The Code of Capital: How the Law Creates Wealth and Inequality

by Katharina Pistor

A compelling explanation of how the law shapes the distribution of wealth

Capital is the defining feature of modern economies, yet most people have no idea where it actually comes from. What is it, exactly, that transforms mere wealth into an asset that automatically creates more wealth? The Code of Capital explains how capital is created behind closed doors in the offices of private attorneys, and why this little-known fact is one of the biggest reasons for the widening wealth gap between the holders of capital and everybody else.

In this revealing book, Katharina Pistor argues that the law selectively "codes" certain assets, endowing them with the capacity to protect and produce private wealth. With the right legal coding, any object, claim, or idea can be turned into capital-and lawyers are the keepers of the code. Pistor describes how they pick and choose among different legal systems and legal devices for the ones that best serve their clients' needs, and how techniques that were first perfected centuries ago to code landholdings as capital are being used today to code stocks, bonds, ideas, and even expectations-assets that exist only in law.

A powerful new way of thinking about one of the most pernicious problems of our time, The Code of Capital explores the different ways that debt, complex financial products, and other assets are coded to give financial advantage to their holders. This provocative book paints a troubling portrait of the pervasive global nature of the code, the people who shape it, and the governments that enforce it.

Genres: Economics, Law, Nonfiction, Politics, Finance, History, Business

320 pages, Hardcover

First published May 28, 2019

Reviews

[Mehrsa · Rating 5 out of 5]

Such an important and necessary book for all policymakers and legal academics. Pistor talks about the role of lawyers and the law in creating modern property regimes, including IP, securities, enclosures, etc. Lawyers created the right to capital out of thin air to protect the holders of capital from redistribution. These lawyers work together across borders and they are on very friendly terms with eachother and the legislators. It's not exactly a conspiracy because it happens in broad daylight--that's the point. If you make the law, you're always technically right.

[Aggrey Odera · Rating 4 out of 5]

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 (i.e. the rich who didn't own the mortgaged houses in the first place) 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. This, of course, is always the system that favours 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 favour. And whereas when it comes to property rights sovereign jurisdictions have monopoly over all physical property under them (in rem), 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. I should know; I go to one). It proceeds 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”. It will, rather, involve 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.

[Wick Welker · Rating 5 out of 5]

The law is used to protect capital.

This is a dense and challenging read that I found enlightening about all the ways law is coded to protect the assets of the rich. The rich and powerful have armies of corporate lawyers whose job it is to take laws that are vague and malleable and bend them into shielding assets and mitigating liability. It is in the very way laws are coded that preserves wealth inequality. Capital is not tangible, it is minted by the rich through convertibility of assets and it is universally protected across state and countries. The multitude of states in the US and all their laws help to hide capital and grow it and be adaptable.

Shareholders shield their capital under subsidiaries and get profits from dividends and when the company goes under, they wind down the company and take all the profit. The creditors to the company loses out when the company goes under. The law also transforms ideas into capital through patents which undergo constant revision to keep patents and monopolize ideas and technology, including the human genome. Tech coding and law making, like block chains, could make the convertibility and universality of law obsolete but there will always be masters in control of the code.

“But it’s legal” has become the mantra of the barons.

If you don’t have a law or finance background (which I don’t) you’ll find a lot of this book dry and hard to follow (which I did.). But it was still a worthwhile read and I learned a little.

[Li Wang · Rating 5 out of 5]

The best non-fiction I've read since college. Feels like everything I've learned in law school leads up to this book.

[Cold · Rating 5 out of 5]

I flitted between anger at her findings and admiration for her approach. I aspire to write/research like this, no short cuts or appeals to popular imagination. Just relentlessly laying out how the world is. The book draws on legal theory and history and largely avoids the academic canon. The book touches on many ideas that could be framed within neoliberalism but avoids the easy populist attack. More generally, she is aware of economic theory but doesn't frame her own work in it . She is clearly respectful of Marxist theory but also takes pains to diverge from the class conflict aspect. I don't know, it was somewhat hard to place theoretically (in a good way).

I kept thinking about how a more intelligent left could have tapped into the "take back control" impulse and turned it on the City of London rather than the European Union. In fact, many of the EU's interventions were more supportive of Imperium than the force of US/UK law, which relentlessly protect Dominium.

Great book. I hope I'll re-read because there's a lot still to absorb. Oh apart from the chapter on blockchains/smart contracts. Jeeeesus. Did her publishers force that one?

[Nilesh Jasani · Rating 5 out of 5]

The Code presents a compelling case on the law being the real oil of Capitalism. One rarely comes across a powerful, original idea in a short statement, like when the author asserts that an asset, intellectual property, financial instrument, or anything similar becomes capital only when legally codified.

A part of the book explains how capitalistic societies evolved only with legal shields on assets through various state-granted rights. Professor Pistor makes her case thoroughly, in a way only a good lawyer can. The rationales are especially forceful with the counterfactuals. In the author's hands, the dividing line between the leading and lagging market economies is not the varied implementation of free-market principles but their codification of capital.

As insightful as these arguments are, the book takes it a few notches higher with the discussions on the difference between private and public codes. State laws - or Public Codes - are not even a small part of the story of Capitalism. Lawyers' ability to draft contracts between consenting parties, or Private Codes, using effectively whatever state laws or jurisdictions they find suitable is the real driver.

Amid thickets of great insights of all kinds, the author keeps coming up with absolute gems. For instance, the author makes a convincing case when she argues how global markets can function with decent statutes from only a handful of jurisdictions - like New York or London or ISDA - since private players can shop around for the jurisdiction that works for them.

The book is particularly useful for the proponents or the opponents of smart contracts in the cryptosphere. Both sides will find a lot to ponder, even if they don't find anything to change their firmly held views. On the one hand, the supremacy of the Private Code should bolster the proponents' claims of the utility of quick, customizable, state-independent, smart contracts. The opponents will find more support in how the real power of any contract stems from the details and the resolutions that require lawyers, state coercive powers, and human negotiations ("no contract is ever complete" - another gem) rather than mere digitalization.

Many conclusions are extreme when taken verbatim. Do lawyers rule the economic world more than politicians, entrepreneurs, bankers, innovators, or consumers? The author's recommendations towards the end on what is needed to fix current economic malaises, notably inequality, are idealistic and in some contradictions to the arguments on how private contracts are shaped before. None of this takes away a tiny bit from the immense original and powerful nature of the book.

[Richard Thompson · Rating 2 out of 5]

This book was a huge disappointment. There was nothing here that hasn't been covered better in other books that I have read. Of course the law is a tool that the rich use to protect their wealth. Of course the system is hugely tilted in their favor. And of course the enablers who service this system do their work behind closed doors. Duh! Tell me something that I didn't know.

