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indumugic's review against another edition
challenging
informative
reflective
slow-paced
5.0
Extremely insightful and a great book. Although Pistor really tries to make it reachable for a mass audience, I suppose lawyers can only "try" and reading law does make our language inaccessible for the most part. This is a very necessary intervention to the burgeoning commercial laws, and their internationalization. We need to rethink what purpose law serves, whether it is the broader society or capital? If the law can choose between these two, how is the "it is legal" response always right? These are some interesting questions that the book will hope to make you think about.
johnaggreyodera's review against another edition
5.0
Katharina Pistor’s new book, “The Code of Capital: How the Law Creates Wealth and Inequality” investigates, in deep detail, the subject of its subtitle - the relationship that law has with the creation of wealth and inequality.
Capital, Pistor argues, is a social relation, made up of both assets - broadly construed to include not just physical stuff like land and brick-and-mortar factories, but also ideas, skills etc.- and a legal code. The legal code refers to all the legal instruments - laws regarding financial intermediaries, collateral, contracts, bankruptcy, trusts etc. - through which assets are transformed into capital, and thereby made capable of wealth generation. Capital, Pistor thus contends, is the “legal quality that helps create and protect wealth” - a quality linked with state power since, without the enforceability that that power provides, we (who do not have capital) would have no respect for capital’s legal privileges.
Pistor outlines four key legal frameworks through which this process occurs: 1.) Priority - which privileges the claims certain people have to assets over those of others. An example of priority in the way Pistor describes it would be when, during the 2007-8 financial crisis, Collateralized Debt Obligations (CDOs)- vehicles for refinancing mortgage-backed securities- were put into tranches whose seniority was determined by so called “priority of default”, such that those who were viewed as least capable of defaulting received the majority of principal and interest payments, and were also most protected from suffering losses. 2.) Durability - the various ways through which the “life spans” of assets can be made longer, such that they could even move across generations, all the while being shielded from “too many creditors”. 3.) Universality/ Portability - that so long as parties agree to be bound through legal coding, that agreement is enforceable against anybody, anywhere. And finally 4.) convertibility - that, whenever the holders of assets so wish, they can convert their assets to state money.
In this framework that Pistor so articulately lays out, lawyers are the “masters of the code”, capital’s mercenaries who are capable of joining “the modules of the code onto new assets for which they were never designed, or to reconfigure existing assets to ensure they can side-step new regulations designed to limit the excesses of past coding strategies”. The initial subject of the code, the asset that was first coded to generate capital, Pistor argues, was land. In our times however, the most profitable assets are what Pistor refers to as “intangibles” - financial assets; intellectual property etc. Now, for example, like feudal lords had legal claims of priority over land, so too intellectual property rights give patent holders priority, some level of durability, and universality over their patents, enabling them to use these rights to generate capital and create wealth for themselves, to transfer it to their offspring, and to horde it at will.
Pistor delves deeply into these issues, explaining, for example, why patent laws apply across multiple jurisdictions. We don’t have a global state, how then do we have global capitalism? To those asking this question, Pistor redirects us to the third legal framework - portability. There are “conflict of law rules” that, while part of domestic legal systems, nevertheless allow lawyers and judges to themselves choose which legal systems they would like to apply to them when more than one legal system is involved.- and this, of course, is always the one that favors them most. In contracts, for example, parties are free to choose which legal system they would like to apply to them; blatantly shifting jurisdictions (or sometimes even judges) not in their favor. And whereas when it comes to property rights sovereign jurisdictions have monopoly over all physical property under them, for intangibles such as financial assets, the most profitable ones as Pistor reiterates, there is no jurisdiction.
The question of who has access to the law supports Pistor’s thesis even more. It starts from how expensive it is to go to law school - (around $100,000 per year for some of the top law schools in the United States in 2020/21) - to the ridiculous billing and compensatory structures of (big) law; an incentive to maintain the system if there ever was one; - to the fact that it is only corporations and wealthy individuals who can afford these lawyers. It then extends to the fact that lawyers and judges (who are themselves also lawyers, perhaps even friends to the lawyers arguing in their courts) have great discretion on how they interpret the law, and creative ways that they can get around it. These lawyers are also friendly with legislators across borders, donating to their campaigns, acting as lobbyists for interest groups etc. The final result, the subtitle of Pistor’s book, is that legal coding, as we have it, is the single biggest tool used to generate wealth for the wealthy; it is what has led to the dramatic levels of economic (and reflexively, political) inequality that we currently have.
