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In the acknowledgments for his new book, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (Basic), Hernando de Soto thanks the Smith Richardson Foundation for its support, which included providing a bullet-proof vehicle when de Soto's Peru-based Institute for Liberty and Deomcracy "was being bombed and shot at during the early 1990's." The distinctive mix of practicality and wit in that thank you is characteristic of de Soto, whose book The Other Path was read by policymakers throughout Latin America and around the world. He tackles subjects that have produced mountains of unreadable prose and inconclusive statistics, and emerges with a fresh point of view that is at once utterly practical and conceptually dazzling. Michael Cromartie spoke with de Soto during a recent visit to Washington, D.C.

In the first paragraph of your book you say, "The hour of capitalism's greatest triumph is its hour of crisis. The fall of the Berlin Wall ended more than a century of political competition between capitalism and communism. Capitalism stands alone as the only feasible way to rationally organize a modern economy. At this moment in history, no responsible nation has a choice. As a result, with varying degrees of enthusiasm, Third World and former communist nations have balanced their budgets, cut subsidies, welcomed foreign investment, and dropped their tariff barriers. Their efforts have been repaid with bitter disappointment. From Russia to Venezuela, the past half decade has been a time of economic suffering, tumbling economies, anxiety, and resentment." Why has there been such bitter disappointment?

I think a useful way of looking at this is thinking first of all about the numbers. There are about six billion people living in the world. One billion of these people live in what is generally known as the "West": Western Europe, the United States and Canada, Japan, her two former colonies Taiwan and Korea, and also Singapore and Hong Kong. The rest of the world—former communist nations, developing nations—makes up the remaining five billion. Only 10 to 20 percent of those five billion have access to capitalist tools, like mortgages, credit cards, bonds, the kind of paper on which you accumulate value (which is what we call capital) and which therefore can help specialization take place within a broad market. So what we know is that at least four billion people, two-thirds of the world's population, have not been inserted into the system. They don't have the paper to be inserted into the system; they don't have the property titles over their real estate assets; they don't have the licenses over their businesses; they don't have the instruments needed to carry value nor the means and the legal vehicles to enforce decisions and transfer value. Paper, of course, doesn't simply help you to prove ownership; it is like a Swiss Army knife, a knife with many blades, of which ownership is one. You should be able to get credit with it; you should be able to use it as an investment tool.

Why isn't capitalism working for the majority of people in the world? Not because they tried it and weren't able to pull it off. No: it's never even reached them. Capitalism isn't essentially about trading the little cows and little pigs in the market. It's about papers, which represent the little pigs. When we talk about capitalism we're talking about the kind of markets that you have in the Chicago Commodity Exchange; somebody has got a piece of paper that represents 30,000 head of cattle. You don't have to look at each cow. You've got a piece of paper that tells you everything that you cannot see by looking at the cows. The paper tells you how many there are, who they belong to, in what condition they're being delivered.

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