Ms. Pistor is a professor at Columbia Law School, and with that credential I expected better. Her first and biggest problem is that she overrates the importance of the law. I guess she's a person with hammer so everything looks to her like a nail. Many of the problems that she describes are driven by fundamental self organizing societal structures and by the machinations of the capitalist ruling class and their lackies in government. The lawyers are just their handmaidens.

But beyond that I found the tone of the book to be shrill, her analysis often only partially correct and the solutions offered in the end to be lame and unrealistic. She does not have the deep understanding of the structures that she describes that a practicioner would have. In particular, I thought that her discussion of blockchain, smart contracts and digital currency, an area in which I have some experience from my work, to be simplistic and naive. I acknowledge that it is hard to be completely up to date in a book-length work on areas that move as fast as blockchain, but she was mired in the world of a few years ago. I wonder if there are similar faults in her discussions of derivatives and sophisticated financial instruments such as CDOs, an area that I do not know as well.

But you don't have to be an insider to critique a system. I'd have been fine if she had just gone on the attack. Property is theft! Intellectual property is grand theft! Death to capitalists! But as a law professor, she's wedded to the system. She whines about it. She regrets how the system is captured by the rich who use it to reinforce their advantages, but she doesn't seem ready to pull it up by the roots. The only solutions that she offers are in a short chapter at the end, and they struck me as being mostly small tweaks that wouldn't really change anything if implemented and that would never be implemented anyway short of a major crisis that shakes the current system to its core.

[Bradley · Rating 2 out of 5]

This was a slog. A paradigmatic example of why academics should not write for lay audiences.

The author's basic argument is strong. "Capital" isnt simply an economic asset, but an asset that the law codes into something the market recognizes. By coding valuable assets using the modules of private law-- property, contract, corporate law, bankruptcy, and patent--owners imbue their assets with properities like durability (protections from creditors over time) and convertibility (assurances that an asset can be converted into state money). This coding process, she argues, isnt done by state actors, although it often has the state's eventual support. Instead, capital's legal coding is done by private lawyers working for big law firms who push the limits of private law for their well heeled clients. This, as was the case with some of the toxic derivatives at the center of the financial crisis, often occurs in the state's shadow and it routinely takes quite awhile for state actors--like courts, agencies, or legislators--to weigh in on whether these assets actually deserve the legal protections that the attorneys coded for them.

Despite the force of Pistor's argument, this was a book only a lawyer could love (and maybe only a law professor). I cant imagine lay readers getting through the 20+ pages on feudal property rights and continuing to read on. If you find yourself reading law/or econ journals for fun, this one might be for you. But as a book that she sells as being accessible to a general audience, it felt an awful lot like a collection of her law review articles stuck together with a bit of connective tissue. Good for a small audience, but not right for prime time.

[David Sogge · Rating 5 out of 5]

Forget the fables about ‘free markets’ guided by an ‘invisible hand’. Forget the conspiracy theories about shadowy brotherhoods and cabals. This book torpedoes all such beliefs. It explains, in clear prose, how monied interests go about ‘legally’ advancing and shielding their activities, thereby getting rich at our expense. For them, and for us, the ‘fix is in’. The system is rigged by laws and judicial procedures spawned and nurtured methodically over time. It provides grounds to assert, even for practices that look wholly inadmissible, “but it is legal”. Although not discussed in depth (political sociology is not this book's main suit), the interplay of law-makers, regulators, judges, lawyers, accountants and company executives has led states and capital to be ‘joined at the hip’. The book discusses how legal systems have enabled monied interests to create ever-larger arrays of assets – notably ‘intellectual property’ and financial IOU’s – that serve as tradable commodities and stores of wealth legally exempt from public scrutiny and taxation. It explains why rules of competition are not the real rules of capital; the real rules pivot instead on power and privilege.
If only a book like this had existed when I first met mainstream theories in university classrooms! It would have spared me many decades of perplexity, given obvious failures of mainstream orthodoxies to explain how the world actually works.
== posted 22 June 2020 ==

[Jackson McGlothlin · Rating 5 out of 5]

In legal fashion I’ve read textbooks that were much more interesting but it gives some necessary context and history on law. Alongside other disciplines like biology, economics, & psychology, this makes a solid addition to the puzzle that gives a good answer for the current structure of the world.

This would be an important read for lawmakers to understand how we might move away from our corporatocracy.

[Julio · Rating 5 out of 5]

Café (del mejor) para muy cafeteros.
Un libro que debería leerse en todos los grupos de investigación/seminarios/lo que sea de Derecho de este país.

[Frank · Rating 3 out of 5]

