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A Guide to the ‘Legal Fictions’ That Create Wealth, Inequality and Economic Crises

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A Guide to the ‘Legal Fictions’ That Create Wealth, Inequality and Economic Crises

The legal scholar Katharina Pistor examines the hidden legal layer propping up our modern economic system.

The New York Times,

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Capital is a function of laws that assign it specific characteristics and privileges, both good and bad. 

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Laws enable economic progress and prosperity, endowing assets with specific rights that allow their owners to profit. Yet the very laws that produce economic well-being also leave many behind in society, argues professor Katharina Pistor in this enlightening episode of The Ezra Klein Show podcast hosted by senior editor Rogé Karma. Their conversation highlights how, given that law can confer distinct privileges on assets, it can also affect positive social change by creating a more level playing field. Executives, investors, and students of law and economics will find this a thought-provoking discussion.

Summary

Along with labor, capital is an input of production with specific hallmarks.

The law endows capital with four traits that are essential to its ability to create wealth: “Priority” assigns stronger rights to a piece of property that has several claims to it. “Durability” – a legal device – shields this property from a multitude of different parties petitioning for it. The law may enable the asset owner to keep certain items from tax collectors or personal creditors.

“Convertibility” allows property holders to change property into a safer instrument during tumultuous times and return it to more lucrative holdings when stability returns. “Universality” places the three foregoing attributes under the aegis of the state, which enforces them against claimants. This enforceability enables the creation of global markets. Strangers can transact, secure in the knowledge that laws protect commercial transactions...

About the Podcast

Professor of comparative law Katharina Pistor is the director of the Center on Global Legal Transformation at Columbia University. The Ezra Klein Podcast showcases interviews with leaders in politics and media.

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