The Code of Capital | Katharina Pistor

Summary of: The Code of Capital: How the Law Creates Wealth and Inequality
By: Katharina Pistor


Welcome to the world of legal coding and its role in shaping our economic landscape. In the book ‘The Code of Capital: How the Law Creates Wealth and Inequality’, author Katharina Pistor unravels the complex mechanisms behind our capitalist system. As you delve into this summary, you’ll discover how law and lawyers transform assets into capital, their influence on various countries’ legal frameworks, and the ever-changing trends in legal coding. Learn how the iconic Marxist critique of capitalism finds its modern counterpart in the incremental pushing of categorizations and boundaries of laws by skilled lawyers. The book emphasizes the need for policy makers to reinstate sensible policies, which limit the scope of asset holders and prevent the excessive bending of laws in their favor.

The Dynamic Role of Law in a Capitalist Economy

An economy is not just about the ownership of capital assets; it is significantly shaped by law and lawyers. Law plays a proactive role in the economy, going beyond the narrow issues of property rights and transaction cost engineering. However, economists have largely neglected this role, seeing lawyers as service providers or rent seekers. This oversight means that the public often underappreciates the significant work that private law firms do, while lawmakers have not kept up with the changing ideologies that give coders of capital a green light. Today’s capture in capitalism comes from lawyers pushing the categorizations and boundaries of laws in their favor.

The Evolution of Legal Coding in Medieval England

The development of legal coding in medieval England is the foundation of modern trust laws. The king owned all land, and lords had limited rights until they gradually gained more power and wealth. Borrowing against their assets forced the creation of complex laws to prevent the sale of established family estates. The lawyers responsible for drafting these laws are not rent seekers – they make the cream. These laws, in use until the late 19th century, evolved into modern trust laws that protect assets for future generations. The English country solicitors who crafted this web of coding utilized a mix of medieval laws and inventions. They became formidable opponents of reforms in the 1870s that threatened their livelihoods. Legal coding continues to shape the laws of nations, making its study essential to understand the foundation of modern legal systems.

The Quiet Enclosures

Today’s coders are replicating the contentious English countryside enclosures of the 18th and 19th centuries in attempts to “enclose” the intellectual commons of nature. The idea of this modern-day enclosure of knowledge from the “knowledge commons” threatens our access to our own data and nature’s code. An increasing number of companies rely on intangibles for their worth, such as patents, copyrights, and trade secrets. As a result, laws and customs regarding intellectual property and rights are favoring asset holders, allowing them to capitalize on corporate lawyers’ coding efforts.

The Advantages and Complications of Limited Liability Companies

Limited liability companies have gained infamy for their complex organizational structure, which allows entities to shield themselves from financial scandals. The 2008 financial crisis demonstrated the potential risks associated with limited liability companies and revealed how these institutions have evolved from partnerships to shells of parent companies. The advantages of limited liability entities include entity shielding, loss shifting, and the prospect of immortality. Lehman Brothers is a prime example of how legal partitioning can be used to mask entity-shielding. The bank was composed of over 200 subsidiaries in 26 jurisdictions, each with distinct asset pools and creditors. These techniques allowed Lehman to return unlimited profits to the parent company when things went well, while also protecting shareholders from financial loss. Trusts, which evolved from devices created for wealthy English families, are also used to shield capital owners’ wealth from certain creditors and taxes. Although some countries have pushed back on trusts, they are generally accepted as a means of improving the “durability” of capital.

The Importance of Legal Coding in Capitalism

Private property shouldn’t be seen as a limitation on state power. Instead, the state should focus on supporting legal coding that protects private property, allowing assets to become capital. Capitalism relies on borrowing and debt, which is coded in law and ultimately relies on the state to back it up. The book discusses how legal asset-shielding devices and innovative coding have become crucial in times of crisis. However, the author emphasizes the need for states to realize that bending to the will of private debt minters in boom times puts them on the hook for the increased downside fallout from excessive leverage. The book analyzes how the privileged position of financial companies allows them to increase their money-minting possibilities by dismantling regulatory structures. The author argues that the state should support legal coding that promotes transparent and orderly asset shielding. Finally, the book stresses that the safety of companies during a financial crisis is an acid test for coding efforts and that the state must prevent any illegal hiding of assets.

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