Katharina Pistor diskutiert den "Capital- Code" aus der Sicht des deutschen Grundgesetzes, nach dem Eigentum verpflichtet und sieht klar, dass das internationale "Rechtsimperium" diesem Grundsatz zuwider handelt. Das ist schon mal sympathisch. Dabei ist ihr Ansatz radikaler, als ich das bisher gefunden habe. Sie definiert den Beitrag des Rechts dafür, dass Güter (gleich welcher Art) beständig und konvertibel sind und das möglichst universal und als Anspruch auf (Gegen-) Leistung prioritär durchsetzbar gegen andere Ansprüche, als DIE Grundeigenschaft, die aus einem Gut erst "Kapital" macht. Das erscheint logisch, denn wenn ich einen guten Gedanken habe und ihn wie da Vinci mit der Allgemeinheit teile (Flaschenzug), dann habe ich nichts davon, dann kriege ich kein Geld, keine weiteres Vermögen (etwas zu tun) usw. Erst wenn ich ein Patent darauf anmelden kann, das mir prioritäre Nutzungsrechte garantiert, die ich weiter verkaufen und deren Rechte ich universal durchsetzen kann, habe ich aus Wissen "Kapital" geschlagen. Und wenn ich den Vertrag so aufgesetzt bekomme, dass zwar nach 20 Jahren das Patent auf den Flaschenzug erlischt, nicht aber das Recht am Prinzip, dann bekommen meine Nachkommen Geld für jedes Getriebe, kurz, mein "Kapital" ist beständig, weil es sich (fast) unendlich vermehrt... Hier wird also anhand konkreter Beispiele (dieses ist allerdings von mir!) die Entwicklung eines wichtigen Moments dessen nachgezeichnet, was als "Kapital" gilt und von Ökonomen regelmäßig nicht begriffen wird: "Kapital" ist nicht ein der "Arbeit" hinzugefügter Produktionsfaktor, sondern ein Rechtsverhältnis, das die Art definiert, wie der Einsatz eines Gutes zu einem Faktor wird, der dieses Gut vermehrt, oder so verwandelt, dass ein Mehr an einem anderen (äquivalenten) Gut entsteht. Dem dienen all die Rechtsformen der "Kapitalgesellschaften", "Trusts" usw. Wer davon gar keine Ahnung (oder eben BWL - billige Schelte, ich weiß - studiert) hat, dem sei das Buch als Augenöffner empfohlen. Es ist insgesamt gut lesbar und erfordert nicht allzu viele Vorkenntnisse. Die Fähigkeit zu kooperativem Mitdenken ist allerdings erforderlich, sonst wird man den Text schnell aus der Hand legen. Rechtsfragen sind spannend, aber man muss schon einen Nerv dafür haben. - Warum ich dem Buch, das ich für wichtig halte, dennoch nur eine mittelmäßige Wertung gebe? Mich hat ein wenig verschnupft, dass Pistors ansonsten informierte Ausführungen den "Marxisten" und Marx selbst nur zugesteht, "Kapital" wenigstens als "Verhältnis von Kapital und Arbeit" gefasst und die Bedingungen definiert zu haben, unter denen aus diesem "Verhältnis" Mehrwert ausgesondert wird. Das tut Marx Unrecht, denn der fasst "Kapital" ausdrücklich als ein "gesellschaftliches Verhältnis" und beschreibt das Aufkommen der "bürgerlichen" Gesellschaft als "Verrechtlichung aller menschlichen Verhältnisse". Damit ist die Rolle des Rechts zumindest abstrakt korrekt erfasst. Ich denke, die Deutsche Pistor wusste das, denn im Prinzip ist ihr Ausgangspunkt, die Verwandlung von Boden in "Kapital", derselbe wie bei Marx. Der nannte das "Ursprüngliche Akkumulation". Pistor kann (nur!) mit dieser Trivialisierung ihres genialen Vorgängers ihr eigenes Verdienst, einen ganz neuen Ansatz gefunden zu haben, marktgerecht (sie lehrt in den USA!) herausstreichen, hätte dieses etwas unredliche Verfahren aber nicht nötig gehabt. Immerhin liegt ihr Focus auf dem Finanzsektor und mithin auf Praktiken, die Marx noch unbekannt waren (Derivate, Verbriefungen, SWAPS usw.). Darin ist ihr Buch verdienstvoll und darin, dass sie einen meist vergessenen Aspekt (die weltweite Macht des formalen und vom Kapital dominierten Rechts!) der Kapitalbildung als MODERN in den Focus rückt, sowieso. Sie hätte sich insofern zu Marx bekennen und souverän über ihn hinaus gehen können, statt ihn zu verzwergen. Da bin ich empfindlich! ;-) Trotzdem: Wer noch wenig in der Materie bewandert ist und wissen will, wie Reichtum und Ungleichheit der Verteilung entstehen und welchen Anteil daran das Recht und die Rating- Agenturen usw. haben, dem sei das Buch doch uneingeschränkt empfohlen! Schon wegen der absolut zutreffenden Redeweise vom "Imperium des Rechts" und der Aufklärung darüber, wie man dort zugelassen bzw. ausgeschlossen wird. Immerhin erlassen die einschlägigen Elite- Universitäten ihren "Versagern", also denjenigen Absolvent/innen, die als Anwälte für NGOs oder Menschenrechtsorganisationen usw. arbeiten, oftmals die Gebühren, weil diese Hungerleider die exorbitanten Gelder eh nie zurückzahlen könnten. Das mal noch so nebenbei. ;-) Ach ja: Frauen haben da natürlich auch keine Chancen. Anwältin in einem internationalen Büro zu sein, ist ein Knochenjob und - wie die Männer aus Mitleid wissen - nichts für Schwangere, Mütter oder anderweitig zartbesaitete Seelen. Und weil das so ist, bekommen diese Typen im Nadelstreifenanzug, die 1968 im Schnitt noch mit lumpigen 300000 Dollar/ Jahr nach Hause gehen mussten, heute im Schnitt 1,36 Mio Dollar/ Jahr. So viel Schuhe könnten Frauen ja auch gar nicht gebrauchen... ;-)

[Marco · Rating 5 out of 5]

This book describes the role of legal instruments, such as those provided by bankruptcy law and contract law, in shaping global capitalism. The first chapter of the book, as expected, provides an overview of her thesis: those legal instruments codify economic assets into capital, thus allowing their holders to accumulate wealth and use state power to enforce their claims. She introduces these ideas in elegant prose that makes use of various examples, and, at the end of the chapter, the author presents a well-defined book structure, with nine chapters that can be grouped into two parts: Chapters 2–5 analyse how various classes of assets have been coded into capital, and Chapters 6–9 provide a more general portrait of the present and the future of the code of capital.

Overall, the author has done a great job of showing how legal structures are essential for the forms adopted by modern capitalism, and how their models of converting assets into capital require state backing. The normative proposals of this book, however, seem to subscribe to a form of technological determinism — except that “technology”, this time, refers to contracts and legal instruments, not to things that go “beep boop”. But lawyers do not operate in a vacuum: they only get away with their encoding processes to the extent that they do not disturb too much existing power relations. So, even though substantial change will indeed require changes to the possibilities afforded by law, for example by preventing private actors from choosing jurisdiction at will, the extent to which law can lead changes rather than just accommodate them seems to be an open question. Nevertheless, this is a fascinating read for anybody interested in the role of law in society, in modern capitalism, or in the interactions between law and technology.

[Thomas Ray]

Capitalism depends on a globalized legal system that protects ownership claims while concealing its activities from states and national courts. --Thomas Piketty, Capital and Ideology, 2020, p. 154.

HB501 .P48 2019 Law Library
Due back Dec 21, 2023

[Le G · Rating 3 out of 5]

Le côté historique est intéressant mais la non analyse marxiste rend le truc parfois bateau et contestable en deux secondes

[Mquzama · Rating 4 out of 5]

What makes an asset an ‘asset’? Is it its ability to store value? To expand it? Is it how good it is at giving the holder returns? What if these properties change? Will it still be an ‘asset’? Who determines what an asset is?

The Code of Capital locates the answers to these questions squarely within the law, taking you through the legal basis that forms the backdrop of assets. A clear implication of this exposition is the pressing need to reimagine how we view assets, where they come from & their reliance on public (state) power

Although she uses examples of various assets (e.g. land, property rights, intellectual property etc), I will focus on her discussion of land - one of my faves. Her analysis of this was fascinating in several ways.

