Jason Hartman reminds people to slow down and see the things around you. He reflects on a country song that gave him a little introspection.
Later on the show he brings on guest Hernando De Soto, founder and President of the Institute for Liberty and Democracy and author of The Mystery of Capital. They talk about the different aspects of capitalism and discuss how property rights are essential in the conversation of capitalism. They discuss a shift in sentiment towards socialism in the nation and the impact it would have on the US.
Well, I like real estate just because I like the benefit of being able to have a mortgage pay off real estate over time so that when I retire, I have something I like the fact that it’s boring. I want to be able to be entertained and travel and do a lot of things in my retirement. And that boring investment of real estate allows me to do that.
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will Help you follow in Jason’s footsteps on the road to your financial independence day, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:15
Welcome to Episode 1294 1294. Today, our guests will be Hernando de Soto. And he will be talking about the mystery of capital. I think you’ll find this to be a fascinating interview. And he is joining us today from Peru. I visited Peru a couple of years ago and found it to be a very interesting place. They are in the midst I just read about this, maybe yesterday or the day before they are in the midst of a constitutional crisis over there, so a lot of crazy stuff going on with their government. Hopefully that’ll all work out. Well. It’s interesting though, you know, when you go around the world and you talk to people and you read the media for from different countries and different outlets, and of course, nowadays with global communication system, it’s all becoming so much more homogenized. It used to be really different. I mean, I remember the first time I went to Europe as an adult age, maybe 22. I guess, it was really interesting how different the news media was, and how varied the opinions were. But now with global communication, of course, we’re all in this world where we all know what’s going on around the world, in a matter of less than a second, right? Because, hey, it travels at the speed of light 186,000 miles per second, not 186,000 miles per hour, but per second. That means light can travel around the Earth seven times in less than one second. Pretty darn amazing, huh? So these views in some ways they become more homogenized as as news proliferates and media proliferates But at the same time, we’re all sort of trapped in our own echo chambers too. And so the internet serves up what we already believe what we already click on. And we see that stuff over and over again. So we’ve got to guard against that. Because we don’t want to, as I’ve said, For many years, we don’t want to become too much like ourselves. In other words, we want to be open to other ideas, right? As people, this especially happens with, I hate to say it, but hey, you know, as we get older, we all get a little more set in our ways, right? And by the way, that’s reminded because I have a birthday this week, which by the way, years ago, I asked, I said, Hey, if I’ve impacted your life in some way, make a little video and stick it on YouTube and tell me about it. I’d love to hear it or come on the podcast we’d love to have you always appreciate that. And that would be the best birthday gift ever, is if if you did that and you know we should play something from several years ago, when I asked people to do that, and thank you, for all of you who did that, that was, that was really nice makes me really want to keep doing what I’m doing here. So I appreciate that, you know, you gotta motivate you got to motivate the the host of the show sometimes do right? It’s not just about me, motivating you, hopefully I’m doing that if I’m doing my job, but you got to motivate me a little bit, right. So that’s what really motivates me when I when I see those YouTube videos out there. And you told me how this message that we’ve been talking about over the past 15 years has impacted your life. Hopefully, it’s made you richer, it’s given you more peace in your life, more financial freedom, more peace of mind more time to do what you want in your life, then hey, that’s what it’s all about. And that’s what we’re here for. So thank you for doing that. For any of those of you who feel motivated, just stick a little quick video on YouTube. Tell me what you think and send me the link, go to Jason hartman.com slash ask and you can send the link through there or just reach out you know, if you’re already kind of With me or any of our investment counselors can reach out that way and just send us the link and we’d love to see it. Appreciate that. So I was just listening to a, I just made myself a salad for lunch, which I pretty much have a salad every day for lunch. And let me tell you, if you ever get the chance to experience one of my salads, you will be in for a treat. Because I make I make a mean salad. I mean, it’s really good, really tasty salads, even my mom and my girlfriend thinks so. And that’s pretty good because they both can cook a lot better than I can. Never been much of a cook. In fact, I always said the best thing I make for dinner is reservations.
