The Power Of Property Rights With Hernando De Soto

You already help title the world. What you're going to do is tokenize it. You're going to take that title, which is not negotiable internationally, and make it negotiable global because what we've got underneath our earth is only valuable in the measure in which it reaches industrialized countries. Very simple. So what you want to do is not say that you're going to title because then people will get scared and say, but what do I know about titling? It's already titled. What you've got to do is tokenize. Welcome to Bankless, where we explore the frontier of internet money and

internet finance. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. The first thing you need to understand about crypto is what is money? The second thing you need to understand about crypto is what is property? That is the topic today. We have an episode with Hernando de Soto. He's an economist who helped the world, the entire world understand the incredible wealth creation power of property rights. And now he wants to recruit crypto to help tokenize the world. Those are his words, a few takeaways today, not ours in

this one. A few things we talk about today. Number one, what are property rights? How do they unlock wealth? Why do countries with strong property rights systems seem to win while countries without them falter? Number two, what is capitalism? How is it related to property rights? Number three, what does property rights have to do with crypto? Maybe everything, maybe nothing? No. Number three, what does property rights have to do with this crypto thing we're doing? Number four, why Hernando thinks there's a new global race between China and the US to title the world

and how crypto might play a part. And number five, Hernando gives his advice for the crypto industry and issues a call. Help tokenize the world. David, this was an incredible episode. Why was it significant to you? Every once in a while on the Bankless program, we come into these episodes that are a huge synthesis of a lot of knowledge that we've explored with different episodes. We did the what is money episode with Lynn Alden, right? We've done identity episodes with the Ethereum attestation service. This episode is one of those ones like this is something we've

been training for. This is a synthesis of money and settlement assurances and identity and ledgers and governance. All of these ideas come together to form this property rights system. You don't have property rights without many different component technologies that I think we've explored each individual component on Bankless previously pretty thoroughly. But now this is an episode where we're really putting it all together to really show the power that is the system of

property rights management and illustrates why crypto as an alternative property rights management, a new property rights management that is more global, more efficient, more accepting, more permissionless is the next step forward for humanity. There are some things that you should know about when we get into this episode with Hernando. Hernando uses you and us a lot in this episode. You is referring to the United States as a whole. You guys, when he says you guys, he's talking about the United States historically or current us is referring to Peru where Hernando

is from or maybe more broadly, Southern American countries. He also uses the word subsurface. He's referring to precious metals, industrial metals, mining operations, natural resources that are located below ground and mainly in Peru and Latin American countries because that is a source of a lot of Latin American wealth and property. So just wanted to add that illustration before we get into the episode with Hernando. All right, guys, let's get right to the episode with Hernando de Soto, legendary economist. But before we do, we want to thank the sponsors who made this possible, including our number one recommended exchange in a place where I acquire

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treasury backed stablecoins at bankless.com slash USDV. Bankless Nation, I am extremely pleased and honored to present you with Hernando de Soto. He's a prominent Peruvian economist known for his massive contributions to the understanding of this thing we'll be talking about a little bit today called property rights. He wrote a book called The Mystery of Capital, Why Capitalism Triumphs in the West and Fails Everywhere Else. And this book presents some of the best arguments I've ever read on why property rights are the key to economic prosperity of developed countries

such as many in the West and also are the major barrier to economic growth in developing nations. Hernando, welcome to Bankless. Thank you very much for having me. Well, Hernando, we brought you on to Bankless to help us understand property rights from first principles. And just to set this up, there's really two reasons we want to explore this on a technology and crypto podcast. And I think the first reason is this, not enough people understand or appreciate property rights. So property rights are like a coordination technology

that I think many people, particularly in the West, they really take for granted. And they also explain, I think this is the core to your argument, they explain a massive portion of our economic progress. So that's the first reason. But the second reason is this, property rights are actually the entire point of crypto. David and I have argued this before, we've had folks like Mark Andreessen, Chris Dixon talk about this. In fact, Mark Andreessen was the one that originally pointed us to your book, Hernando. But if you think about crypto, Bitcoin is really a property rights system registry for money. That money is called Bitcoin. What is Ethereum? Ethereum