It was interesting to see that:

- Before the 17th century, individuals did not hold land exclusively, with only monarchs having absolute property rights.

- Property rights must be saved from themselves, meaning that you must exclude some land from its reach as its universality can lead to unsustainable inequality, boiling into massive social unrest.

In the discussion of this & other assets, you are shown how the law gives assets their properties. However, these, even the legal foundations of globalisation, were not attained smoothly—these conferred protections were contested, stripped, renegotiated, & universalised. Importantly, Pistor illustrates how these attained privileges—the fruits of private law—require public power, from contract enforcement to state support in times of crises.

Despite the book’s in-depth exploration of the legal foundations of wealth & the public power that holds this together, I would have loved a more holistic engagement with a Marxist analysis of capital & the differences between class analysis & the dissection of those with privileged access to the law.

After reading this, you are guaranteed a fresh perspective on the public versus private sector debate & new ways of looking at wealth inequality. I would recommend this to anyone interested in these topics.

More Reviews: https://mquzama.substack.com/

[Duckwit · Rating 4 out of 5]

I went into this with only superficial knowledge of law and economics. I did not understand everything in this book but by the end I had a more clear picture than I expected when I was trudging through the middle part.

Very fascinating, enlightening. I had many questions as to the processes discussed in some of the chapters, which hampered my ability to follow the logic and narrative the author was trying to convey. Only for some of these processes to be illuminated in the final chapter. I wish that these eye-opening puzzle pieces were incorporated in the earlier chapters as I would feel more up to speed with the narrative.
It is also entirely possible that I simply could not follow these earlier chapters because of lack of understanding, and the targeted reader could construe the processes and intricacies adequately, without the elaboration that was needed for me.

This is not a book about general economics, it tries to explain the current state of capitalism and its problems, what is capital, how is it made(/ coded). The book illustrates concepts like property rights and bankruptcy with examples that make it easier to understand.

Great book, maybe not ideal as an entry into the fields of economics and law, but with interest and focus you can learn a lot about these fields, modern capitalism, and therefore, society.

[JC Burgos · Rating 5 out of 5]

An outstanding work that details the intrinsic relationship between capital and the law, and how it is being used for purposes of not only creating wealth, but inequality. Insofar as the owners of capital keep finding ways in the laws to increase their wealth in the detriment of society, and the masters of code keep enabling them to do so, the world will not only be worse off, but will destroy the very instrument we need precisely to strengthen our democracies and our social objectives.

If in the words of Akane Tsunemori, if the law doesn’t protect people and it is people that protect the law because we want to live righteous lives, why are we currently so compelled to have a battle of laws that favor the status quo against society’s best interests?

Read it and find out. The ending is not written, yet.

[UChicagoLaw]

The Code of Capital, by Katharina Pistor—a brilliant analysis of the ways in which law shapes both the generative and (mal)distributive effects of wealth. A sobering read that manages to bridge successfully academic discussions among legal specialists and popular discourses on inequality. —Aziz Z. Huq, Frank and Bernice J. Greenberg Professor of Law, Mark Claster Mamolen Teaching Scholar

[Ben · Rating 3 out of 5]

really a 3.5 - a bit overly academic but nicely lays out how much law regarding capital has been made without democratic legislation.

[Ellie · Rating 3 out of 5]

Interesting but also I was noooot smart enough to read this outside of a classroom. Needed so much of the finance stuff explained to me a la Selena Gomez in The Big Short

[Eugene Kernes · Rating 5 out of 5]

Overview:
Capital is the combination of assets and laws. Assets can be transformed into capital by the power of the law. Capital is coded in law, and depends on the legal framework. Legal modules can give a comparative advantage to some asset holders over others. What these modules do is determine the assets priority, durability, universality, and convertibility. Priority ranks competing claims. Durability adjusts the claims through time, while universality adjusts claims through space. Convertibility allows the conversion of private credit claims into state money on demand. Changing these attributes means changing how wealth is distributed, changing who benefits.

Control over the legal code is power that determines how resources are allocated. Determining wealth based on how assets are legally coded. For those who have wealth, when that wealth is threatened, the laws can be changed to give them an advantage. To protect the interests and benefits of some groups over others. Assets are not equal, for those with superior legal coding have more rights. Although under the guise of legal equality, some assets are “more equal” than others. The defense for this, is that all of this is legal.

Capital:
Capital is not just money. More than the exchange of goods in a market economy. Capitalism is a market economy in which some assets get privileged over others. Guilds were dismantled in favor of competitive markets, but the new businesses have resorted to guild-style practices.

Capital is made from an asset and the legal code. An asset is anything that can potentially provide an income in the future. The law turns the assets into capital which has a tendency to create wealth for its holder(s). Capital is the value determined by expected monetary income. Capital creates and protects wealth.

Capital can come from physical property, intellectual property, even nature. What can be turned into a patent are things that are novel, useful, and improvements. Patents are a form of monopoly. Monopolies create gains for the few, while costing the rest. What they try to do is balance everyone’s costs and benefits.

A clean title to land means having no competing legal claims. In that way, a buyer knows that the property is enforceable. Liquidity of an assets depends on its legal coding. Less legal obstacles means that the assets can more easily be converted into cash.

Incorporation means to create a new person. A legal personality. Prominent features of corporations are entity shielding, loss shifting, and immortality. Entity shielding distributes pools of assets, to different creditors. Loss shifting changes who bears the risk of the firm’s negative consequences. Immortality is made possible, because to end a corporation would require a bankruptcy proceeding, or a voluntary dissolution by shareholders.

Law:
The legal code underlying the code of capital, depends on its enforcement by a state. Although lawyers use legal modules to empower assets with attributes for their clients, states enforce these laws. Expansion and fall of capital depends on how the law is written. There are various legal modules in which capital is coded, such as contract, law, property rights, corporate, and bankruptcy law. Taking away or adding modules can make or lose wealth.

Legal coding does not only enable price discovery, but also determines the value of assets, creation of wealth, and distribution of wealth. The laws define what an asset is, and what can be done with the asset. When expected returns fall behind wanted returns, asset holders can enforce their legal entitlements.

Democratically governed societies guarantee equality before the law, but not everyone can make good use of the laws. Lawyers use modules to turn ordinary assets into capital. The legal coding protects the assets from ordinary business cycles, providing longevity to wealth, that sets up sustained inequality.

Firms can go to domestic or foreign laws, thereby choosing which laws apply to them, and seeking those that provide the greatest benefits. The legal code’s power depends on even a single state’s willingness to enforce it. If the threat of enforcement is credible, then there will be voluntary compliance without the need for mobilization.

