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The Best Law Capital Can Buy

Jomo Kwame Sundaram KUALA LUMPUR, Malaysia, Jun 25 (IPS)  - Katharina Pistor's recent book, The Code of Capital: How the law creates wealth and inequality shows how law has been crucial to the creation of capital, and how capital continues to survive, evolve and enhance its ability to ‘make money', or secure wealth legally, i.e., through the law.

Legal coding makes capital

In her magnum opus, the Columbia Law School professor explains how legal systems create capital and how law enables wealth creation through what she terms ‘legal coding'. Notions of property and property rights have changed over the ages, reflecting and redefining social and economic relations more generally. Pistor sees ‘legal coding' -- e.g., via collateral, trust, corporate governance, bankruptcy, contracts and other property laws -- as means for assets to become capital, creating wealth for their holders. When "coded in law", even "dirt" can become a valuable asset, capable of enriching its owners. For her, institutions of private law privilege those with capital by ensuring: priority, against competing claims; durability, enabling capital to grow in value; convertibility, ‘locking in' earlier gains; and universality, ensuring that such privileges extend transnationally. With the emergence and growing significance of new financial products and services, intellectual property and data access in the early 21st century, the evolution of capital increasingly involves new, especially intangible assets, including debt. New combinations and prioritization of property rights and contracts have created complex debt products, including collateralized debt obligations and credit debt swaps, the bases for much contemporary ‘financialization'. Private interests' flexible use of such legal institutions has been crucial to capital accumulation, but Pistor notes that the increasing private use of law also undermines its role and legitimacy as a public good, and hence, the very ‘rule of law' itself. Legal coding is therefore not only about how assets become capital, but also about how capital creates wealth, and laws enable such transformations involving property, ownership and entitlements. As "capital is created behind closed doors in the offices of private attorneys", codifying capital in law worsens inequality between capital and others, especially labour. Role of states State sanctioned judicial processes transform assets into capital. Legal coding thus "owes its power to law…backed and enforced by a state". The state has thus been crucial to legally coding assets as capital, using existing as well as new laws and judicial precedents so crucial to common law. States and other relevant legal institutions also redefine the law -- e.g., through the legislative process, catering to the evolving nature and needs of capital, especially its most successful lobbyists -- by amending existing laws and creating new laws. The state and other social institutions ensure the legitimacy of the ‘rule of law' by mitigating and managing its adverse effects, as well as by resolving problematic ambiguities and uncertainties. The legal profession has been the main agency of legal coding, ‘making' the law. Lawyers contribute to its evolution -- by drafting and thus determining the nature, scope and impact of law -- and defend the law by legitimizing it, even when challenging, criticizing and reforming the law. Despite relying on the authority of law, common or legislated, many lawyers go to great lengths to avoid taking disputes to courts, the traditional guardians of the law, instead preferring or even insisting on private settlements or arbitration. Crossing borders The accumulation of capital has long been transnational, closely interlinked with the globalization of recent decades. However, legal coding is primarily national, within the realms of particular states. Hence, the legal reach of capital does not extend to other jurisdictions except when provided for by imperial or colonial jurisdiction, and by international treaty, convention and coercion, including the use of military force, in the post-colonial era. With globalization, private interests can increasingly choose legal systems to suit their needs, i.e., engage in jurisdiction or ‘forum shopping'. Limiting the ability to opt in and out of legal systems is hence vital for state legitimacy and societal capacity for collective self-governance. Inter-state collaboration, among ‘independent' central banks not beholden to national governments, or through multilateral institutions -- such as the World Trade Organization, trade agreements, investment and other treaties -- have thus become crucial means for extending legal coding beyond national jurisdictions. As national judicial decisions are not typically considered extraterritorial in scope, the legal community has extended arbitration transnationally while trying to ensure -- through convention as much as legislation -- that national laws and courts recognize, uphold and enforce the outcomes of such private arrangements. With new technology, capital is trying to protect and extend its privileges without conventional legal coding, e.g., new blockchain applications suggest that some digital innovations can provide attributes required by capital. Pistor observes that ‘digital coders' -- those who develop digital code -- have set their own rules, transcending national boundaries, without recourse to the law. Until now, however, digital code is still far from an adequate substitute for legal code, with digital ownership, rights and conflict resolution still based on existing laws. Law as history Pistor's own academic background in comparative law appears crucial to her appreciation of how various societies have coped with different challenges, including the normative or ethical choices involved. Her legal history of capital considers different perspectives and influences. While legal coding has been mis-used by asset owners, lawyers and states, it can also help address such abuses. The future of capital rests on evolving complex relations and interlinkages among laws, the stakeholders involved as well as related ideologies and perspectives. Professor Pistor has greatly advanced our shared dialectical understanding of how legal codes -- essentially ideological constructs -- consolidate, define and transform social relations in order to advance, extend and accelerate capital accumulation, in other words, make history. Visit this story at


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