is a property rights registry for money as well. It's a ledger for that. And also any other type of digital property. And that's why crypto is valuable in the first place, this internet native bottom up permissionless property rights system. So I think to frame this out, crypto listener, if you want to understand the potential of crypto, you have to understand property rights first. That's where we're going to start today's conversation. Hernando, maybe we could start with our forgotten history. Can you tell us how property rights came to be in the West,

how they came to be in maybe even the US? Where this all started? Who knows? Metropozamia, where the US Civil War, the conquest, etc. What we do know, aside from history, is what we see in places in the world, which are somewhere in terms of economic development, technology, before the times even of Jesus Christ, that exists in the world. You see it in certain tribes in

Latin America, you see it in Asia, you see it in Africa. And there isn't one place that you can go to, no matter how primitive it is, or one conquistador, right, or one invader like Genghis Khan, or whatever, that doesn't talk about or just shows to you that he has a right or she has a right to be there, and the people that surround him, because it's in a record of some sort. If that exists, given the fact that I've traveled 150 countries probably with my colleagues to see this, I have

yet to be told. When everybody, what they do, and that's the way cultures begin to become civilizations, is you got to know who is where. You've got to know who has the rights to what, whether they're community rights or whether they're individual rights. As a matter of fact, the interesting thing is when you talk to somebody and say, Mr. Townsend, why Townsend? Because he lives at the town's end. This so-called means, for example, in Spanish, it's a bush. It

means the guy that was close to the bushes. So obviously, location is a very important thing. And all civilizations begin by eventually creating records that say, pick up the fundamental information that is necessary for location and identity. And when people do that, they end up creating a civilization because the information you want to put in a property title is the one that does allow you to govern in a civilized manner. So in the United States, when you had

gotten your independence and you needed to take over territory, take Spaniards out, take Mexicans out, take Frenchmen out, take anybody else out, what you did is you imported Europeans. And you told these Europeans, we have counted them 32 preemption acts. For example, the Little Miami River Preemption Act, the Corn Bill Preemption Act, which was how much corn were you able to plant to improve the land, or Log Cabin Act, which was about how many pieces or how

many logs you have put together to build a cabin, that gave you a right to territory. You had 32 of these things, 32 preemption acts, the last one of them being the Homestead Act, but it was the last. By the time you had the Homestead Act, you had the Gold Rush, you already had taken over Texas, you knew who owns what in Santa Fe. It's the first thing you did, and it's the first thing the Spaniards did in Latin America, and it's the first thing that Genghis Khan did when he swept through Asia. Wow. Okay, so property rights is not underpinning for,

I guess, civilization and economic prosperity. I'm wondering if we could get into actually the story of how the US developed its property rights system, because in your book and from, you know, everything you've talked about, Hernando, I get the feeling it wasn't overnight. It wasn't just somebody kind of snapped their fingers. George Washington said, you know, and on the fifth day, let there be property rights, and there was property rights. The picture you paint in your book is much more of an evolutionary process, a series of, you know, bills, maybe a series of

laws ultimately get enshrined in a legal system. Can you talk about the messy process of setting up a property rights system in a country like the US? Well, you're right to say that it was messy, but it was messy everywhere you go, and you don't have settlers. From what little I know about the United States, never having lived in the United States, but seeing it from the documents that interested me to test theories, presumptions, or do away with myths, was that you had populations that were in their majority hunters and gatherers. That's what your indigenous people were.

And then at the beginning, some white folks that came from Europe bought rights to these, but using the common law, which is everybody had there was a respected judge. Captain Smith managed to make a good relationship with Pocahontas. You gathered a social contract, and you decided that areas that they moved beyond, you would give them money, and you would give them title to it. Then the French were interested in sovereignty, which is, I don't care who owns what,

this belongs to France, the nation state. All right? And so what they did is they said, what we're going to do is give the Indian or the original native population the right, since they're not aware of a property right because they moved around, the right to govern, the vertical principle of sovereignty. You know, you too can become a nation state. So the Mohicans could become a nation state. The Iroquois could become a nation state. That allowed them to organize an army.

