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mystery of finance Walk down most roads in the Middle East, the former Soviet Union, or Latin America, and you will see many things: houses used for shelter; parcels of land being tilled, sowed, and harvested; merchandise being bought and sold. Assets in developing and former communist countries primarily serve these immediate physical purposes. In the West, however, the same assets also lead a parallel life as capital outside the physical world. They can be used to put in motion more production by securing the interests of other parties as "collateral" for a mortgage, for example, or by assuring the supply of other forms of credit and public utilities.Why can't buildings and land elsewhere in the world also lead this parallel life? Why can't the enormous resources in developing and former communist countries, which my colleagues at the Institute for Liberty and Democracy (Lima) and I estimate at $9.3 trillion of dead capital, produce value beyond their "natural" state? My reply is, dead capital exists because we have forgotten (or perhaps never realized) that converting a physical asset to generate capital—using your house to borrow money to finance an enterprise, for...more
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