All contracts are inherently incomplete, because no party can anticipate all contingencies, and the effort would be too costly. Lawyers can be seen as transaction cost engineers by navigating complex regulations and avoiding unnecessary costs, or they can be seen as rent seekers.

The allocation of property rights determines who is to incur the costs of change, and thereby enable a process of negotiation. An efficient outcome can be achieved through negotiation process, if there were no transactions costs. The initial allocation of property rights matters because there are many transaction costs.

A Coordination Game:
Economic success of nations depends on how they utilize law for social ordering. Law, as a restraint on state power, was claimed as a reason for the rise of the West. During the 1980s, many nations provided economic and legal reforms which prioritized markets over government in allocating economic resources. Clear property rights and credible enforcement were meant to allocate the scarce resources to their more efficient owner, benefiting all.

But it was state’s willingness to enforce the private coding of assets in law that enables the legal privileged of priority, durability, convertibility, and universality. Capital is dependent on state power, and legally privileges some assets which provides a comparative advantage in accumulating wealth to their holders over others.

Contracts and negotiations can happen even them being enforceable in a court of law. There is no need for formal law enforcement when everyone knows who has better rights. As long as everyone adheres to established norms, there is no need for a complex legal system, and enforcement powers. But trade and commerce go beyond established norms, requiring social ordering for dealing with strangers. Property rights are a solution of a coordination game.

With the scale of social relations, people can now negotiate on large stakes without even meeting people. This was enabled by coercive enforcement that makes people commit to their arrangements. Law has enabled decentralized, private enforcement that enables collective expectations while limiting deviant behavior.

The erosion of the legitimacy of states is a structural bias within the legal code of capital, that undermines the very thing that capital depends upon. Courts discover the meaning of property rights by observing actual practices, rather than by their preconception. Businesses are insisting that disputes are settles out of court, which in irony makes them more vulnerable. They both depend on the authority of state law, but also avoid courts.

Law evolves based on every case, with amendments in response to changing norms or political preferences. Different societies can have different legal needs, and therefore different laws. Static laws fail to reflect social changes, nor do they respond to the changes.

Caveats?
The book references that law gave rise to capitalism, but acknowledges how law has been used historically. That means that law has been intertwined with power before. The power of law has been used and misused by various production methods, not just capitalism.

There is an acknowledgement that the meaning of capital is ambiguous. There are many ambiguous terms found in the book, but when they are attached to capitalism, they obtain a negative attribute. Devaluing those who appreciate capitalism, for its positive attributes. Mostly the negative views about capitalism are brought up, rather than considering the benefits of capitalism, and how the negative consequences of capitalism can be error corrected.

An example of an ambiguous term is free trade and free markets. The author takes that to mean lack of laws, and there are economists who would agree with that. But the term meant no monopolies, as in everyone can participate in exchange no matter where they are from or the products they offer. Market exchange is still regulated in free trade, just cannot restrict who buys or sells.

[Ermicioi · Rating 3 out of 5]

To a man (woman) with a hammer (law background), everything looks like a nail (legal creation) - Adapted version of Maslow's quote.

Some issues with K. Pistor's thesis:
(1) Continuity. Reality exists and laws adopt to the reality, not the other way around. Wealth existed way before laws or codes. The only contribution of law is that protecting one's assets is done by intellectual means (laws) instead of brute force. For example, a peasant could be ensured that he will leave his land as an inheritance to his son as long as the King didn't decide otherwise, so in the same way, someone nowadays can ensure the 'continuity' of their assets as long as a Code doesn't decide otherwise. In other words, continuity is not offered by law, it's offered by an external thing that changed throughout history - and nowadays the law fills this place (but in the future, you never know, it may end up being replaced with something different).
(2) The Lehman Brothers structure was an interesting read, but the entire corporate structure was to limit risk. Reading quickly about the appearance of LLPs one will notice that the LLPs appeared as a mechanism to encourage entrepreneurship and minimize risks. The LBH structure (to continue the author's example) reflects the fact that the riskier the activities = more need for protection. Otherwise, if this idea wouldn't hold, we won't see many companies that engage in risky (but useful to clients) activities emerging. So the idea here is that there is no 'conspiracy' of wealthy people protecting their assets, instead, the main reason is that merchants and financiers build those structures so they can continue with their business and wealth accumulation (and reminder: They also started one day years ago with a small shop and 1 employee - so you don't accumulate wealth because you built an LLP, you accumulate wealth because your entrepreneurship idea was successful, and the LLP only limited your risk of remaining homeless).
(3) The discussion around debt was extremely mundane and nothing revolutionary. The nature of debt is pretty straightforward and how bankruptcies are carried out - from a legal perspective - also shouldn't be something extremely groundbreaking. The fact that laws are so flexible around bankruptcies is because of the limitations of law, that is, bankruptcies (restructures) have a lot of game theory and human implications involved that shouldn't even be codified to allow participants freedom of choice in how to carry out the matter - some principles and general rules is enough. Moreover, bankruptcies, where legal engineering happens, involve sophisticated big players that don't need the same protection as an average person (even a general principle on commercial law is that different principles of law are applied to professionals vs. non-professionals). The risk assessment of those sophisticated players goes way beyond what the law says, it's a combination of finance, law, relationships, human factors, negotiations, game theory, macroeconomics environment, etc. So limiting all those fields only to laws will be a failure of the law to reflect the reality it is supposed to reflect behind its words.
(4) The discussion around ISDAs was interesting but let's be frank: States adopted the standard regulation around ISDA because we're talking about GLOBAL financial markets. States don't have the same knowledge about financial instruments as financiers do, and generally speaking, for financiers, using those financial instruments is 10 times more important than whatever law is applied. Disclosure: You need to meet certain standards to invest in ISDAs, so again, no need to stress the fact that states lost their sovereignty around ISDAs and investors aren't protected because, to begin with, consecutive States (after the US, the first to build favorable systems around ISDAs) don't benefit nor end up losing anything by regulating ISDAs when a state with a developed legal system is concerned with regulating this matter and the market participants (not states) are fine with that.
(5) The Intellectual Property discussion changed my perspective on the implications of IP law, but interestingly, not in the sense that IP Law helps one accumulate law, but more so on how we should build better regulations around those laws when public money is the main source of finance for research purposes. This is similar to the critique on banks in 2008 i.e. the costs are distributed among many, but the gains are not.

I wouldn't have any issues if I was hearing this book as a plea in a courtroom in a fictional case a la Law v. Finance (what's more important); but this book - which aims to be impartial on this topic - is extremely stretched to the maximums to make the law look like the catalyst of wealth accumulation by financial institutions and wealthy people. The author did great research on the history of how certain laws developed, how certain transactions were carried out, on some legal developments, but I would have preferred the author to keep an impartial and objective approach from cover to cover because what I didn't particularly liked are the "opinions" thrown after some objective observations that sound like "this happened only because of law".