That allowed them to start driving the Brits out. Then the Brits had to make a decision of how they were going to counter these enormous armies that the French had that were full of Mohicans and other people coming in to edge them out of the northeast of North America. And so the Brits decided that they too, they're Indians, were going to have rights. And they declared no, from what I understand, the common law titles that judges had awarded George Washington and

Benjamin Franklin and Jefferson for their land and said America belongs to its indigenous people. So the whites didn't like it. And so they went out to recuperate their land and also went around telling the Indians, your Indians, that they were nations as well. And there was no more of these property rights. What they were going to have from now on were going to be sovereign nations. So they, from my point of view, say in terms of left versus right, they converted your tribes

into communists while they, the whites, remained capitalists in the sense of private property. Afterwards, everybody was sorry about that, of course, so you decided to take it away from them. Now, so the way it always starts is the messy sort of stuff. And then gradually, as you decide to go from shining sea to shining sea, through manifest destiny, you imported even more Europeans and moved westward all the way up until California with the gold rush. And it was rough going. I mean,

there's a lot of spaghetti western showing how everybody shot each other. But eventually, you settle down the way I read about it or what I've seen from people who look at record keeping. You eventually registered different claims for which, by the way, since you had no expertise in recording property, like the Mediterranean, you imported Chileans and Peruvians to do that sort of a job. And by the time you got to the 19th century, you already became a titled nation.

And you had different types of titles. And as opposed to other countries, because it seems that Americans don't like the idea of central authority, you sort of brought the whole thing together with some kind of spontaneous consultation. But you do have a system that diverges from city to city, from state to state, from area to area, which is why you have an industry that thrives in the United States, which we don't in the rest of the world, called title insurance.

And title insurance, you could say, my God, why don't we get rid of it? Well, because title insurance, you know, like Americans, you always find a way to get another drip out of the orange juice. And it gives you the right not only to buy and sell something, but if there's been a mistake, you got insurance. So the result, anyhow, one way or another, as opposed to the French and say the Germans who have central registries, like the rest of the world,

most of the surface of the world is today titled. And everybody is mostly in records. The problem is that there is no central records for developing countries, what people now call the global south, right, especially for the poor part of their population. But let me tell you, there is one tribe that you go to, there isn't one settlement that you visit from Mozambique to South Africa, to the Maghreb, Egypt, that doesn't have some kind of a record. And therefore, one of the things we

try and do is find what do they all have in common so that one day we have a sort of a mankind record and we can avoid wars. Because if you think about wars, and we're seeing that they're surging everywhere in the world now, or at least in different continents, it's always about territory. And part of territory has to do with sovereignty. I'm a Ukrainian, for example, and part of territory has to do with I own it personally. And that's what we call property. I think bankless listeners

can really start to pierce through a lot of these stories and get some of the contours, Hernando, that we talk about a lot on bankless, which is the evolution of asset ownership, the evolution of identity, the evolution of sovereignty, as it relates to human organization. The crypto industry is illustrated as we're speed running the history of money and finance. But I think sometime in 2020, we learned that we're also speed running the history of human coordination. And a lot of it has to do with the process of learning how to organize who owns what, starting with land. When

you say the word that the land across the world is titled, I hear that we are creating organizational systems that is decreeing, accounting for property, property rights, starting with land and then also other things as well. And when you started, when you first started this episode, we talked about, you talked about how we don't really know where property rights started. You can see it start in Africa. You can see it start in Asia. You can see it start differently, separately, independently

in Europe. And this is also a similar story, Hernando, that we talk about on bankless about where money comes from. It actually just starts in pockets all over the world a little bit more emergently. And then it comes together as technology does over time as cultures come together. I think one of my favorite stories about where money comes from is the first time there was ever writing. Writing was invented. It was as a ledger determining who in a tribe owned what assets,

