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The Code of Capital
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The Code of Capital

How the Law Creates Wealth and Inequality

Katharina Pistor
Princeton UP, 2019
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9

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Recommendation

Professor of comparative law and director of the Center on Global Legal Transformation at Columbia Law School, Katharina Pistor, argues that the “persistent incrementalism” of asset holders who employ the law and lawyers who “code” their capital is an underestimated factor in the study of economics. The author brings a new perspective and vocabulary to commonly discussed issues and is cuttingly critical of the status quo. Without disputing the main tenets of the benefits of free market economics, Pistor highlights that states permit the interests of the wealthy – through their lawyers – to corrupt commerce in their favor.

Summary

Economists don’t recognize how law and lawyers affect the practicalities of business and the distribution of income.

The familiar and simple models of a capitalist economy center around ownership of capital assets. But economists neglect the role of law and lawyers in shaping how assets become categorized and transform into capital, and how a society establishes the technical details surrounding ownership and return on that capital. Economists tend to approach the role of law only in terms of narrow issues, such as regarding property rights as being about aligning the interests of owners with the most efficient use of the asset, and thinking of lawyers and the legal system as service providers, transaction cost engineers or rent seekers. But law plays a far more dynamic and proactive role in the economy.

The iconic critique of capitalism is Marxist, in which capitalists “capture” the state. Today’s capture emerges from lawyers incrementally pushing the categorizations and boundaries of laws in their favor. Since the 1980s, changing ideology put increasing markets’ scope and business friendliness at the center of government attitudes and gave coders...

About the Author

Professor of comparative law and director of the Center on Global Legal Transformation at Columbia Law School Katharina Pistor also co-authored Law and Capitalism: What Corporate Crises Reveal about Legal Systems and Economic Development around the World.

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