Also, the title of this book - emphasis on 'How the Law Creates Wealth and Inequality' - is misleading as the content's tone is more a biased critique of how financiers use the law to carry out their business, instead of topics that showed how law separates the rich from the poor. To give a specific example, everyone can build a trust, but assuming you have a middle class income, the real question worth asking is: Is the time and money spent on creating it justified i.e. it is really worth it for me? Obvious response: No; and this should defy the entire discussion around trusts law on this book.

Finally, I think that this book also reflects on why it's important to always study law together with another field to fully understand both perspectives on different topics (and consequentially avoid the single-minded approach where what has only marginal importance in reality, for someone else, it is the most important and decisive factor - ehem, law).

[Thu · Rating 4 out of 5]

4.5 stars

Essential reading for all law students and those in the profession. Those not familiar with the law may find this more difficult to follow but it would be great if it could be read by everyone. Pistor expertly navigates through the swamp of property rights and investment law to show how the law itself creates and privileges these assets.

My one critique is that she repeatedly disavows a Marxist analysis of the law and I believe this is at odds with her thesis. I found it underwhelming that after meticulously picking apart how expert lawyers at large corporate firms code capital for asset holders, she then tries to neutralize her language by refuting class based critique. This choice does not make sense with the rest of her explanations and reasoning for how and why capital is coded by law, and thus I did come away from the book feeling that it wasn't quite complete.

[Vincent Poirier · Rating 5 out of 5]

Best non fiction book I've read so far this year. The author argues that the difference between an asset and capital is that lawyers and legislators have codified assets into capital giving asset holders access to legal protection of these assets and exclusive rights over revenue derived from them.

It's a good complement to Thomas Piketty's Capital in the XXIst Century. In that book Piketty demonstrates that the return on capital (r) is greater than economic growth or gdp (g) but without explaining *how* or why r is greater than g.

In her book, Katharina Pistor explains the how.

[Raghav Kuppan]

A book about how lawyers work to keep assets and wealth private. This ensures that rich people get to keep their wealth across generations. Promising beginning to the book with chapters covering all major forms of capital including crypto. A good point about how intellectual capital is literally an invention of lawyers.

Four properties that capital should have:
Priority - when multiple people claim an asset who gets priority
Durability - right over capital holds good over time
Universality - accepted by a majority of people as capital
Convertibility/ liquidity - can be converted to cash or some other value

- First chapter covers land. A case study on the indigenous people of Belize and how they fought for keeping their land which the govt was going to hand off to mining companies. The whole argument is around what constitutes property since property rights do exist. Since the British colonized Belize and did their thing, the govt argues that Britain owned the land, and the govt inherited it once it gained independence.

While Roman law treated land like any other property, Britain until the 16th century had a lot of restrictions in land. Creditors could only claim half the land, and only till debts were paid. But only the king had absolute right over the land. But this changed in the 16th century. Private property rights were sacrosanct and could not leave the family under any condition. In the 18th-19th century some of these protections we're removed and it came to resemble property rights as we know now.

Ultimately a lot depends on history of use, who wielded a bigger gun/ more money, and what the govt/monarchy was going to support.

In the case of Belize, the people did not have a legal title but a long and uninterrupted history of land use and protection, which the lawyers interpreted as property rights. This won then the court case but the govt did not recognize it and still allowed mining which they were helpless to prevent. Sort of like the Narmada dam case I guess.

A very very important observation - govts/people will always choose an option that promises future gain over environmental preservation or sustainability.

Also, in many cases, lawyers came from the same social strata as the landlords/ winner of the priority claim. Cue Virumandi court scenes.

British colonization essentially claimed there was no concept of private property in any of this new world colonies and claimed all the land their own. The "discovery doctrine" which claims that the party that discovered and improved the land owns it. White Man's Burden.

At last, a note on trusts, a coding device that lets you transfer assets to it. The trust manager has the authority to make withdrawals only for the benefit of the beneficiary. Has a lot of tax benefits and limited access to creditors/others, and a time tested way to ensure durability of capital.


Lesson- anything goes if you have the guns at the time of dispute and then write the history books after.

- Chapter 2 is about corporate law and the corporation. Uses Lehman brothers as a case study. LB split its assets among hundreds of subsidiaries but the parent company guaranteed the debt.

The incorporation allows assets to be partitioned and shielded so creditors can only claim parts of the asset and never the whole. This allows for a lot of risk taking and experiments but also allows tax evasion and regulatory arbitrage.

Loss shielding, where shareholders of parent firm cannot lose more than what put into the firm i.e they are not responsible for any debts.

Immortality, where companies like Apple have complex incorporation strategies spanning multiple countries and states to minimize taxes and propagate capital.

- Chapter 3 is about debt. Mostly about the 2008 financial crisis, the packaging of subprime loans and CDOs etc. Essentially, using financial instruments and jargon to pass around debt and earn interest from it. When push comes to shove, the state will bail you out or in the private case, the creditor with the least priority goes bankrupt.
One interesting tidbit, apparently the credit rating agencies argued with the court that their ratings should be considered opinion and therefore protected as free speech. And won. After 2008, some of protections were pulled back but mother of God.

Traces the history of debt instruments starting with promissory notes. Creditors claims are mostly transferable whether or not the debtor likes it. You cannot choose who you owe money to. But debtor obligation cannot always be transferred. A mortgage cannot really be transferred to another person. That person will have to get his own mortgage.

- Chapter 4 is about Intellectual Property Rights. First case study is about parenting genetic sequences. In America, completely natural genes that are isolated cannot be patented. But the same improvement doctrine applies here, i.e if you create a synthetic DNA only slightly different or mimicking natural DNA, even if biologically it does not make sense. The court essentially gives you rights if it is convinced that you made an improvement.

Another case where a test for breat cancer which detects a novel gene was patented. But universities and cancer societies went to court, in 1994 or so. They ultimately won the case by going all the way to the supreme court, but by then the company had established a monopoly and their product was the gold standard.

Author touches on monopolies and their role in keeping IP behind private curtains. Although monopolies are needed in some cases, she argues that in most cases, they lead to social costs in the form of lost knowledge.

Author also notes that big corporations and their primacy in today's economy is because they have a better chance of survival during a crisis. In other words, some entities are given priority when push comes to shove. This is only possible because of the law/code. So a Google has a trillion dollar valuation because the code makes it possible, makes it the most effecient and long term option to lock in gains. Goog sits on a pile of cash which, at least in theory, could be more efficiently allocated over multiple small corps.