Jason Hartman 5:44
reservations, that’s the best thing I make for dinner, although I’ve gotten a little better recently. But yeah, I made a salad and I asked my eavesdropping device to play some music. And the song that came on was a song I never heard before. It’s called living by the Bentley if you know the lyrics to this, it just kind of hit me and I wanted to share it with you just some of the lyrics real quickly. I was about to turn the song off to say skip or thumbs down. And then I listened to the lyrics and I thought, you know, this is a good message in this song. He said, This morning, I got up at 601 walked out and saw the rising sun and I drank it in like whiskey and all those country guys, I like to drink their whiskey, right?
Jason Hartman 6:27
I saw a tree I’ve seen 1000 times a bird on a branch and I watched it fly away in the wind and it hit me. It’s a beautiful world. Sometimes I just don’t see it so clear. Some days you just breathe in. Just try to break even. Sometimes your heart’s pounding out of your chest. Sometimes it’s just beating. Some days you just forget what all you’ve been given. Some days you just get by some days. We’re just alive. Some days. You’re We’re living some days you’re living. And you know, it reminded me when I first moved into the house, I’m in now told you that story. And I would walk the dog around in the morning and you know, there’s nature here and it’s, it’s kind of nice and I can’t say I’m like any giant fan of nature or anything, you know, but I really tried to notice and I guess what inspired me to do this is, is after finishing for the second time, the very famous old book, Walden by Henry David Thoreau, a couple years ago was the last time I went through it. It’s just amazing how we obviously all of us, I know I do it, we tend to take for granted what’s right in front of us, when you just start to really notice the detail about what you see and hear and you notice nature around you. I mean, when I would walk around in the morning and of course now it’s normal, so I don’t notice it right. That’s a really bad you want to guard against that. You Want to constantly notice and, and try and appreciate and be grateful for all of these things, but I would notice how the birds sing in the morning. I’m an early riser. So I’m, I’m up early, how they sing in the morning, how they communicate with each other, and the environment and how they fly. And, you know, I would notice how the birds would go in the water in the lake, and then they would come out, and they’d be on a tree branch or just on the grass or wherever, and they’d spread their wings with their back to the sun, just so the sun would dry their wings off. And they would just stand there like that for the longest time. One time. I just stood there and I watched the bird and it was just wings just spread out, you know, standing there just for quite a long time kind of sunbathing. You know, it’s just really amazing. You know, notice those little things. That’s the thing to do, you don’t notice those little things. also wanted to mention to you that the guided visualizations that we’ve been playing On Saturday, for several months now, we are going to move those off of the creating wealth show. And they’re going to move to their own feed. So if you’re not into it, or you know, it’s in the middle of your binge listening to a bunch of episodes, and you don’t want to be interrupted by a visualization, because hey, you’re you’re not in the, in the right mood or the right place, you know, you’re not relaxing where you can really take it in. And if you’re driving, you shouldn’t be listening, because that might not be safe. So we’re going to move that to a separate feed for you. And we will of course, share that new link and where you can find that that’ll be its own podcast with a completely separate feed, and it will come off of Saturday. So we will be taking that off. It will not be in the creating wealth show. Of course the old ones will just stay there where they are. I guess we’ll just leave them up. But we will repost the old ones, and then add all the new ones. So they’re in chronological order on a new podcast feed and we’ll let you know about that. Okay. And one more announcement before we get to our guests, by popular request, and thank you, for those of you suggested this idea. We are making it possible for people who only want to come or only have time to come to a property tour just outside of Orlando, Florida, that is the day before profits in Paradise, the conference before that conference starts. So you can come just to the property tour only if that’s all you have time for. And I hope you’ll stay for the whole weekend. But hey, we want to offer it for you. And that’ll just be $97. And that’s on Friday, the 25th of October, and it’ll start at 11am. It includes the transportation to get you to the properties and on including lunch, and you can go look at properties and hey, hopefully, if you just come to that you’ll decide whatever you got going on that weekend. You need to cancel it so you can be at profits in paradise because We’re looking forward to a fantastic two day conference that weekend course you can find out more about all of this stuff at Jason Hartman, calm, don’t panic, the property tour link is not up there yet. You can sign up for just that quite yet. We’ll get it done here in the next several days. And we’ll announce it but you can definitely mark your calendar. Because if you want to, if you’re only available on Friday the 25th and you want to join us for that tour, you will be able to do that. Okay. So that is it for the monologue portion of the show. Let’s get to our guest. I think you’ll find this interview to be very interesting. So here is Fernando.
