A Short Comment on The Code of Capital, How law creates wealth and inequality

Professor Katharina Pistor’s The Code of Capital published in 2019 presents a compelling, and easily accessible account of the role of law and lawyers in the creation of wealth and inequality in society. She demonstrates in arduous detail, buoyed by firm examples in global legal developments (both in jurisprudence, and the profession) that “law is the very cloth from which capital is cut.” 1 She provides us with a fresh analytical framework to study the conversion of ordinary assets (like land, claims, skills, and ideas) to capital using creative legal strategies to increase its capacity to generate wealth for its holders. This “coding” of an ordinary asset into capital, she contends, is the domain of its “masters”—lawyers, from the early English solicitors to armies of transactional attorneys in blue-chip firms all over the world, and primarily, in New York and London.

This book was ideated in the background of the 2008 Financial Crisis and addresses perhaps one of the most important issues plaguing our time—inequality. Exacerbated and brought to the fore in almost every nation during this past year of the pandemic, inequality may well be here to stay unless immediate and long-term efforts are not taken to reign in the legal coding of capital that serves the few. Legal Thought cannot remain aloof to this reality of modern society and leave it to the work of economists and sociologists, for the charge in this book makes it grossly culpable. Anyone interested in the intersection of law and political economy in the context of the crisis of financialized capitalism cannot but engage with Prof. Pistor’s arguments.

My short comment on this book (which I had the pleasure to read again for this review) is somewhat constrained by my situation as a practicing lawyer in India. As such I will respond here to Prof. Pistor’s charge of the profession. Yet, my complaint is not in defense of my creed, but that the critique does not go far enough! This I make in relation to how little the book has to say about the operation of these “masters” in the domain of public law, and ideological ordering of society in the service of capital. I suspect this is so because the book’s approach to power is in a unidimensional sense—concerning the use of blunt power of coercion of the state to enforce the coding strategies of these masters. However, seen from the insight of Steven Lukes’ seminal work, Power: A Radical View, 2 power can be analyzed in a 3-D model—the first dimension being of course, its coercive element, second, its agenda setting aspect and finally, its ideological or hegemonic element. In thickening the approach to capitalism from a legal standpoint, I posit that these other dimensions of power, which are less visible, yet, at play in maintaining the status quo of capitalism and its various regimes, deserve to be addressed. This I do not raise in ignorance of the caveat that Prof. Pistor places in the preface about the intention to reach a broader audience. I prefer to present this as the first steps to thickening the account of the relation between law, legal thought, and the institutionalized social order of capitalism. Yet before that, I make two perfunctory observations.

Firstly, in the context of the rise of the Law and Political Economy school of thought in American academia, 3 this book forms a fine ally to this movement in the service of the goal of demystification of faux-necessitarian assumptions 4 about the origins of private law modules such as property rights, contracts, corporate structures, and trusts. In tracing these origins, Prof. Pistor sheds light on the oft-ignored History of Legal Thought (in private law in this case)—a parallel to the call for increased attention to the History of Economic Thought in the discipline of economics. 5 This is important because, as the book maintains, there is no singular, unified global project of coding capital through law. On the contrary, this coding occurs often discretely in the private offices of elite lawyers (often multi- jurisdictional) strategizing for and advising their wealthy clients. This descriptive account then, is a critique through demystification of these processes and the assumptions it serves to entrench as being necessary.

The second observation is in respect of the book as a critique of capitalism. Critiques of capitalism (and its varieties) have long existed, and since the financial crisis of 2008, there is an increased interest in notions of inequality. Overall, there seems to be a reckoning that Reaganomics or Thatcherian impetus on growth has left behind vast majorities of ordinary men and women. Societies and academies of neo-classical economists disgruntled with Keynesianism and the welfare state provided the fodder for Big Law which in turn helped Big Finance. Add to this nexus mainstream media, and there was the promotion of a clear ideological position that favoured capital. In their recent dialogic engagement, Capitalism: A Conversation in Critical Theory, 6 Nancy Fraser and Rahel Jaeggi probe the possibilities of a thickened critique of capitalism, begun on a definitional premise that it is not just an economic system, but an institutionalized social order. Other disciplines have informed us that capitalism operates simultaneously on various planes—ideological, social, economic, political, and ecological. Law—the language in which structures are institutionalized—cannot be the only prism through which one begins to understand and critique capitalism, and its various regimes. To that extent, the definition of capital as a “legal quality that helps create and protect wealth” 7 may be acceptable, but capitalism as a market economy where a few assets are on “legal steroids” 8 veers towards a certain legal determinism. As such, questions about the dominance of capitalism with the aid of lawyers may only be partially understood with the help of this book.

This brings me to my central comment which I preface with a restatement of the argument in the book. Prof. Pistor argues that law is central to the coding of capital; innovative and creative coding strategies in law help the wealthy to bestow the attributes of priority, durability, universality, and convertibility, to an asset to elevate it to capital and further, help preserve and enforce it. Lawyers have over centuries serviced the wealthy with different strategies of code, but translated across assets and time, the process of conferring these four attributes have remained the same. Employing this analytical framework—which for its application necessitates an ‘asset’—it is logical that the concern of the actor-analysis in the book is focused on transactional lawyering.