Important section about trade agreements and the way they kowtow to US IP law. Pfizer, for example, was willing to overlook IP as long as developing countries lacked the know how to make drugs. But when India started encouraging local low cost drugs, they brought their IP lawyers on board. The WTO is a system for developed countries to enforce their IP and patents and bully developing countries while there is no way for a developing country to dispute claims. America when it was lagging behind Europe did not have much IP protection. It's textile industry famously had stolen designs from Manchester. But once it's private industry was mature, it became the leader in IP shenanigans. America first.

Also, in the BRCA case, though the patent was overturned, the company used the time when the case was in court to collect a lot of data which they then held private. This data and algorithms stemming from that data is the real moat. Ends with the case of Google and pagerank which was patented but licensed to Google alone. Also, companies which arise from a lack of patents/IP, once they become big, turn around and seek enforcement of IP themselves to lock in past gains.

- Next chapter deals with the global capital system i.e the system that lets capital flow all across the globe to different territories instantly. In the absence of a global power or law that applies and can be enforced globally, it is surprising that such a thing is possible. However, the author claims what makes it possible is the adoption of one of two legal codes, from England and New York State, and foreign treaties that bind territories into supporting and enforcing this code.

After WW2, attempt was made to unify the law in many countries. Eg the EU. We know how that turned out. Now, there is a conflict of law system, where capital is free to choose the system of law that will be used to solve disputes etc. States are bound to enforce through treaties and don't really have any control over the flow of capital.

With IP, since states grant patents, they hold some power but through orgs like TRIPS that mandate IP protection on developing countries they still do the bidding of private capital. With property rights, states have better rights but foreign investors can choose to dispute claims by going to a tribunal in a neutral territory.

Notable exceptions where states still hold power are property rights, bankruptcy law. In case of bankruptcy law, the disbursement of assets is inherently political (assets have to distributed in a way that someone is going to be unhappy so the state has to enforce it).

So property and bankruptcy law is where most battles over the global code of capital is waged. These are the most political.

However even in this case, a treaty can make a state judgement disputable. Case study of Canadian court striking down a patent as unlawful. But the company went to NAFTA to dispute this. NAFTA probed this over 2 years, nicely filling the lawyers coffers, and in the end sided with the Canada. Apart from lawyer profiteering, the concerning fact is that a state judiciary, which is usually only bound by the nation's constitution, can be picked apart by a random treaty arbitration board.

Case study of ISDA that reworked bankruptcy law in big financial corps favor. Essentially, no matter what code of capital is followed, it is bankruptcy that really makes all the difference, since this is where claims have to be prioritized and the winners and losers are determined. The state originally retained this power, and ensured that there is a waiting period where all creditors stake their claim before disbursement of assets begins. ISDA was a say for big wall street banks and hedge funds to "skip the line" and take their money without any waiting period and before other smaller creditors had taken theirs. ISDA was approved by most states because the language is very complex and lawyers convinced the states that they would lose out if they didn't sign it. Ha.

- Next chapter is about lawyers. Lawyers are the coders, the programmers of the global capital system. The "libraries" they use are the different legal modules provided by different states such as bankruptcy law, property law etc. The clients that they serve not only expect legal advice and service, but also superior priority and durability for their capital that will be enforced across the world. The lawyers are usually not connected personally to the assets in any way, and should be treated as service providers.

Lawyers form their own coterie and come from elite ivy league colleges. But the trend even in this industry is for large firms with hundreds of employees and tens of millions of revenue. In most instances, the lawyers in these firms do what is mostly routine grunt work. Take a business requirement and convert it to legal garb. But there are select superstars who code unique and ingenious solutions. For example, the poison pill, a device that discourages hostile takeovers by aggressively diluting the shares of the acquirer. The legal document for this is incredibly complex , but once vetted and used was quickly acquired by the entire industry.

Law firms are private institutions, some of them centuries old, that have a lot of historical and insider knowledge. So companies effectively pay them to get access to this information.

A section on the difference between countries with common law ( law of England) and civil law ( France, Germany). The countries with common law had less state interference, and private practice flourished. There was also a revolving door between private attorneys and courts, so this helped in getting through innovative coding schemes.

The case of America is England on steroids. Pre civil war when there was no central authority, lawyers filled the role of crafting agreements and contracts. There was also a huge supply of lawyers due to the absence of a bar. This changed after the civil war when lawyers started requiring university education and other credentials to restrict the supply. The coding strategies were relatively simple and benign since law firms did not want to anger any potential client, and the author hints at certain racial angles. Essentially, the law firms and most of corporate firms were headed by anglo Saxons and so stuff like hostile takeovers were off the table.

Post WW2 a lot of immigrants including Jews entered law but were prevented from becoming partners because racism. They started their own firms and came up with the more crazy coding strategies and had no hesitation going against the older companies. They were also largely responsible for the globalization of law.

Section on why English common law and American law are most popular. In the first case, colonialism and the adoption of English law in several countries. In the US, the states have different law modules which gave lawyers a playground to test out coding. Once America dominated the global economy, they were able to export their code as well. I guess China will be next.

Finally the author brings up the increasing seen practice of resolving disputes in private arbitration instead of in a court. This results in the loss of knowledge because details are not revealed and kept under wraps. As time goes by, courts also lose touch and don't have any practice in dealing with such cases this further leading to more arbitration. This is the law firms moat and one they will never give up on.

- Next chapter is on Blockchains and smart contracts.

Author brings up the fact that even coders have a hierarchy among them, and that Blockchain may not lead to a flat economic system but rather a super coder may end up with a lot more power in this system. Moreover, normal contracts are not considered final and immutable since it is impossible to foresee all future events and contexts. So there is some wiggle room in case of a black swan event. But smart contracts don't have any such contingency at least as of now.

The problem of smart contracts only having access to data on the chain and other reliable external data which are stable and not subject to much change. But contracts in real life often have some outs that allow future events to be responded to and the contract details to change in response. To make a smart contract amenable to this, an oracle is necessary - essentially an input that can be fed at a later time. But even with this, smart contracts are not very easy to change and relatively rigid as opposed to the free wheeling nature of contracts. This could be good or bad.

The problem of the genesis block is discussed, namely how are the initial property rights determined, i.e how is the property divvied up among the community before any transactions begin, who determines the participants of the community etc. The author discussed three suggestions from Nick szabo, all of which are pretty unconvincing. Ultimately, while property rights established on the chain are final and indisputable, the trillion dollar question is how to transition from a world of legal code to digital code. Land titling for instance is mired in disputes frequently and it is hard to imagine putting that on a chain and getting any sort of universality.