Jason Hartman 11:44
It’s my pleasure to welcome Hernando de Soto. He is founder and president of the Institute for liberty and democracy. He is also best selling author of the mystery of capital why capitalism triumphs in the West and fails everywhere else he’s located in In Peru, and meets with world leaders to discuss how to institute property rights in their countries. I think you’ll be fascinated by this interview. Fernando welcome How you doing?
Hernando De Soto 12:11
I’m doing fine. Jason, thank you very much for interviewing me. Good to have you. Are you in Lima? I am
Jason Hartman 12:16
in Lima indeed. Fantastic. I was in Peru about oh, maybe three years ago. Fascinating country. fascinating place. It’s kind of interesting that you’re talking about this topic in Peru, you know, a developing country. Did you grow up in Peru? Are you from somewhere else? Or don’t tell us about that.
Hernando De Soto 12:33
I was born in Peru. My family moved in from basically the Basque part of Spain 420 years ago. So we’ve been around for some time.
Jason Hartman 12:43
You certainly have. Well, in your book, it is quite interesting. By the way, you’ve got some interesting chapter heads. And I’d like to just start at the beginning and ask you, what are the five mysteries of capital?
Hernando De Soto 12:55
Well, the five mysteries of capitally I think can be wrapped up in one Which is that it’s not possible to really understand the connection between the formation of property rights and capital. I mean, 1989 when economic communism collapsed in the former Soviet Union and in Eastern Europe, and the rest of the world, including Chinese came to the conclusion that there was no other way than capitalism in one of its many forms. Many of us have failed. I mean, we have a GNP in Peru that I think is equivalent GNP per capita gross national product that is equivalent to one of Chinese and of course, you know, at the beginning, it’s a fast growth, but then after a while, it starts sinking. And nobody realizes that it’s not possible without private property, because generally you Western countries, like the United States, take it for granted, considered individual freedom, the right to be protected, but it’s much more than that. It’s the booster. It’s what allows capital to be formed and wealth to be created. Also, of course, it doesn’t only create wealth, it solves problems. If you look at the world today, and you ask yourself why you have a rivalry with China, it’s because China is now investing in most of the resources, natural resources, those that are renewables oil is those are not renewable. Make that your country is concerned about that. You’re not only concerned about the fact that, for example, in Peru, they now are the majority shareholder of the mines of Peru, and have displaced the United States. And that happens in many countries throughout Latin America. On the other hand, your president just said that he wants to buy Greenland. So the question is, why do all these people want to buy property in developing countries and yet have a hard time defending that property once they’re there because there are rebellion against oil fields in for example, from the Middle East, which forced you to keep a large amount of your troops there, there are issues about what you can do with uranium, especially if the extracted or bought by uren. So you see, property rights are a current issue. We just don’t ever think about them as property rights, or rather Americans think of it rather as a real estate dealer. But it has a lot to do with worldwide politics and who rules and who within a country rules. Just the picture, do the poor get a stab at it?
Jason Hartman 15:30
Okay, right. Right. The title of the book is interesting. Why does it fail everywhere else? As you say in the
Hernando De Soto 15:39
book, there are various reasons. One of the first ones is that I don’t think I know of a country that is able, once the market economy sets in and everybody has found that that’s the best way to play the game that will accept the just a few people in a country actually have property rights or rather As I learned from Americans property rights is composed of a bunch of six, right? It’s not just one property right, you have the right to buy, you got the right to sell, you have the right to mortgage. In other words, it’s composed of a variety of rights. That’s why it comes in rural. What happens in many developing countries is that the kind of people that have a right to use their property to guarantee credit to pledge what they own against investment. To use it as a credential for whatever purposes there is to be identified at the securities exchange commission, we find out that in most developing countries, it’s probably not more than 510 at the most 30% of the population, those are the ones of course, who can add value, or as Marx would have said surplus value and extract value from their their assets, because they can make them function in various fields and therefore, given various uses. And therefore various sources of income. Now, when you are in a developing country, and you see that the system has only actually reached a small part of the population, the other 7080 or 90% get very angry over time. I’m sure they do and bring the system down and the socialists argument, which is capitalism doesn’t work because it only helps the poor, as Marx would have said, then chimes in, and then the system collapses.
