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Pencil, the Brick, and the Law</font><font size="5"><br>
Smart Contracts and the Third World<br>
<br>
- <font size="4">by Mark Miller and Marc Stiegler</font></font><!-- #EndEditable --></FONT>
+ <font size="4">by Mark S. Miller and Marc Stiegler</font></font><!-- #EndEditable --></FONT>
</TD>
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</TABLE>
<hr>
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- <p> </p>
+ <p align="center"><i>Draft paper to be submitted to "<a href="http://panoramix.univ-paris1.fr/AHTEA/colloques.html">Austrian
+ Perspective on the New Economy</a>".<br>
+ Please comment.</i></p>
+ <h3>Abstract</h3>
+ <p><font color="#FF0000">*** To be written</font></p>
<h3>Introduction </h3>
- <p>As Hernando De Soto highlights in The Mystery of Capital, the people
- of the third world do not suffer from a lack of assets; rather, they suffer
- from a lack of capital. As a simple example, the house you live in, from
- which no one would attempt to evict you, is an asset. A mortgage on that
- house would be capital. But just because no one can evict you from your
- house, this does not mean a bank dares to accept it as collateral for
- a loan. The distinction is one of <i>property rights transferrability</i>,
- i.e., the ability to engage in binding contracts such that the new owners
- could indeed evict you as part of the contract.</p>
+ <p>As Hernando de Soto explains in The Mystery of Capital [<a href="#deSoto00">deSoto00</a>],
+ the people of the third world do not suffer from, in his terminology,
+ a lack of <i>assets</i>; rather, they suffer from a lack of <i>capital</i>.
+ De Soto's focus is on the <i>informal</i> sector -- that sphere of economic
+ activity that occurs outside of the official <i>formal</i> legal system.
+ Most of the economic activity of the third world's poor occurs in the
+ informal sector. Despite the non-official status of the informal systems
+ of laws and property in this sector, they are nevertheless quite real,
+ and form the foundations on which these informal economies function. However,
+ the formal and informal sectors are not otherwise equivalent. The poor
+ pay a great price for informality -- most of all the lack of capital.</p>
+ <p>As a simple example, the house you live in, from which no one would attempt
+ to evict you, is an asset. The recognition and sense of legitimacy in
+ your local community of your claim to the house makes this asset effectively
+ your property. A mortgage on that house would be capital. But just because
+ no one can evict you from your house, this does not mean a bank dares
+ to accept it as collateral for a loan. The distinction is one of <i>credibility
+ of property rights transfer at a distance</i>, i.e., the ability to engage
+ in binding contracts such that the new owners could be confident they
+ could indeed evict you as part of the contract, despite their distance
+ from your community.</p>
+ <p>De Soto's offer of hope for the poor is to transition into today's official
+ formal system of law and property, backed by national governments, in
+ order to obtain the benefits of capital formation -- in the countries
+ that have become rich, mortgages in particular have been a major source
+ of highly decentralized investment, seeding many family businesses. Do
+ Soto documents well both the high comparative costs of operating formally,
+ and the difficulty of bringing out the transition, but successfully makes
+ the case that the benefits outweigh the costs. Today, there are only these
+ two choices -- informal <i>vs.</i> governmental. Given only these choices,
+ we believe de Soto is advocating the right one, we wish him great luck
+ on his program, and we do not wish to distract those who are able to this
+ transition successfully. Indeed, we can imagine few more effective programs
+ for improving the overall condition of humanity.</p>
+ <p>Despite our admiration, this paper takes a different approach; it explores
+ a third alternative.</p>
<p>Because binding contracts for ownership transfer lie at the heart of
capital formation, if traditional contracts were supplemented and/or supplanted
with smart contracts, which leverage the Internet and cryptography for
@@ -73,8 +104,7 @@
the countryside, assessing the value of buildings which were not formally
a part of any formal title registry, de Soto extrapolated that that the
value of just the extralegal buildings in the third world amounted to
- $9.3 trillion: more than the total value of all the publicly traded companies
- in the world. </p>
+ $9.3 trillion.</p>
<p> Moreover, it is not a lack of laws or markets that holds these assets
in frozen unusability either. Each village has a clearly understood set
of rules about who owns what, and how they may interact and exchange the
@@ -437,20 +467,24 @@
Ka-Ping Yee, and the members of the e-lang mailing list.</p>
<h3>References</h3>
<p><a name="deSoto89"></a>[deSoto89] Hernando de Soto, "<b>The Other
- Path</b>", Harper & Row, 1989. (in </p>
+ Path</b>", Harper & Row, 1989.</p>
<p><a name="deSoto00"></a>[deSoto00] Hernando de Soto, "<b>The Mystery
- of Capital</b>", Basic Books, 2000.</p>
+ of Capital</b>", Basic Books, 2000. See <a href="http://www.rcp.net.pe/ild/f-newbook.htm">http://www.rcp.net.pe/ild/f-newbook.htm</a>.</p>
+ <p><a name="Engelbart62"></a>[Engelbart62] Doug Engelbart "<b>Augmenting
+ Human Intellect: A Conceptual Framework</b>", SRI Project no. 3578,
+ October 1962.</p>
<p><a name="Fukuyama95"></a>[Fukuyama95] Francis Fukuyama, "<b>Trust</b>",
Free Press Paperbacks, 1995. </p>
<p><a name="Granovetter73"></a>[Granovetter73] Mark Granovetter, "<b>The
Strength of Weak Ties</b>", in: American Journal of Sociology (1973)
Vol. 78, pp.1360-1380.</p>
- <p>[Hardy??] Norm Hardy, "<b>Computer Security, the Very Idea</b>".
- Online at <a href="http://www.cap-lore.com/Dual.html">http://www.cap-lore.com/Dual.html</a>.</p>
+ <p><a name="Hardy99"></a>[Hardy99] Norm Hardy, "<b>Computer Security,
+ the Very Idea</b>". Online at <a href="http://www.cap-lore.com/Dual.html">http://www.cap-lore.com/Dual.html</a>.</p>
<p><a name="Kelsey99"></a>[Kelsey99] John Kelsey, Bruce Schneier, "<b>The
Street Performer Protocol and Digital Copyrights</b>", First Monday,
vol 4, no 6, 1999. Online at <a href="http://www.firstmonday.dk/issues/issue4_6/kelsey/index.html">http://www.firstmonday.dk/issues/issue4_6/kelsey/index.html</a>.</p>
- <p>[Mill??] John Stuart Mill, "<b>On Liberty</b>", ???.</p>
+ <p><a name="Mill69"></a>[Mill69] John Stuart Mill, "<b>On Liberty</b>",
+ London: Longman, Roberts & Green, 1869. Online at <a href="http://www.bartleby.com/130/2.html">http://www.bartleby.com/130/2.html</a>.</p>
<p></p>
<p><a name="Miller00"></a>[Miller00] Mark S. Miller, Chip Morningstar, Bill
Frantz, "<b>Capability-based Financial Instruments</b>", Proceedings
@@ -477,8 +511,8 @@
<tr>
<td>
<div align="center"><font size="-1"><a href="../../../elib/index.html">ELib</a>
- <a href="../../../elang/index.html">E
- Language</a> <a href="../../../smart-contracts/index.html">Smart
+ <a href="../../../elang/index.html">E Language</a>
+ <a href="../../../smart-contracts/index.html">Smart
Contracts</a> <a href="../../../related.html">Related</a>
</font></div>
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