The Laws of Capitalism

All things can be coded as capital, with the right legal coding.

From the collection: Education


From the collection Education

In this series, Katharina Pistor breaks down the history, process, institutions, and participants involved in the legal coding of capital. She shows us how private actors have harnessed social resources to accumulate wealth, generating not only economic inequality, but inequality in law. Enabling them to opt out of jurisdictions, restrict governmental policy, and erode democracy.

The laws of capitalism have elevated the interests of the few above that of the many, but we can rewrite the code and restore balance to society.


Coding Land & Ideas

Professor Katharina Pistor introduces the concept of the legal "coding" of capital.

Prof. Pistor explains how the law selectively "codes" certain assets, endowing them with the capacity to protect and produce private wealth. She illustrates this process with the historical example of how land became legally coded as property during the enclosure movement in England. She compares it with more recent attempts to code traditional indigenous land use rights in Belize.

Prof. Pistor goes on to explain how even ideas (which are not natural property, in the traditional rivalrous sense of the term) can nonetheless be made property according to the law. The institutionalization of copyright and patent law has created an entire new class of property. How far can it go? She looks at the coding intellectual property in the medical industry, most notably recent attempts to patent human genes.

Supplemental Resources


Coding Debt

The question is not just how the law codes debt, but also why.

Prof. Pistor examines how the law has accompanied the evolution of negotiable debt instruments, from the simple IOU, to bills of exchange in Medieval Genoa, to securitized assets in the modern day and on to derivatives. She examines the securitization of mortgage debt in the modern United States in the lead-up to the financial crisis of 2008. The legal code has been essential in the transformation of humble IOUs into elaborate financial contracts, and the creation of an entire finance industry.

Supplemental Resources


Lawyers and Firms and Corporate Entities, Oh My!

Corporations—a superior innovation for organization, or simply another way to create wealth?

Katharina Pistor examines how the law has accompanied the evolution of private business enterprises, from their early roots as simple partnership agreements of temporary duration, to colonial joint-stock companies in the 1600's with state charters granting them the legal status of corporations (or legal persons), and the eventual introduction of general incorporation statutes in the 1800's simplifying the creation of corporations. By the 1900's the law enabled the corporation to become the dominant form of business organization under capitalism.

Prof. Pistor takes up the case study of Lehman Brothers, and explains how its organization as a holding company allowed shareholders to profit, while leaving debt-strapped subsidiaries to flounder. Lehman harnessed the corporate structure created by law to build a house of cards.

Supplemental Resources


The Tool Kit

Professor Katharina Pistor surveys the institutions involved in the process of connecting legal codes to capital.

Prof. Pistor begins with the four essential attributes of capital - priority, durability, universality, and convertibility. These are essential to ensure that an asset generates wealth for its owner, i.e. becomes capital. She then turns her attention to the question, "How are assets legally coded as capital?" The answer is through the legal institutions. They end up constructing certain bodies of law to that end - property, collateral, trust, corporate, bankruptcy and contract law.

Private owners of capital can harness the centralized means of coercion (like litigating in State courts) to make their rights effective. But it can also be pursued in a more decentralized fashion, with parties picking the law and the forum. Prof. Pistor surveys the various venues where legal claims are pursued, but also where law is constructed. The law is not always handed down from above, but often emerges from below, sometimes outside the courts. The law and legal institutions are not static, but evolve and expand by an incremental process, usually driven by interested parties. It need not be by legislation - they can change the meaning of a law by renegotiating its interpretation and application.

Supplemental Resources


The Codemaster

Professor Katharina Pistor explains the role of private lawyers in coding capital.

Prof. Pistor explains how Private Attorneys are the masters of the code. Despite the fact that the State and juridical precedent establishes the law, it is private attorneys who find the flaws, loopholes, or inaccuracies in the legal code. She goes through the history of private lawyers in Prussia, France, and their emergence in the American legal system. We find the importance of private lawyers in shaping and molding the legal code over time. She ends the episode by reflecting on the vast amounts of wealth private law firms, and lawyers accumulate today. With a specific reference to the delicate relationship between the UK’s Magic Circle of Firms and Russian Oligarchs.

Supplemental Resources


A Code for the Globe

Professor Katharina Pistor examines how the law codes international capital.

Laws are national, but international capital transcends borders. Prof. Pistor explains how the domestic law of two hegemons - the United Kingdom and the United States - have become the default legal systems used internationally. Globalization has been made possible by using these two dominant jurisdictions to code a global system for trans-national commerce, finance and corporations. But individual countries may have ceded too much as a result. Pistor uses the example of bilateral investment treaties to explore the tension between democratic sovereignty and globalization. Desirable domestic regulations and protections sought by the democratic process can be hampered by the threat of expensive lawsuits from foreign investors. The freedom of capital movement across borders brings along an alien legal jurisdiction, imposing restrictions on local governments, elevating the private rights of capital above the public interest, and eroding democracy

Supplemental Resources


Transforming the Code of Capital

Professor Katharina Pistor looks at how to reform the legal code.

Prof. Pistor reminds us that the legal system is a social resource, but it has been harnessed by private actors to create and accumulate immense private wealth. This has not only produced economic inequality today, but also inequality before the law. Private actors can opt out of jurisdictions, restrict the policy space of governments, and erode democracy.

Prof. Pistor suggests we can rewrite the code to make it fairer. It can be an incremental process. This includes rolling back some of the privileges and exemptions acquired by capital over the years, setting out jurisdictional boundaries to ensure that the same rules apply to everyone. Rules can also be adjusted to ensure those who benefit internalize their costs. The burden need not always fall on the government - tools and institutions can be created to allow private actors to monitor capital more effectively.

The legal code can be changed to make the law fairer and allow governments to regain some policy space, to address the needs and implement the protections desired by the people through the democratic process.

Supplemental Resources

Subscribe to our youtube channel

Inquire about broadcast opportunities

Share your perspective

After Class

The HET Website has created a supporting page of resources for those who wish to dig deeper into the references made in the lectures. From economist profiles to schools of thought, and even complete written works, there’s something for everyone!

Explore the resources

About Your Instructor

Katharina Pistor is a leading scholar and writer on corporate governance, money and finance, property rights, and comparative law and legal institutions.

Pistor is the author or co-author of nine books. Her most recent book, The Code of Capital: How the Law Creates Wealth and Inequality, examines how assets such as land, private debt, business organizations, or knowledge are transformed into capital through contract law, property rights, collateral law, and trust, corporate, and bankruptcy law. The Code of Capital was named one of the best books of 2019 by the Financial Times and Business Insider.

Learn more