However, seen from the thickened notion of capitalism as an institutionalized social order, the work of academia and the legal profession is writ large in many other sub-fields, particularly public law. The impact of legal scholarship from the Chicago School on anti- trust laws and the deregulation projects since the 1970s is well-known for its support of the notion of minimum or limited government. Accounts of the influence of the Mont Pelerin Society and Hayek on the Chicago School, which in turn, pioneered Law and Economics are not new.

Looking to India, it is often forgotten in the retelling of origin stories of the basic structure doctrine that essentially at the heart of the various cases that led to the famous Kesavananda opinion (1973) was the right to property, and constitutional escalations of this contest. The leading lawyer for the challengers in many of these cases, Nani Palkhivala—considered one of our greatest constitutional lawyers—is often less remembered as an idealogue for free- market economics in a then State-planned Indian economy. One way the basic structure doctrine serves capital is by displacing the citizen as the capable agent in society, in favor of an institutional elite over whom there exists little or no democratic control. As the sociologist, Maitrayee Chaudhuri has identified, come liberalization in 1991 there was an overall acceptability of the notion of the ‘inefficient or incompetent’ State. 9 It is not hard to see the contribution of an activist Indian Supreme Court in 1980s reigning in the executive on a myriad of issues employing its newfound supremacy.

Ideological battles thus, played out in courts and in academia by lawyers and legal scholars respectively served to entrench the power of capital in the social order. Critical Legal Studies attacked this head-on in their hey-day, 10 and Law and Political Economy in the US continues this tradition with its concern for neoliberalism. 11 The central concern of the book for private legal ordering is certainly compelling. Yet, I posit that the challenge to capitalism from legal thought must excavate its ideological assumptions as well.

Certainly, the Code of Capital, is not an ideological critique of capitalism and does not claim to be one. In fulfilling its ambition to demystify the assumptions of certain private law modules, it remains exceedingly useful for law students, legal scholars, and lawyers, as well as for anyone concerned with the widening gaps in society. The book acknowledges the threat to democratic traditions that political reactions to inequality can bring about. 12 2021—a year when the world is slowly healing from the tumultuous onslaught of the pandemic—also happens to be the 30 th anniversary of formal liberalization in India. Legal thought must take a hard-look at its complicity in creating a fractured, unequal Indian society. However, there is a lesson of hope in this book. By demystifying the origins of legal thought in private law, Prof. Pistor demonstrates an oft-ignored truth—no legal forms of property, contract etc. are natural or inevitable. Confronted with this, legal thought has a choice to make—either it remains a servant of capital or stands in solidarity against its domination.

1 KATHARINA PISTOR, THE CODE OF CAPITAL, 4 (2019).
2 See generally, STEVE LUKES, POWER: A RADICAL VIEW (2004).
3 David Singh Grewal, Amy Kapczynski, and Jedediah Britton-Purdy, Toward a Manifesto, LPE Project (Web.) 6 Nov. 2017
(https://lpeproject.org/lpe-manifesto/, Last accessed on 12.01.2021)
4 See generally, ROBERTO MANGABEIRA UNGER, FALSE NECESSITY: ANTI-NECESSITARIAN SOCIAL THEORY IN THE SERVICE
OF RADICAL DEMOCRACY (2004).
5 See, Dieter Bögenhold, History of Economic Thought as an Analytic Tool: why Past Intellectual Ideas Must Be Acknowledged as
Lighthouses for the Future. INT ADV ECON RES 26, 73–87 (2020). https://doi.org/10.1007/s11294-020-09775-3.
6 NANCY FRASER & RAHEL JAEGGI, CAPITALISM: A CONVERSATION IN CRITICAL THEORY, (2018).
7 KATHARINA PISTOR, THE CODE OF CAPITAL, 12 (2019).
8 Id. 11.
9 MAITRAYEE CHAUDHURI, REFASHIONING INDIA, 8-16 (2017).
10 See, e.g., Edwin C. Baker, The Ideology of the Economic Analysis of Law, 5 J. PHIL. & PUB. AFF. 3 (1975); Morton J. Horwitz,
Law and Economics: Science or Politics?, 8 HOFSTRA L. REV. 905 (1980); Duncan Kennedy, Cost-Benefit Analysis of Entitlement
Problems: A Critique, 33 STAN. L. REV. 387 (1981).
11 Jedediah Britton-Purdy, David Singh Grewal, Amy Kapczynski & K. Sabeel Rahman, Building a Law-and-Political-
Economy Framework: Beyond the Twentieth-Century Synthesis, 129 Yale L.J. 1784, (2020).
12 Also see, WENDY BROWN, IN THE RUINS OF NEOLIBERALISM: THE RISE OF ANTI-DEMOCRATIC POLITICS IN THE
WEST (2019).