owned what money. And so this ledger, which is this bureaucratic tool, was one of the first tools that we used to create writing, which was the accounting of who owned money. And I think land was the next one right after that. But I want to talk about, I want to ask you about the motivation for the development of this technology that is ledger systems or property right management systems. What's so valuable about a property rights management system? What's so valuable about

like a title? Why do humans seek these things? What does it unlock for humans? Why is it good for us? Well, it's about the identity. It's about information. What's the only thing that doesn't move around you is land. It's a demarcation point. It starts somewhere. It begins somewhere. I mean, right now I asked my colleague Gustavo because I had it lying around and I hadn't thought

about it before. But here is, for example, my hometown, Arequipa. We're back now in about 1860. And here is the currency we use. Now Arequipa is a small town here in Peru. And this is issued by the Bank of Arequipa, which 40 years before belonged to Spain, but it issued its own money and it was private. I mean, central banking came afterwards. So obviously, you know, when we invented, you know, paper money or we minted money, that allowed you to capture a certain amount of value.

What was the first thing that Alexander the Great did when he invaded some place and took over, he would take whatever metal was used to value transactions. He would melt it and then mint it with his name and stuff. So obviously, writing it up, minting it represented forms of value. Somewhere, sometimes they refer to very concrete things like my home, my house, my land, an animal.

And that was it. But let me tell you, when we went to, for example, Tanzania, brought in by the president just about some 20, 30 years ago, and we set up the system, which, by the way, won a prize at the United Nations three times successfully for being the best organizational system that at those times the United Nations had produced. To show that there was nothing wrong in doing this, we went out and filmed everything we could. That included cattle. And we asked them to show us one cow in the whole country, where it was full

of about 16,000 communities, tribal communities, and there wasn't one that didn't brand its animals. So even animals held the titles on their backsides. So obviously, we have, even at the most, shall we say, primitive or initial levels of gathering, people put labels on things. And that explains signs and explains the symbols. And then, obviously, over time, we started learning to put some kind of a value over them. But the reason I'm telling you these

things, and I think it's important that you draw on them, is that if you start talking about history, we're talking about things that happened 2,000, 4,000 years ago. And so then you start talking to historians, and you get a bloody nose, because some guys say it's always communal, somebody says it was always individual. There's plenty of incipient civilizations in the world, enough of them, to go out and simply ask them what they're doing. And they all have symbols that

refer to identity and for different purposes. In other words, it's not always about identity, about I am so-and-so. And second step, I own that. But it's also about permissions. I mean, when you take an ATM, when you go to an ATM and you put in a card, it's an identity card, right? But what does that identity card do? Why should I need it? I've got a driver's license in the United States. I got a national identity in Peru or probably most other places in the world.

But essentially, your ATM card is an identity so that you could get a permit to do something. So by recording things, you get ownership. By recording things, you transfer value. And the third thing that I was just talking about, you get the permit to withdraw money, or you get the permit to enter a house. So everything that moves values one way or another always seems to come with a representation. Probably Bertrand Russell and Wittgenstein would

have called that microfax, that the world is composed of microfax, which Bertrand Russell calls little splashes of color. And then eventually somebody comes and brings the whole together and forms a big image of everything. But all things are made of little pieces of information. And I would say that's essentially what crypto does or what little I know about it or what identity or property does. It's in formation. And in terms of economics,

the advantage of that information is that it tells the banker, tells whoever is going to loan. It tells anybody who's going to get credit. Credit comes from, I believe in you, that you are you and you've got something to lose. But if you are you and you got nothing to lose, then how am I going to get paid back? Or why should you be marrying my daughter? Hernando, you talked about a different number of mechanisms, all around symbols, like an old king

would melt down metal and then stamp it with his symbol of authenticity. Or some company would have a brand and their brand cattle with their symbol of ownership or like a land title is has some sort of stamp on it or symbol of legitimacy coming from it by some issuer of sorts. To me, a lot of this has like valence with bureaucracy or just like, you know, a management system. And sovereignty, of course, is also like a nation state topic as well as like a nation state has legitimacy.

