list, I am required to pay only the listed price. The owner of the restaurant is licensed by the French gov- ernment to operate it. As such, he is subject to a thousand rules and regula- tions I know nothing about. I am entitled to be there in the first place only because I am a citizen of the United States, the bearer of a valid passport, and I have entered France legally” (1995, 3). The task Searle then sets for himself is to describe this “huge invisible ontology,” which is to say, to give an analysis of those special powers, functions, acts, events, states, proper- ties, and relations—picked out in italics in the above—which do not belong to the realm of brute physical reality but rather to the realm of institutions. Searle’s idea, very roughly, is that by acting collectively in accordance with rules of a special kind—which he calls “constitutive rules”—we are able to impose rights, duties, obligations and various other sorts of what he calls “status functions” and “deontic powers” on our fellow human beings and on the reality around us. Mystery of CapitalCRev 2/18/08 11:13 AM Page xi xi Introduction Status functions are functions—such as those of customs officials (with their rubber stamps)—which the human beings involved could not per- form exclusively in virtue of their physical properties. Consider the way in which a line of yellow paint can perform the function of a barrier because it has been collectively assigned the status of a boundary marker by human beings. The yellow paint is unable to perform this function by virtue of its physical properties. It performs the function only because we collectively accept it as having a certain status. Money, too, does not perform its func- tion by virtue of the physical properties of paper, ink, or metal, but rather in virtue of the fact that we, collectively, grant the latter a certain status and therewith also certain functions and powers. Powers can be positive, as when John is awarded a license to practice medicine, or negative, as when Mary has her license to drive taken away for speeding or when Sally is obliged to pay her taxes. Powers can be substan- tive, as when Margaret is elected Prime Minister, or attenuated, as when Elton is granted the honorary title of Knight Bachelor, Commander of the British Empire.