Kathleen Pistor: The Code of Capital

In the aftermath of the 2007 crash Katharina Pistor“sought to discover what lay behind finance’s stupendous expansion in recent decades,, and what accounted for its steep fall”. Her specialty is law, and her book is first of all about how “law pas been put at the service of capital”, especially during the last two centuries and above all in recent decades. Beyond that, she argues that capital is the product of law: “Most observers treat law as a sideshow, when it is the very cloth from which capital is cut.” (Some things in this book remind me of points made in Walter Karp’s 1993 Indispensable Enemies about the role of government in capital creation).

Pistor’s book is pretty demanding, but it was written for a non-specialist public and is one of the best works of “popularization” that I have ever read. It’s well-organized and well-written enough that rather than reviewing it, I just cite key passages in hopes that people will want to read the whole thing.

Excerpts from The Code of Capital

Fundamentally, capital is made from two ingredients: an asset, and the legal code. The asset can be almost anything: land, labor, a debt, an idea.

Most observers treat law as a sideshow, when it is the very cloth from which capital is cut.

The feudal calculus lives and breeds, but its habitat is wealth not land.

The legal devices that have been used for coding assets have remained remarkably constant over time: contract law, property rights, collateral law, and trust, corporate, and bankruptcy law.


They bestow important attributes on assets and thereby privilege its holder: priority (ranking competing claims); durability (extending priority claims in time); universality (expanding priority claims in space); and convertibility (allowing holders to convert their private credit claims into state money on demand).

Contracts and property rights support free markets, but capitalism requires more – the legal privileging of some assets, which gives their holders a comparative advantage in accumulating wealth over others. Not all assets are equal; the ones with superior legal coding tend to be “more equal” than others.

Not the asset itself, but its legal coding, protects the asset holder form the headwinds of ordinary business cycles and gives his wealth longevity, therefore setting the stage for sustained inequality. Fortunes can be made or lost by altering an asset’s legal coding.

Today’s entrepreneurs no longer need to seek redress at home, and the fate of their wealth is no longer tied to the communities they have left behind. Instead, they can choose among many legal systems whichever one they prefer, and can enjoy its benefits even without physically moving themselves.

Most states recognize foreign law not only for contracts, but also for (financial) collateral, corporations, and the assets they issue; they use their coercive powers to enforce it, and they allow domestic parties to opt into foreign law without losing the protections of local courts.

Realizing the centrality and power of law for coding capital has important implications for understanding the political economy of capitalism. It shifts attention from class identity and class struggle to the question of who has access and control over the legal code and its masters: the landed elites; the long-distance traders and merchants banks; the shareholders of corporations that own production facilities or simply hold assets behind a corporate veil; the banks who grant loans and issue credit cards and student loans; and the non-bank financial intermediaries that issue complex financial assets, including asset-backed securities and derivatives.

With the best lawyers at their service, asset holders can pursue their self-interests with only few constraints. They claim freedom of contract but overlook the fact that in the last instance, their freedoms are guaranteed by a state, though not necessarily their home state. Not every state, however, is equally accommodating for coding capital. Two legal systems dominate the world of global capital: English common law and the laws of New York State. It should come as no surprise that these jurisdictions also harbor the leading global financial centers and all of the top one hundred global law firms.

Like most empires of the past, the empire of law is a patchwork…. The decentered nature of the law that is used to code global capital has many advantages. It means that global commerce and finance can thrive without a global state or global law; it allows those in the know to pick and choose the rules that best suit their own or their clients’ interests. In this way, the empire of law severs the umbilical cord between the individual’s self interest and social concerns.


Effective legal protection almost anywhere allows private self-interest to flourish without the need to return home to benefit from local institutions. Capital coded in portable law is footloose; gains can be made and pocketed anywhere and the losses can be left wherever they fall.