Abstract
In The Code of Capital, Katharina Pistor seeks to trace out the ultimate sources of wealth and capital. Her central claim—that wealth and capital are ultimately created by law—is at once more commonsensical and intuitive, on the one hand, and more insightful and provocative, on the other hand, than it might initially seem. At a time when there is deep and widespread interest in and concern about wealth inequality, Pistor argues (successfully, I think) that much inequality can be traced back to oft-ignored legal fixtures. She also argues (unsuccessfully, I think) that we can trace inequality back to law precisely because law is itself partly constitutive of wealth and capital. Fortunately, her more fruitful claims about how law affects the distribution of wealth and capital can be divorced from the less fruitful metaphysical claims about the nature of law and capital and lay the foundation for much future work of interest.
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Notes
See Pistor [(2019): 2].
See Pistor [(2019): 45].
See Pistor [(2019): 67].
See Pistor [(2019): 77].
See Pistor [(2019): 131].
See Pistor [(2019): 12], who cites Commons [(1924): 28] and Veblen [(1908): 539fn1], the latter which she has slightly misquoted. Curiously, Pistor also cites Jonathan Levy [(2017): 487], who says that “Capital is legal property assigned a pecuniary value in expectation of a likely future pecuniary income.” But Pistor’s inspiration seems based on a misunderstanding, since even in the cited passage, Levy understands capital to be a kind of asset (specifically, a subset of property); and there is clearly an ontological gulf between a quality (or an attribute) and a bit of property.
Thanks to an anonymous reviewer, who suggests that a landowner might not mention the law in their response because it is something of an unstated assumption, perhaps taken for granted by the landowner, that the law plays the role that it does in affecting their wealth. I do not think that properly diagnoses the intuition; the baking analogy is instructive. One might be tempted to take for granted, and so not mention, the use of an oven when asked “How did you make this pie?” However, that question is clearly distinct from the question, “What is this pie made of?”; the use of an oven is not a tempting response to the second question, not because it is taken for granted, but because it is not relevant. The presence of the law is similarly and obviously irrelevant to the question, “What do your assets consist of?”—and that is what explains its not being mentioned in an answer to the question.
See Pistor [(2019): 205].
See Pistor [(2019): 19].
To be clear: this is not to deny that patent law played a role in generating comparatively outsized profits for Myriad Genetics. Pistor’s analysis on that front is compelling. But one cannot conclude from that fact that the research would not have been a capital asset at all without the law—which is what Pistor seems to me committed to saying. An additional complication, which I do not address here for the sake of brevity, is that, even by Pistor’s own lights, law is only a partial cause of wealth distribution and inequality (or, perhaps, it only causes part of the observed wealth distribution and inequality).
Thanks to Alexei Marcoux for helping me to articulate this point. While Pistor does spend the entire second chapter of her book on land, she never seriously discusses the kind of scenario I raise here. In such a scenario, we can acknowledge that what you possess may be "assets that cannot be used to their fullest," as Hernando de Soto [2003: 15] discusses. Such assets are what de Soto calls “dead capital”. It is important to keep in mind, though, that even for de Soto, dead capital is still capital –– it is simply not as useful as it might otherwise be.
References
Commons, J. R. (1924). The legal foundations of capitalism. MacMillan.
De Soto, H. (2003). The Mystery of Capital: Why Capitalism Triumphs in the west and fails everywhere else. Basic Books.
Pistor, K. (2019). The Code of Capital: How the law creates wealth and inequality. Princeton University Press.
Levy, J. (2017). Capital as process and the history of capitalism. Business History Review, 91(3), 483–510.
Veblen, T. (1908). On the nature of capital. Quarterly Journal of Economics, 22(4), 517–542.
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Drake, J. Pistor’s Code of Capital: Wealth Inequality and Legalism About Capital. J Bus Ethics 181, 583–588 (2022). https://doi.org/10.1007/s10551-021-04921-1
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DOI: https://doi.org/10.1007/s10551-021-04921-1