Volume 11, Issue 1 - Katharina Pistor’s The Code of Capital: A Symposium

In this brief introduction, I summarize the core themes of my book “The Code of Capital: How the Law Creates Wealth and Inequality”. Capital, I argue, is coded in law – predominantly in a handful of private law institutions. By relying on legal coding techniques, asset holders invoke the right to enforce claims against others, if necessary with the help of the state’s coercive power.

This article is a review of Katharina Pistor’s book The Code of Capital: How the Law Creates Wealth and Inequality . Using modern derivatives markets as a case study, it explores the important contributions – and limits – of Professor Pistor’s story about the role of the law and lawyers as the master coders of capitalism. This exploration reveals three distinct projects: a historical coding project, an intellectual decoding project, and a policy-driven recoding project. The fact that these projects are so intricately intertwined posed unique challenges for scholars, but also holds out a potential blueprint for a new law and finance.

This commentary, part of the book symposium on Katharina Pistor’s The Code of Capital, focuses in particular on the epistemic dimensions of the phenomena she describes. Knowledge can be coded as capital, through intellectual property rights, and these can be done in ways that unjustly favor privileged actors at the cost of the common good, as Pistor demonstrates with regard to the patenting of genetic markers. Interestingly, however, knowledge can also be appropriated without the use of legal tools, simply by appropriating data from consumers, as Zuboff, for example, has argued. A second epistemic dimension of Pistor’s work lies in the fact that the legal coding of capital is itself little know and receives little public discussion. This, of course, plays into the hands of those who benefit by problematic forms of such coding. By putting these issues up for debate, The Code of Capital fulfill itself an important epistemic role, which can be categorized as a form of "democratic professionalism", i.e., professionals enabling a critical public discourse about the activities in their own field.

Katharina Pistor’s book The code of capital – how the law creates wealth and inequality (Pistor, K. (2019). The code of capital – How the law creates wealth and inequality . Princeton: Princeton University Press) is an original and insightful intervention in the quest to understand both the rising inequality of the last 40 years, as well as the inner dynamics of capitalism, a social formation that has ruled in western societies for about 200 years now. Pistor shares many of the convictions of the publications in the journal Accounting, Economics and Law, such as the dangers to democracy inherent in the corporate form (Robé, J. P. (2011). The legal structure of the firm. Accounting, Economics and Law , 1(1). https://doi.org/10.2202/2152-2820.1001; Strasser, K., & Blumberg, P. (2011). Legal form and economic substance of enterprise groups: Implications for legal policy. Accounting, Economics and Law , 1(1). https://doi.org/10.2202/2152-2820.1000), the fact that firms and corporate form need to be distinguished (Y. Biondi, A. Canziani, & T. Kirat (Eds), (2007). The firm as an entity: Implications for economics, accounting and law . New York and London: Routledge) and that shareholders do not own corporations, but just their shares, it is only appropriate to discuss and present it to the wider audience of the journal, pointing to its fundamental insights and potential for follow-up research. The title of the book and its set-up evoke both Luhmann’s system theory with its penchant for binary code as well as Marx’s capital (Marx, K. (1955[1867]). Das Kapital . Berlin: Dietz Verlag, Vol. 1). Combining the coding of social systems and their relentless dynamic in innovating and generating new forms by recursively referring to established elements (Luhmann, N. (1984). Soziale Systeme . Frankfurt am Main: Suhrkamp Verlag; Luhmann, N. (1995). Das Recht der Gesellschaft . Frankfurt am Main: Suhrkamp Verlag) with Marx’s focus on the structuring effects capital has on society is making this a very inspiring book, which at the same time evokes many follow-up questions.

Katharina Pistor’s argument in The Code of Capital about the constitutive role of legal practice for the creation and distribution of wealth requires contextualization; her claims about the stand-alone role of law in determining the political economy of global capitalism are exaggerated. My first intervention concerns the concept of capital. Capital evidently is not just a legal code, but also constitutes a financial accounting entity that emerges from processes of investment, which are embedded in (economic, social, political) structures that are facilitative of unequal distributions of rewards and risks. Legal coding should be considered as part of such ‘capitalization’ and as becoming more critical in the contemporary economy, in which capitalization increasingly happens through financial engineering and through capturing rents from ‘intangible capital’. Secondly, we can only understand the distributional implications of legal coding if we recognize a) the importance of rent-seeking in secularly stagnating economies and b) the particular class configurations in what Milanovic, B. (2019). Capitalism, alone . Cambridge, MA: Harvard University Press calls ‘liberal meritocratic capitalism’. The consolidation of a capital-rich and hard-working upper class in such a capitalist formation (the extreme case being United States) not just indicates a close alliance or overlap between holders of wealth and the professions (fund managers, legal advisers etc.) that serve them. It also indicates that social class structures – the paths of socialization they reproduce; their in-built social sorting mechanisms; their close association with ideologies of legitimate privilege – play a key role in reproducing economic distributional outcomes.

In this reply, I respond to and elaborate on the critique of my book “The Code of Capital” published in this special issue. The common thread of the critiques is the call for more theorizing of the themes the book addresses, especially the conception of state power, of resources, social relations and questions of knowledge and access to knowledge about the law, or epistemology. This reply is only a first response to issues that do require further analysis and I am hoping to follow suit on at least some of them in the near future.