Jason Hartman 17:30
Did you speak in that mind statement? You said capitalism only works because it helps the poor? Did you mean to say that?
Hernando De Soto 17:37
No, I didn’t know what happened was it just us me then I made hopes Neptune. The what I then what I meant was capitalism only helps
Jason Hartman 17:46
the rich Right, right. That’s what the socialists would say. But the interesting thing about it is that the coin is Shantae right in all of these countries where you’ve got either a high degree of socialism crime and Or just an outright dictatorship of sorts. Those people are always the rich right there. They’re the helped the most, I would argue that in the in the free or capitalist system that certainly there are rich and poor, but at least the poor have a chance at becoming rich. And the other systems, they they don’t have a chance, right? Because they’re just not ever going to play in the game. It’s like the insiders on Wall Street, right? The people who run Communist China or run you know, whatever Russia is nowadays, it’s sort of hard to tell. But, but at least what it was and so under the Soviet Union right there, the insiders there the people managing all the capital, for people to think for the Marxist ideology to think that they’re somehow going to be generous with it is crazy. And it’s been proven throughout history that they’re not they’re very selfish with the capital, you know, those resources, aren’t they?
Hernando De Soto 18:58
Right, but there are You’ve been now would you said what is Russia today? Which the best label I’ve found is it’s called post communism. It isn’t really coming into the market economy.
Jason Hartman 19:10
It’s certainly plutocratic, you know, people would say the US is a plutocracy because we’ve got, you know, the wealth gap. And you’ve got the mega rich in the US. But it’s more pronounced in a place like Russia for sure.
Hernando De Soto 19:22
Well, what happens is in your country is that you are continually building capitalism got a democracy, and those who feel that they’ve been shortchanged to point out that, you know, I don’t have education, or that the market hasn’t reached me, etc. And that doesn’t happen in many other countries. But the reason why marks keeps on coming back, is because they, it’s the leftists who get elected in my part of the world, the third world, what happens is that they then hire the likes of us to keep it on Freeman connected to globalization, but basically the pervasive argument Is this is something that works in the northern countries, but is not part of our culture kind of thing. I’d be and they will point out that, for example, indigenous Americans, etc, they weren’t able to come in because they are not culturally separate. So the reply to all of that is that capitalism has to adapt to local circumstances. Otherwise, the locals will come out, listen to the arguments given to them by communists and the likes, in the sense that we’re not yet ready for it. And we the state has got to come in and do the education. Most of them of course, in third world have not traveled to the United States. They like what you produce. They like your rock and roll they like your music, they like your culture, they like your blue jeans, but they say that in our country’s wealth and so concentrate, and until developed countries are people who are like you and I may think the same things are able to explain like the Marxist why it fails. Because the Marxists in their theory, which is so weak compared to love, I don’t know, liberalism or democratic liberalism has nevertheless, an important message, which we don’t, which is they have an explanation for failure. And therefore, they can draw people right back to where they were originally before trying to attempt being a capitalist nation.
Jason Hartman 21:25
Do you know what is so amazing to me? Is that Marx, if any economist has had more impact on the world and marks, I don’t know who it is, because, but the profound impact of Marxism is just, it’s astonishing. It really is. I mean, you could, you could argue as much as I hate his ideologies, that he’s the most successful economist ever in human history. Yeah.