What then is to be done to arrest the legal powers of coding?
Pistor’s solution is for some kind of popular sovereignty - a situation in which governments and the law are held accountable to popular will. She lays out a number of substantive proposals with regards to her solution. Pistor is interested in a situation where certain “fundamentals” of liberal society - the rule of law, private property - are preserved, all the while without having law and government act as props for capital’s interests. She is concerned with questions of distributive justice, but she wants these reconciled with wealth creation and private property. Pistor is clear that she is not a Marxist (even though she clearly has leftist sentiments - some of her influences being Thorsten Veblen, Eric Hobsbawm and Karl Polanyi), or rather, that she does not take seriously the prospects of a “revolution” against capital. She instead wants a “rolling back” - a reform of capitalism in line with thinkers like Robert Reich or Piketty - politically, she would be with someone like Elizabeth Warren.
I, on my part, do not take seriously Pistor’s idea of popular sovereignty as the solution to legal coding. I do not think we are, at our current levels of economic inequality; with the portability of capital that exists; with the power that the wealthy (and the legal system) in our society currently have and stand to lose; able to actualize Pistor’s suggestions. If we are to see any meaningful change, it will not involve “rolling back”, but rather an upheaval of the system, and a corresponding shift in mindset regarding accumulation. In my view, Pistor is trying to have her cake (a continuation of typical liberal capitalist pseudo-democratic structures that preserve such things as private property and “reasonable” accumulation) and eat it ( to have economic and political reform that does not put law entirely in the service of capital, and that advances some semblance of distributive justice), and she is trying to do so in a way that seems too easy. If the structures and frameworks of legal coding that Pistor so brilliantly and painstakingly describes are to be upended, it is my opinion that it will take something more radical than she suggests.
Nevertheless, this is an impressive and important book for policymakers, economists, lawyers, the general public and, very importantly, (potential) students of law - for whom Pistor provides the opportunity to understand the innumerable ways through which, by working in (big) law, they help make the rich richer and further economic inequality.
Capital, Pistor argues, is a social relation, made up of both assets - broadly construed to include not just physical stuff like land and brick-and-mortar factories, but also ideas, skills etc.- and a legal code. The legal code refers to all the legal instruments - laws regarding financial intermediaries, collateral, contracts, bankruptcy, trusts etc. - through which assets are transformed into capital, and thereby made capable of wealth generation. Capital, Pistor thus contends, is the “legal quality that helps create and protect wealth” - a quality linked with state power since, without the enforceability that that power provides, we (who do not have capital) would have no respect for capital’s legal privileges.
Pistor outlines four key legal frameworks through which this process occurs: 1.) Priority - which privileges the claims certain people have to assets over those of others. An example of priority in the way Pistor describes it would be when, during the 2007-8 financial crisis, Collateralized Debt Obligations (CDOs)- vehicles for refinancing mortgage-backed securities- were put into tranches whose seniority was determined by so called “priority of default”, such that those who were viewed as least capable of defaulting received the majority of principal and interest payments, and were also most protected from suffering losses. 2.) Durability - the various ways through which the “life spans” of assets can be made longer, such that they could even move across generations, all the while being shielded from “too many creditors”. 3.) Universality/ Portability - that so long as parties agree to be bound through legal coding, that agreement is enforceable against anybody, anywhere. And finally 4.) convertibility - that, whenever the holders of assets so wish, they can convert their assets to state money.
