In The Code of Capital: How the Law Creates Wealth and Inequality (2019), Katharina Pistor, Professor of Comparative Law at Columbia Law School, explains how the law—state law and private law—establish, protect and increase wealth. The 'code of capital' is the body of laws underpinning and enabling wealth creation by means of assets (physical and monetized stores of value). State law is passed by legislatures and adjudicated in the courtroom, while private law is created in private law offices. State law can be thought of as a set of general rules which are fleshed out in greater detail by private lawyers representing their clients' interests by crafting 'rules' to fill in the interstices of legislative and judicial law.

In the book's title, 'code' refers to a collection of legal rules as in the "voluminous books that compile legal rules ... such as the French and German civil and commercial codes." For the author, capital is more than just one of the two primary factors (inputs) of production described in economics textbooks. In other words, capital is not simply the set of familiar tangible assets of plant, equipment, inventory and buildings.

[While] economists and accountants have clung to the notion that capital is a physical input, one of the two factors of production ... capital has never been about a thing, but always about its legal coding; never just about output and input, but always about the ability to capture and monetize expected return.

And so in this book, the code of capital concerns the legal rules that recognize an asset as having value and thus constituting wealth and facilitate the creation and accumulation of more wealth. Contemporary examples of wealth are presented and discussed, e.g., asset-backed securities and their derivatives, such as the mortgage-backed securities that contributed to the 2008 global financial crisis and the emergence of cryptocurrencies as stores of value and potential means of exchange. Coding capital is synonymous with creating the legal rules for contracts, property rights, collateral, trusts, corporations, bankruptcy and most of all enforcement by means of an unrivalled authority of the state through the courts and policing. It is crucial for the legal code to be effective that it be "backed and enforced by a state."

Max Weber explained the power of law by invoking the state’s monopoly over the means of coercion. Through its courts, bailiffs, and police forces, states enforce not only their own commands, but also private property rights and the binding commitments private parties make to one another.

In the introductory chapter, the author outlines the main themes of the book,

Capital is coded in law, and, more specifically, in institutions of private law, including property, collateral, trust, corporate, bankruptcy law, and contract law. These are the legal modules that bestow critical legal attributes on the select assets that give them a comparative advantage over others in creating new and protecting old wealth. Once properly coded, capital assets enjoy priority and durability, are convertible into cash, or legal tender, and, critically, these attributes will be enforced against the world, thereby attaining universality."

With respect to global capitalism,

[C]apital’s global mobility is a function of a legal support structure that is ultimately backed by states. Many states have committed themselves under their own domestic law, or in international treaties, to recognize the priority rights that were created under foreign law. They regularly enforce foreign law in their own courts and lend their coercive powers to executing the rulings of foreign courts or arbitration tribunals."

The author goes so far as to maintain that the existence of capitalism depends entirely on the "coercive powers of states."

But the relationship between the state and capitalism is symbiotic. What does the state get in return? According to the author,

The fate of governments in democracies in particular has been tied ever more closely to their governments’ ability to produce growth. Growth rates, and the rise of stock markets, not the distribution of wealth or indices of human development, have become the standard measures for adjudicating success or failure of elected governments—in itself an indicator of the enormous cognitive sway capital has over polities.

Thus, the legitimacy of the liberal state (as opposed to the monarchial or dictatorial state) derives from the general economic well-being of the citizenry, prosperity being the promise of capitalism, though not necessarily, or even desirably, in the equal distribution of economic outcomes.

Furthermore, the author provides analytical support for the argument that it is laws—and these not limited to the laws passed by governments but extending also to the private laws created in the legal space left empty by public law—that enable the creation of wealth. That is, it is laws that that are the foundation for the forces of supply and demand—the market-balancing invisible hand—that establish and protect ownership of the inputs and products, i.e., wealth. There is no natural law that directs endowments of wealth. That allocation is man-made. Not only is the initial distribution of wealth dependent on human rules, but the accumulation of wealth is also dependent not on natural law but the laws of human society.

The foundational analysis thus provides the means for a genealogical account of the origins of wealth and wealth inequality—a variation on Nietzsche's genealogy of morals adapted to the economics of wealth—for both start somewhen and not owing to some cosmic destiny that is fortuitous for some but not all. How does wealth get created in the first place? And once created, how is wealth maintained over generations? This is where the coding of capital figures in, as it explains how the human inclination to be better off than others—the impulse for hierarchy—establishes the rules that favour the generation, persistence and increase of wealth inequality over time.

Economists do a fine job papering over the flawed origins and self-sustaining practices of wealth. Reflecting on this reviewer's distant university major and subsequent readings in economics and political economy, it has become apparent that there is much that economics has in common with human religions. Both cloak human mendacity in respectable garb, and both sanction the exercise of power to promote self-serving behaviour, to perpetrate violence (physical, emotional and economic) and to manage the social herd intellectually and economically.

