26 The New York Review
as a physical thing—a steel mill, for in-
stance—that must be shielded against
grasping hands, Pistor insists, quoting
the University of Chicago historian
Jonathan Levy, that capital is a “legal
property assigned a pecuniary value in
expectation of a likely future pecuniary
income.” What turns a steel mill from
a physical unit into a claim on a likely
flow of cash income are laws, backed
by the force of the state, establishing
ownership of the mill and the means
by which its products can be sold for
profit.
For Pistor, as for others in the criti-
cal tradition, the entanglement of law,
power, and property goes back to the
moment that Karl Marx called “primi-
tive accumulation.” Beginning in the
sixteenth century in Northern Europe,
land previously used in common was
enclosed and made into the basis for a
new, market-based agricultural system.
As the Oxford legal comparativist Ber-
nard Rudden put it:
The traditional concepts of the
common law of property were cre-
ated for and by the ruling classes at
a time when the bulk of their capi-
tal was land. Nowadays the great
wealth lies in stocks, shares, bonds
and the like, and is not just mov-
able but mobile, crossing oceans at
the touch of a key-pad.... In terms
of legal theory and technique, how-
ever, there has been a profound if
little discussed evolution by which
the concepts originally devised for
real property have been detached
from their original object, only to
survive and flourish as a means of
handling abstract value. The feu-
dal calculus lives and breeds, but
its habitat is wealth not land.The enduring entanglement of mod-
ern property law with this original
“feudal calculus” is a thread running
throughout Pistor’s book. Most im-
portantly, it informs her skepticism
about the alignment that is commonly
assumed in liberal grand narratives
among progress, property rights, and
the rule of law (understood in the
sense of the universal applicability of
general rules, such that no one class
received preferential treatment by the
state). There have been revolutionary
moments, Pistor concedes, in which
property owners did line up behind the
demand for general rights—the Ameri-
can and French Revolutions being
cases in point. But once their property
was established, owners became, like
their feudal predecessors, defenders
of privilege. They have advocated not
universal binding rules, but what Max
Weber called a “modern particular-
ism,” finding ways around the law when
it suited their interests.
In the twenty-first century, exam-
ples of this modern particularism are
rife. Pistor describes, for instance, the
exceptions from general bankruptcy
rules negotiated by the derivatives in-
dustry. In normal bankruptcy cases,
secured creditors can claim access to
their collateral first, and unsecured
creditors have to divide what remains
of the company or estate. For fast-
moving financial transactions, that
procedure is too cumbersome, so the
collateral pledged in derivatives deals
is granted an exemption from the usual
queue of claims. In cases of bank-
ruptcy, it is transferred directly to the
counterparty, leaving unsecured credi-
tors empty-handed. Another example
would be the right claimed by foreign
investors to challenge the normal op-
eration of national courts in their host
countries. Or the deals negotiated an-
nually with the authorities by large
taxpayers over what their tax bill will
actually be. Or the haggling between
regulators and banks over whether
they meet the criteria laid down by the
Dodd-Frank legislation of 2010.
The result is a legal order that is re-
lentlessly insistent on the priority of
rights and of property rights above
all, and yet shot through with excep-
tions and reservations. Indeed, in the
unwinding of Lehman’s derivatives
holdings, it turned out that so many
creditors could claim exceptions to the
normal bankruptcy rules that the
value of the privileges themselves
was put in question.
The modern network of power-
ful property owners is knit by the
clique of “big law” firms that op-
erate around the world, above all
from bases in London and New
York. The legal codes that they
prefer are the English common
law and the law of the state of New
York. What lets them choose their
code, regardless of where their
operations are legally domiciled,
are so-called conflict- of-law rules
that allow the parties to a contract
to choose the legal code by which
they wish to be governed. The
standard framework contract, or
“Master Agreement,” devised by
the International Swaps and De-
rivatives Association to govern
trades running into the hundreds
of trillions of dollars, specifies
that the parties should agree to be
bound either by English law or the
law of New York State. For tricky
issues like intellectual property,
which is granted through a patent by a
particular government, special treaties
have been arranged in order to protect
patents abroad.
Across this patchwork empire of law,
the same tools (which Pistor calls “mod-
ules”) are employed again and again to
“code” property and assets, such that
they are protected as sources of private
wealth and future income. The four
principles of the coding procedure that
Pistor identifies are priority, durabil-
ity, universality, and convertibility. The
priority of claims regulated by law is
what ultimately confers ownership: the
priority of my claim to an asset allows
me to remove an asset from the com-
mon pool and privatize it. Durabil-
ity gives assets a life that may extend
beyond the biological lifespan of their
owners. Trusts and corporations are
classic modes of ensuring legal longev-
ity. Universality provides that contracts
between two parties are recognized by
erga omnes, i.e., all others. It is a claim
that presupposes a third-party guaran-
tor in case of disputes over the agree-
ment; in the last instance, the state
can compel the parties to abide by its
interpretation of the contract. Finally,
convertibility is the most attractive link
in a chain that starts with the transfer-
ability of property. If it can be bought
and sold between private parties, prop-
erty can circulate. Once it circulates
widely enough, it can serve as a means
of payment. But the ultimate means of
payment is state-issued cash. Convert-
ibility is the privilege of certain classes
of preferred financial assets—such as
highly rated debts—that ensures theymay be exchanged for cash at close to
face value.
