Thursday, November 5, 2009

The Mystery of Capital

I just started reading the book, "The Mystery of Capital" by Hernando de Soto, and it occurred to me that one of the functions of private property was to mostly concentrate risk and reward to the persons who were responsible for the action.   It seems obvious now that I think about it.
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2 comments:

  1. Robert RossNovember 20, 2009 at 9:31 AM

    Elaborate?

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  2. Doc MerlinNovember 30, 2009 at 8:45 PM

    Hey Rob. In an ideal system of private property, any damages to your property not caused by others are borne wholly by you. That means if you make a mistake with your property you pay for the consequences of your actions. At the same time you reap the rewards of profitable actions with your own property. This creates an incentive to use your property well and not make mistakes with it.

    This isn't to say its not possible to 'sell' the risk to your property. In fact we can think of insurance as just that. We can think of this as 'selling' the risk on your property to your insurance company for negative money. (They give you liability/expendature/negative_money and you give them the risk.)

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