For the author, law is very much about the exercise of power—how it is created and used to dominate and subjugate citizens domestically as well as the citizens and entrepreneurs/investors globally. The metaphor of war—as the ultimate exercise of domination—is a key leitmotif in the book, wherein economic and legal 'warfare' is described as having supplanted military conflict. At various turns in the book, one may be reminded of the Monty Python pirate skit, The Crimson Permanent Assurance, and its satirical take on hostile corporate takeovers. Pistor speaks of the global empire of capital wherein troop strength and armaments are less important than the authority of the law, "and its most powerful battle cry is 'but it is legal.'" Here the reader may recall Dickens' fictional recounting of Jarndyce v Jarndyce, a complicated estate case in the English chancery court system of Bleak House, which may be regarded as legal combat or a Kafaesque absurdism—two sides of a bad coin. Continuing the metaphor of power and war and extending it to empire, the author repeatedly reminds the reader that the legal system of English common law and New York State law "dominate the world of global capital"—as centres of the empire of the code of capital.

With respect to indigenous property rights, Pistor cites the 2007 Mayan court victory on land-use rights in Belize and then observes that "[t]he Maya won a battle [in the courts] but were unable to win the war against their own government." Then revisiting US-Native American legal relations, she draws attention to the discovery doctrine to characterize America's Manifest Destiny as

One of the greatest "conquests by law" had been achieved by altering the cause for recognizing a superior right: discovery and improvement extinguished first in time claims. Discovery and improvement became the winning arguments for settlers who had bet all along that aggressive capture would give them title eventually.

Similar references are made to the "battle over land enclosures in England in the sixteenth century" during which ordinary citizens fought to protect the openness of the common lands from the appropriation of the landed gentry. And then the author brings the reader up to date in the 21st century with a brief discussion of the 2017 Eli Lilly v. Canada patent law decision by a NAFTA tribunal that recognized that "Canada won the battle; [though] it is not yet clear who will win the war and have the final say in making property rights: sovereign states or private agents." The author also notes the trend towards copyrights and patents—temporary state-protected monopolies—being extended indefinitely into the future by means of supplementary patents and copyright extensions. For now, in Eli Lilly, the extension of a monopoly patent was found to be limited across international legal jurisdictions. Here the reviewer's short fiction, 'The Marketplace for English,' published in theNewerYork in 2014—a now defunct experimental lit e-magazine not to be confused with the illustrious The New Yorker—depicting a bizarre situation where commerce and copyrights have extended their domain into the realm of everyday language provides some comic relief.

The significance of the war theme is part of an overall pessimism that the author has about the prospects for the future of re-coding capital so that the great disparities in wealth can be ameliorated and so that the economic value of a relatively stable and predictable marketplace requiring the cooperative participation of the masses of law-abiding and productive citizens can be factored into the accounting ledger of entrepreneurs and investors. In other words, the investment climate itself is a precondition for successful commerce, and the maintenance of that climate is a social good which should be recognized as worthy of earning a reward in the same way the entrepreneurs/investors rationalize their rewards for risk-taking.

The author's parting words, resonating with Nietzschean overtones of the will to power and the struggle—not for survival, but for superiority—offer little consolation though.

The second trajectory may, sadly, already be under way, as illustrated by the rampant attacks on independent judiciaries and the free press, not only in relatively young democracies, such as Poland or Hungary, but in countries with a long tradition of democracy and the rule of law, such the United Kingdom and the United States. If these trends continue, naked power will once more gain sway over legal ordering, as it has done over most of human history—and we will all be worse off for it.

At this point, one might be roused by memories of the asymmetric application of debtor law—formerly imprisonment (well illustrated in Dicken's fictional description of the Marshalsea debtor prison in Little Dorrit) and modern day bank foreclosures and asset liquidation for the defaulting individual contrasted with the asset shielding coded in private bankruptcy law to protect the personal wealth of entrepreneurs/investors in limited liability corporations and the government bailouts that intervene to prevent the 'catastrophic' failure of 'too big to fail' banks and most recently automobile manufacturers during the 2008 financial crisis.

The book is not an easy read but it is a worthwhile read to better understand, from an analytical perspective, how and why economic inequality is an intrinsic part of the allegedly laissez-faire economic system of capitalism, 'allegedly' because state interventions are fundamental to the creation of the preconditions for capitalism and equally importantly the sustainment of the capitalist system. To assist the lay reader, despite the risk of boring some, the author provides multiple recapitulations of the book's main line of arguments over the course of the book.

A useful introduction to some of the ideas in this book can be found in The New York Times' Ezra Klein Show interview with Katharina Pistor on January 13, 2023. The audio and audio transcript are available at https://www.nytimes.com/2023/01/13/podcasts/ transcript-ezra-klein-podcast-katharina-pistor.html.

First published in Arts & Opinion, Vol. 22, No. 2, 2023.