The modules are abstract and ca-
pable of reinterpretation. Lawyers are
creative, and contracts are incomplete.
They always fail to capture some un-
expected feature of reality. So there is
plenty of room both for innovation and
for confusion and dispute. But that by
itself is not enough to explain the re-
currence of capitalist crises. For that
we need to add a further dimension:
how law facilitates the gigantic specu-
lative dynamic of modern finance.As Pistor puts it, “Debt, the private
money that has fueled capitalism since
its inception, is coded in law and ulti-mately relies on the state to back it up,”
by way of the courts under normal cir-
cumstances and through bailouts if a
debtor is too big to fail:The history of debt finance can
therefore be retold as a story about
how claims to future pay have
been coded in law to ensure their
convertibility into state money on
demand, without suffering serious
loss.... By dressing private debt
in the modules of the legal code
of capital, it is possible to mask
the liquidity risk for a while, but
not forever. Whenever investors
realize that, contrary to their ex-
pectations, they may not be able to
convert their debt assets into cash,
they head for the exit; and if many
do so simultaneously, this will pre-
cipitate a financial crisis.Note that the law does not just con-
stitute and codify claims to property.
In Pistor’s reading, the function of
law in finance is to sustain a fiction. It
is to “mask,” or “dress up” and “gar-
nish” claims by packaging debt-ridden
assets into products such as deriva-
tives. And she roots this in a familiar
impulse: “The dream to create some-
thing from nothing is as old as man-
kind. Alchemists have long searched
for recipes....” But it is not just private
creators of credit who succumb to the
lure of debt alchemy. States too create
purchasing power by monetizing debt.
As Pistor points out, the difference is
that “states at least have the power to
impose obligations on their citizens tomake good on these promises.” States
can impose taxes to generate the rev-
enue necessary to service their debts.
By contrast, “private parties do not
possess such powers.... They imagine
fantastic returns in the future, but in
fact will have to obtain new loans to
cover old debts”
Lawyers, therefore, sustain a fiction
by dressing up claims and placing them
in opaque asset-backed legal entities
and applying an alphabet soup of la-
bels—SPVs, MBS, CDOs. But, Pistor in-
sists, there is a basic constraint on this
exercise in the nature of the assets that
underlie such entities: “At the other
end of the deal, there are still the same
little old houses, which their owners
can barely afford and that may not hold
their value once the funding ma-
chine that helps fuel prices in real
estate dries up.” The fantasy that
a subprime mortgage could be
turned into a AAA-rated security
collapses, just like the alchemical
promise to turn lead into gold.
Pistor thus lays out a double in-
dictment of the law. On the one
hand, the law codes the original
violence of enclosure, such that
something that was everyone’s
becomes one person’s legally pro-
tected private property in perpe-
tuity. On the other hand, the law
is the conjurer of a delusion. By
creating securities out of debt, the
law preys on our desire to believe
that something is ours that is not
real at all, that value can be cre-
ated ex nihilo.
This is a powerful polemic. But
is it enough to deliver on Pistor’s
subtitle, to account for the struc-
ture of wealth and inequality in
modern society? What about the
more routine drivers of growth
and inequality, such as the un-
equal rewards to labor and capital and
the extreme divergence between dif-
ferent types of managerial and routine
labor? Once we pose the question this
way, what is remarkable is how little
space Pistor gives to what was once the
central terrain of critiques of capital-
ism, namely production, labor, and ac-
cumulation. Once upon a time, if the
question was how law created wealth
and inequality, the focus would have
been on labor law and how the state
and the courts systematically favor the
employer over the employed. But the
only mention that labor law receives in
The Code of Capital is a brief discus-
sion of the role of noncompete clauses
in distorting competition in Silicon
Va l ley.
In seeking to mark her position off
against Marxist arguments that the
capitalist state creates inequality by
sanctioning “primitive accumulation”
and exploitative labor practices, Pis-
tor claims that her focus on the process
through which private law is used to
code capital allows her to “explain the
political economy of capitalism with-
out having to construct class identities,
as Marxists feel compelled to do.” But
any Marxist would surely reply that
this is a sleight of hand. If one confines
the thrust of one’s analysis to issues
like derivatives regulation and intel-
lectual property, class identities are,
indeed, unlikely to play an important
part. What is at stake in those deals is
the distribution of surplus within the
capitalist class. When that goes wrong,
it can have a disastrous impact on the
entire economic system. As we saw inKatharina Pistor, New York City, 2018Barbara^Alper