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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 loan.

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.

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United States Wealth