Pistor, Katharina

law professor at Columbia Law School, author of The Code of Capital: How the Law Creates Wealth and Inequality

LE CODE DU CAPITAL : COMMENT LA RICHESSE ET LES INÉGALITÉS SONT FABRIQUÉES - Katharina Pistor

Elucid · Apr 22, 2023

• Katharina Pistor
• code of capital
• legal coding of assets
• English land enclosures
• corporate law and durability
• offshore trusts and tax avoidance
• patents and TRIPS
• Myriad Genetics gene patent
• investor-state dispute settlement
• globalization as legal project

Core ideas

Pistor's central thesis is that capital is not simply an economic factor of production but a legal construct: any asset — land, an idea, a promise of future payment — can be turned into a capital asset by "coding" it with the right legal modules, which she identifies as five recurring devices traceable back centuries: property rights, collateral/guarantee law, contract law, trust or corporate law, and bankruptcy law. These modules confer specific attributes — priority (being first in line to claim value, especially visible in bankruptcy), durability (shielding assets from creditors, including the state, so they can grow over time), universality (enforceability against the world, not just contracting parties, which is what makes anonymous market trading possible), and convertibility (the ability to turn financial assets back into state money in a crisis) — and she argues these attributes, not raw talent or luck alone, are what allow wealth to be accumulated, protected, and passed on across generations.

She illustrates the "durability" module historically through the English land enclosures (a centuries-long legal process, not just 18th-century legislation, in which courts sided with landlords' seniority claims against illiterate commoners, later reinforced by the Black Act making trespass a capital offense) and through the 19th-century English "entail" device that let landowners mortgage land while shielding it from creditors — until Parliament, after a financial crisis, stripped that protection and triggered a massive reallocation of land. She extends the analysis to the modern corporation, using Lehman Brothers (which had hundreds of subsidiaries across jurisdictions) to show how corporate law creates "durability" by walling off pools of assets into separate legal entities, allowing parent companies to let subsidiaries fail while protecting the "mothership," and how trusts registered in tax havens like the Cayman Islands or Jersey serve the same asset-shielding function against tax authorities, one of the largest creditors any wealth-holder faces.

Pistor gives the Maya land-rights case in Belize as a rare positive counter-example — indigenous collective land-use practices were eventually recognized as constitutional property rights by Belize's courts, even though the government continued issuing mining licenses in violation of that ruling — to demonstrate law's dual nature: it protects rights but only when the state itself chooses to enforce them against its own interests. She applies the same logic to intellectual property, tracing how pharmaceutical and tech companies lobbied since the 1970s to embed patent protection (TRIPS) into the WTO framework — paradoxically creating monopolies within a trade organization ostensibly built on free trade — and details the Myriad Genetics case, where a company patented a publicly-discovered breast cancer gene sequence, monopolized testing for two decades, and then, even after the US Supreme Court struck down the patent in 2013, preserved its market dominance through trade-secrecy law over the patient database it had accumulated.

She argues that globalization is fundamentally a legal project rather than a stateless phenomenon: private parties can choose which jurisdiction's law governs their contracts (a "menu" of legal systems), enabled by rules on conflict of laws and reinforced by the European Court of Justice's rulings on free movement of capital and legal persons. Global capital markets are dominated by just two legal systems — New York and English law — not by chance but because that's where the largest Anglo-Saxon law firms capable of this legal engineering are based. She extends economists' "roving bandit" metaphor to describe today's global capitalists, who can roam jurisdictions extracting value with state backing, and highlights investor-state dispute settlement (ISDS) mechanisms in bilateral investment treaties — originally designed by Global North states to protect their companies abroad — which now let fossil fuel and mining companies sue democratic governments (including France, Spain, and the Netherlands, all of which have withdrawn from the Energy Charter Treaty) for adopting climate policies that threaten anticipated profits. She concludes that trickle-down economics is not supported by the data, that this asymmetry in access to sophisticated legal protection is what erodes trust in the rule of law and fuels populist backlash (via Hirschman's "exit, voice, loyalty" framework — most people have neither meaningful exit nor voice), but insists the system is not immutable: democratic legislatures, courts, and regulators retain real agency to constrain forum-shopping and re-anchor private law to collective self-governance, and she flags the rise of digital/smart-contract code as a new frontier where technologists, not lawyers, may become the new "masters of the code."

Excerpts