In this framework that Pistor so articulately lays out, lawyers are the “masters of the code”, capital’s mercenaries who are capable of joining “the modules of the code onto new assets for which they were never designed, or to reconfigure existing assets to ensure they can side-step new regulations designed to limit the excesses of past coding strategies”. The initial subject of the code, the asset that was first coded to generate capital, Pistor argues, was land. In our times however, the most profitable assets are what Pistor refers to as “intangibles” - financial assets; intellectual property etc. Now, for example, like feudal lords had legal claims of priority over land, so too intellectual property rights give patent holders priority, some level of durability, and universality over their patents, enabling them to use these rights to generate capital and create wealth for themselves, to transfer it to their offspring, and to horde it at will.
Pistor delves deeply into these issues, explaining, for example, why patent laws apply across multiple jurisdictions. We don’t have a global state, how then do we have global capitalism? To those asking this question, Pistor redirects us to the third legal framework - portability. There are “conflict of law rules” that, while part of domestic legal systems, nevertheless allow lawyers and judges to themselves choose which legal systems they would like to apply to them when more than one legal system is involved.- and this, of course, is always the one that favors them most. In contracts, for example, parties are free to choose which legal system they would like to apply to them; blatantly shifting jurisdictions (or sometimes even judges) not in their favor. And whereas when it comes to property rights sovereign jurisdictions have monopoly over all physical property under them, for intangibles such as financial assets, the most profitable ones as Pistor reiterates, there is no jurisdiction.
The question of who has access to the law supports Pistor’s thesis even more. It starts from how expensive it is to go to law school - (around $100,000 per year for some of the top law schools in the United States in 2020/21) - to the ridiculous billing and compensatory structures of (big) law; an incentive to maintain the system if there ever was one; - to the fact that it is only corporations and wealthy individuals who can afford these lawyers. It then extends to the fact that lawyers and judges (who are themselves also lawyers, perhaps even friends to the lawyers arguing in their courts) have great discretion on how they interpret the law, and creative ways that they can get around it. These lawyers are also friendly with legislators across borders, donating to their campaigns, acting as lobbyists for interest groups etc. The final result, the subtitle of Pistor’s book, is that legal coding, as we have it, is the single biggest tool used to generate wealth for the wealthy; it is what has led to the dramatic levels of economic (and reflexively, political) inequality that we currently have.
What then is to be done to arrest the legal powers of coding?
Pistor’s solution is for some kind of popular sovereignty - a situation in which governments and the law are held accountable to popular will. She lays out a number of substantive proposals with regards to her solution. Pistor is interested in a situation where certain “fundamentals” of liberal society - the rule of law, private property - are preserved, all the while without having law and government act as props for capital’s interests. She is concerned with questions of distributive justice, but she wants these reconciled with wealth creation and private property. Pistor is clear that she is not a Marxist (even though she clearly has leftist sentiments - some of her influences being Thorsten Veblen, Eric Hobsbawm and Karl Polanyi), or rather, that she does not take seriously the prospects of a “revolution” against capital. She instead wants a “rolling back” - a reform of capitalism in line with thinkers like Robert Reich or Piketty - politically, she would be with someone like Elizabeth Warren.
I, on my part, do not take seriously Pistor’s idea of popular sovereignty as the solution to legal coding. I do not think we are, at our current levels of economic inequality; with the portability of capital that exists; with the power that the wealthy (and the legal system) in our society currently have and stand to lose; able to actualize Pistor’s suggestions. If we are to see any meaningful change, it will not involve “rolling back”, but rather an upheaval of the system, and a corresponding shift in mindset regarding accumulation. In my view, Pistor is trying to have her cake (a continuation of typical liberal capitalist pseudo-democratic structures that preserve such things as private property and “reasonable” accumulation) and eat it ( to have economic and political reform that does not put law entirely in the service of capital, and that advances some semblance of distributive justice), and she is trying to do so in a way that seems too easy. If the structures and frameworks of legal coding that Pistor so brilliantly and painstakingly describes are to be upended, it is my opinion that it will take something more radical than she suggests.
Nevertheless, this is an impressive and important book for policymakers, economists, lawyers, the general public and, very importantly, (potential) students of law - for whom Pistor provides the opportunity to understand the innumerable ways through which, by working in (big) law, they help make the rich richer and further economic inequality.