Author discussed the Ethereum DAO, the record breaking ICO and then the bug that led to an attacker stealing 50mill. Of course, the majority chose to revert the state this liquidating the DAO. The minority who believe in the immutability of code forked to Ethereum classic. HN has discussed this countless times. The author seems to be in favor of the ETH guys. Control should be in human hands and code exists to serve humans and not vice versa. However, this opens Pandora's box on whether chains really represent immutable transactions.

Discussed Bitcoin and its requirement to only spend with what one has i.e no credit. While it sounds nice, it goes against one of the fundamental tenets of capitalism and would reduce opportunities to accumulate wealth across the board. It's deflationary aspect disproportionately advantages initial coin buyers.

Author is not all negative and discussea how Blockchains may be useful in trying to prevent socializing of losses by big finance. Code can be designed in such a way that the big hands will be forced to share in the losses during a downturn instead of staking their claim and running off with the loot. The hierarchy can be somewhat flattened this way.

Finally the author discusses how the big firms are co-opting Blockchain tech by enclosing it in legal code, either by registering patents on chain tech or by forming consortium with tech companies to work on open source chains but not providing open access, the Amazon way. FB already tried Libra, all the big banks have fomo and are dipping their toes in chain. Author seems to think that the incumbents will probably bend digital codes to their will rather than the opposite.

- Next chapter seems to be about how capital became "the thing" which gave respect. A summary of the special status given to capital in today's world. How capital uses the law to protect itself, and how politics and capital are intertwined. The formation of capital itself is dependent on one group essentially ganging up and choosing to protect themselves at the cost of others. Ex. The English landowners vs the commoners, and then establishing the trust to keep away creditors. I think the thesis of the chapter is that while private law may code capital, the law has to recognize it, and by extension the people have to recognize the protection of capital as sacrosanct and something to be protected by the Constitution.

Some methods proposed by the author include the refusal of states to accord special exemptions and privileges to capital. This could be requests for early withdrawal, private arbitration etc. Plus proof whenever it is claimed by a firm that private gains will trickle down to the people.

Some efforts by govts to make it difficult for legal code to choose from different legal systems.

Limit private arbitration of issues of social concern.

Efforts to make big firms internalize the costs of their own legal experimentation instead of ttakig their cut and externalizing the rest on society.

Recommends persistent incrementalism rather than a drastic set of measures to bring back control to the people and governments.

[William Wallo · Rating 4 out of 5]

A highly informative book, rich with detail and a fantastic endnotes section. However, I’m giving this a 4 rather than a 5 as the last 1/3 of the book got somewhat repetitive and dry. I’m not sure how to classify the genre of this book, but I’d recommend it to anyone interested in finance, economic history, and public policy.

[Marco Antoniotti · Rating 5 out of 5]

This is a fundamental book.

I am not a jurist, but I suspected much of what I read in this book. Katharina Pistor gave me wealth of information and framing of her arguments, within in her field and elsewhere.
What she suggests at the end, after having laid out her pieces, is extremely important. She points out how we can and should move in order to achieve "individual freedom in a just society".

This is a must-read book; especially if you are an obtuse computer scientist :)

[Marks54 · Rating 4 out of 5]

This is a book explaining the central position of law in political economy. The author is a widely published professor of law at Columbia. High priced lawyers earn their pay by crafting complex and durable logics for capital and related concepts that permit capitalists to make money, keep it, and allow it to grow protected from threats posed by radicals, progressives, tax authorities, creditors, etc. This even includes an “enclosure” movement on aspects of the natural world including discoveries and modifications of human genes relating to different conditions and diseases. Forget any ideas of law and lawyers being peripheral to the capitalist enterprise - the top ones - the master lawyers — are increasingly central to it. A key insight here is that law is akin to the software of financial/economic transactions. Up to some point, the law is a necessary structuring of various transactions. More structuring is necessary the more a transaction differs from the expectations that would be associated with competitive market conditions. The more market imperfections there are, the more incomplete will be the contract, and the more necessary will managerial or regulatory adjustments become. So far so good. But with more insight and manipulation, standard components of relevant legal theory and practice can be combined to produce a legal result that materially enhances the economic transactions and practices. The legal product/service itself, especially when broadly applicable across a wide range of economic transactions, becomes a source of value that enhances the value of the initial economic transaction. When this quality is backed by government authority and power, across national boundaries, the result is impressive.

This is a rich and interdisciplinary book that works well to supplement other readings in economic and politics. I suspect I am only getting a part of what Professor Pistor has on offer in the book, since I am not an attorney or widely read in the law and economics literatures. For example, I noticed how legal employment was reduced after the crash of 2007-2008, but I had not recognized the centrality of legal forms to the growth of the shadow economy and investment vehicles that were key to the crisis. Throw in such recent issues as the digitization of everything, the spread of cryptocurrencies, and the spread of quasi-legal processes such as private arbitration, and the value of the book is clear. Professor Pistor’s picture here, while cautionary, is not entirely bleak and she develops the tensions in these developments to great effect. She makes good use of history and her comparisons with prior times are effective.

There is so little time and so much to read! This is a good book for wetting one’s appetite on the importance of the law to economic and political life.

[Caleb Ringger]

This book rejects the idea that global capitalism is primarily the product of free markets and private consensual contracts. Instead, Pistor shows how the modern system of intangible assets is created and enabled by law--not so much law written by elected representatives, but instead law created by creative corporate lawyers exploiting loopholes and gray areas, retroactively authorized by judges. She shows how this process creates and worsens inequality--the "Masters of the Code" (as she calls these lawyers) only work for the highest fees, and they are ethically bound to serve the interests of their clients.

This was a fascinating book to read during my first year at law school, knowing that I and most of my peers will go on to work for firms that participate in this normatively troubling system. Pistor doesn't blame the lawyers per se, who merely do what their clients tell them to do, but she doesn't paint the most flattering picture of a corporate dealmaking lawyer. She worries that much of the brightest legal talent in the world is more or less wasted on this capital coding process that entrenches inequality and precipitates global financial meltdowns when the house of cards tumbles down.

I can't pretend to have answers or responses to those problems, which have persistently followed me throughout my 1L year. Pistor discusses several potential solutions, ranging from the relatively small and political (closing derivatives safe harbor loophole) to the sweeping and structural (blockchain-enabled "smart contracts"). Needless to say, these are questions for politicians and economists, if not revolutionaries with pitchforks. And yet, Pistor reminds us, any and every possible solution requires using the law--the only institution that can create and sustain capital.