Hernando De Soto 21:52
And you know, Jason would you could say, Maybe he’s that he’s the most comprehensive What does You see? That is, I think One of the reasons why I distinguish informal economies from formal economies, which are the ones that have full property rights as informal economies, where they just have barely the right to hold the land, but they’ve had, how to use it, and they can’t leverage it. And they cannot combine it. I mean, there is the product of the world that we consume, which is not the result of a combination. And they can’t scale it up because the title they have to their property only have value within a very limited circumference is that the Marxist target, they’re different aspects of their ideology and their economic programs to different people. While in other words what they have is what they call class identity, they identified classes and therefore, they know who to address in what way and in what language, while generally capitalist in reaction, of course to Marxism, say I don’t like the class stuff, but then they nor would we all do who are capitalists in everyday life, which is segment our markets. I mean, you could be Microsoft or you couldn’t be anybody who sells hamburgers that doesn’t make a distinction between what kids will want the toppings kids will want on their hamburgers versus what adults will want and the kids will want a little bit birth mom pop soda, but maybe the adults will want wine, you segment your market and you target even the manufacturer of your cars compared to what you want speed security, large families etc. But would you do or would we capitalist do in business? We do not do when it comes to politics and in politics when America for example, right, which I admire. It’s a great country, if you could call it a country thing. It’s something bigger than a country but that’s another
Jason Hartman 23:48
thing. I think it’s it’s an ideology. It’s a brand for sure. It’s
Hernando De Soto 23:51
a brand. It’s an ideology. Well, when you go developing country, it’s enough that a small part of them who are educated in Harvard, tell you that they’ve accepted your your language. they’ve accepted your system, but they reserve all the leavers that they’ve learned from you were just a small set of families. Those are your allies in many other countries. If you went into the class situation, you would find out that the majority of entrepreneurs are actually poor entrepreneurs, which is a contradiction terms. And then many of your programs don’t address them, the people who addressed them in the United States or rather the socialists, who are moved not by economic efficiency, but by compaction. So I figured that there’s no mystery to marks. It’s just that he has an explanation, that unless you understand, for example, who is what and from my point of view, the guys who are in tribes in Africa or in clans in Latin America, where the pores and shanty towns are all entrepreneurs and if your programs don’t address, property rights, and that property rights include the right not only to buy and sell, but the right to live Coverage against credit and the right to pledge against investment, and the right to fusions, mergers and acquisitions and the right to bring in imports from other countries so that you can put added value to your products, if those rights are not in place, and they all correspond to what your properties title says that you can do. It’s not just about metes and bounds, you will eventually not have most of the world on the side of capitalism.
Jason Hartman 25:33
What do you think about what is going on in the us right now with, you know, some of these politicians we have like Bernie Sanders, who is just good, self proclaimed socialist, and then a OC, the young politician who is probably more than a self proclaimed socialist, what do you think about this movement in the US is this is this a bad thing?
Hernando De Soto 25:56
First of all, a we accept that and we’re looking at from the outside,
Jason Hartman 25:59
right? I’m asking because it’s great to get an international opinion on this stuff.
Hernando De Soto 26:04
I’ll give you an uneducated national opinion. I’m just looking through the through the window. First of all, he’s moved by compassion. He obviously believes that inequality is an issue. And obviously, in the United States, there’s a lot of people who feel that inequality is an issue. And he’s addressing them, or otherwise, why is even in the picture. And so the reply to Bernie Sanders should be, I don’t agree with a solution. But here’s what we’re going to do about the fact that at some invisible threshold boundaries, people I mean, there you are the most prosperous country in the world, and people are calling themselves socialists. Again, there was ages since that happened. And so the reason therefore, is somewhere along the line, the difference between classes of people has hit home. The only way to solve that is by looking at the issue instead of going away from it, and then finding out that may be some people have got more strings tied to their fingers than the other ones. And the question is and how we redress that. Because in terms of the broad argument, that ideology is you were talking about, and we’re talking about Jason, there’s no doubt that there isn’t a socialist country in the world. That’s, I mean, really socialist that has made it the parts of Sweden that have triumph, have obviously been those that relate to capitalism listeners,
Jason Hartman 27:37
if you believe that any of the Scandinavian countries are socialist, you’re out of your mind. They’re all totally capitalist countries. They just happen to have because they’re, they’re wealthy because capitalism made them so rich. They can afford big, fat, bureaucratic social programs, okay? They’re not socialist countries. It’s just crazy that people think that It’s such anyway. And and their big bureaucratic social programs don’t work very well, either. That’s the other thing. You know, that’s another myth. But go ahead.