And you've also invoked this idea of common law. These are all like bureaucratic or legal systems to process information as you say it. Can you talk about this process? Why is this process of what I call bureaucracy, what we might call legal systems? Why is this component of property rights important? What does it do? Well, because all of these symbols, as I mentioned before, are spread out. And going back to Bertrand Russell, the famous British philosopher,

and he's talked about little splashes of color. What builds up to being something trustworthy is not just one single quantity of information. You got to bring a whole bunch of things together. So, for example, when we've titled Latin America, Africa, the Middle East, and Asia, first thing you want us to say is what's the local arrangement because enforcement will take place locally. And you will find out that they trade locally using a certain type of documentation.

And then once that's done, you want to know if they don't pay up, for example, what's government going to do about it. And so then you want to know if government has actually recognized that. And nearly all governments have done that when they conquered. When Peru was conquered, for example, we found that out by going into churches since the first thing the Spaniards want to do is avoid disorder among a population, a huge population that they had conquered. They set up records in churches. That was the ideal place where you recorded deaths and you record all sorts of things.

And nobody wrote about it, but we started picking up these old papers. And we had to decide what we were going to do with that kind of knowledge. But it was interesting because the first group of documents put together by a string that was about 500 years old said Don Diego Kaki, a pure indigenous Peruvian, part of, shall we say, the Inca civilization, hereby dies and

leaves behind for his children 90 mule trains, wine distillery in the port of Callao. This is 30 years after Francisco Pizarro and Hernando de Soto, supposedly my ancestor of land. And then they say and owns three galleons that do trade with Panama, where you cross the Islas of Panama and then you go all the way to Europe. In other words, the Incas took only 30 years to adapt to the Western recording system. Before that, they had their own recording system,

which is called the Kipu, which is a system of knots on strings, which some Peruvians say, of course, is the origin of a blockchain, because we like, they use a string. So what I'm trying to tell you with that is if you really want to find out where Diego Kaki got his stuff today or his family, and you really want to get the root of title all the way down, you will need all of these different symbols. And then therefore, when you award property,

it's the result of various affidavits, testimonies, comparisons of information, track records, debt records. In other words, if you go through all the stages that are necessary for a right to mine gold in Peru before it reaches Wall Street so that an American company can use that to create an international public offering, you'll need a whole bunch of documents. One is

not only enough, you need to crisscross things. A whole series of assurances, a whole series of what we call, what we use, the best word we found is assertions, assertions of one sort of another, and somebody ends up putting a seal on them and guaranteeing this. It's not just one person saying, you know, David owns this, and you can trust me, right, because I was in the Marines or I went to Harvard. Not enough. You got to crisscross all sorts of information. And it gets more

complicated when you go internationally. The countries who end up dominating the symbol, which is what, for example, President, French President de Gaulle didn't like about the United States and post-Second World War, is that he said, these Americans, if you now use the dollar as a point of reference for everything, the gold exchange standard, they know how to take advantage of everything because they've captured the symbol of value, the number one symbol of value. And what the Chinese are trying to take away from you now, the Global South, is the right to a monopoly to

that symbol so that it isn't just the dollar, because you can manipulate the dollar one way or another. Like you can manipulate gold, too. I mean, whatever you use, you're helping somebody out. If you use gold, you help us Peruvians out, but you also help the Boers in South Africa, and you also help Putin, which are major producers of gold. So coming to an agreement on what is valid or not is not only a question of knowing who owns what where, but also what are the political interests behind it. So it's a complex business. It's just such a fascinating discussion,

Hernando. And I think listeners are beginning to get a picture of property rights, what they're useful for and how they're secured. And really, if I were to distill what I've heard so far, property rights are kind of secured and settled by a legal framework that recognizes and enforces all of the rights. And oftentimes, those rights are settled in court systems. And they're enforced, or maybe using your word, which I really like, asserted by government, by the power of governments, and they're recorded using symbols in these ledgers that are often maintained by bureaucracies.