Hernando De Soto 28:11
Well, right. I mean, you’re absolutely right. But I would add to that, that at least they address the issues that the poor want them to address. All right, then you get a large constituency, because capitalism is only about a system that works. It’s also a political system. And it’s got to cater to people. So But back to the point, it’s a good creates worlds, it’s capitalism. There’s no doubt about it. But obviously, obviously, it’s not the only issue. The issue is, is their Equal Opportunity kind of thing. And we don’t have the reply, but it’s not a bad idea to address the issue. Already. That kind of a concern will make capitalism more popular words, word may be losing popularity.
Jason Hartman 28:54
I like the chapter heads in your book, and we’ve got to wrap it up, but I don’t know that you’ve talked about Chapter Six, the mystery of legal failure. Did you address any of those issues? I know you talked about property rights and so forth. But in the chapter What are you addressing?
Hernando De Soto 29:10
Will? property rights is a legal issue? Of course it is. But but all together, so the legal issue is how do you create a property right? So for example, is this about legal failure? The legal failure means this we have a tendency in developing countries and you know, we are like 70% of the world population and not get by 70% of the territory. We have a tendency to go to United States and say, This is the way it’s done. And of course, what we do is copy what you’re doing now. What we should be copying is your 19th century, which is how you got from there to here. Yeah, right. were when you were a much less wealthy country than we Latin Americans. I mean, at that time, I would have any would a vibe figure I would have lived at that time. I would have anybody preferred to Be in Lima, Mexico City or Windows Iris, then in the swamp of Washington. So what did you do between then? And wow, does it become so successful? Right?
Jason Hartman 30:09
Yeah. Well, we had a couple of lucky things, like the fact that we’ve got this big ocean to protect us on either side, you know, the war, World War One and two. And, you know, the fact that we won the Industrial Revolution, maybe because of that. So we had a few good fortunate things, but also, the system was good. And I think what you’re saying, correct me if I’m wrong, is that the world should look at what worked then that made the us today what it is not what we’re doing now. Because what we’re doing now is wrong in so many ways. We got to look at what God is here years ago. And I would argue that, you know, it was mostly sort of disaster started in the 60s with the welfare state. I don’t know. Maybe you can say it started before that. But what do you think?
Hernando De Soto 30:55
Well, I think the following thing, I think that what you did, which was great You brought in 36 million migrants from Europe, somewhere in the middle of the century Manifest Destiny, right? And you set them loose and you told them obey the law, and they didn’t. And they crossed the continent. And instead of following what you think that you are the sons and inheritors of British law, and finding the British property system, you went out and created a little Miami property rights system, the Gold Rush property system, the log cabin rights in the north of the United States, the corn bill rights and you awarded assets according to local social contracts 32 times, your Supreme Court went and said these are legal rights and 32 times your Congress said, that’s the ingenuity of the American people. And then you fought it out like in your cowboy fields, but your legal system was born from the bottom up. So you actually adapted property rights to forms and vocabulary and customs that people on the ground understood. That’s why you are a model to us. But every time we decide to not look at your 19th century, because we’re 19th century country, basically in the developing countries, by the way, and also the former Soviet Union, and we start simply imitating what you teach us in your universities, we get to the end and state of the beginning of the story.
Jason Hartman 32:26
Yeah, very interesting. Good perspective. I like it. give out your website. Of course, people can find the book and all the usual places. It’s got great reviews, a lot of reviews too. So congratulations on that. But you probably have a website or something you want to share, right?
Hernando De Soto 32:41
Yes, of course, w w w. I LD like Institute for liberty and democracy.org like organization dot p like the first two letters of Peru. Okay. And that’s it.
Jason Hartman 32:56
Fantastic. Fernando, thank you so much for joining us. Today,
Hernando De Soto 33:00
thank you for being interested in us, Jason, but to hear you.
Jason Hartman 33:06
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