Vol. 30 No. 4 (May 2020) pp. 62-65

THE CODE OF CAPITAL: HOW THE LAW CREATES WEALTH AND INEQUALITY, by Katharina Pistor. Princeton University Press. 2019. 316 pp. Hardcover $26.99. ISBN: 0691178976.

Reviewed by Basak Kus, Department of Government, Wesleyan University. Email:

Katharina Pistor’s new book, THE CODE OF CAPITAL: HOW THE LAW CREATES WEALTH AND INEQUALITY, “tells the story of the legal coding of capital” (p. x). This is a story that is at once locally-specific and globally-relevant; historically-dependent and yet still evolving; and politically fraught as well as consequential—one that we surely must know more about if we are to get a better understanding of both the formation of wealth and its distribution.

In Pistor’s telling, the story unfolds in nine chapters. In these chapters, the author masterfully tackles a number of big questions. The first question (discussed extensively in the first chapter) is theoretical: what is capital? Pistor argues, quite convincingly, that “capital is not a thing” but rather a legal construct (p.10). An asset (which may be tangible or intangible) turns into capital when the legal code bestows certain qualities to it. The nature of the coding varies over time and space, affecting assets and the social relations that take shape around them. In conceptualizing capital as a legal quality, Pistor does not rebut the Marxian notion of capital as a social relation but instead attempts to show that the legal coding of capital is constitutive of that relation. Law, in this story is not a “sideshow;” it is the “very cloth from which capital is cut” (p.4).

What, then, are the qualities that law bestows on assets, turning them into capital, thus privileging their holders? Pistor discusses four key qualities: priority, durability, convertibility, and universality. Priority “ranks competing claims to the same assets;” durability “extends priority claims in time;” universality “extends them in space;” and convertibility gives asset owners the guarantee “to freely transfer an asset” (p.3 & p.13-15). If it is the case that “not all assets are equal,” that is precisely because they possess these specific legal attributes in different ways and to different degrees, and these differences confer on them different capacities of wealth creation (p. 5). In separate chapters of the book, Pistor shows how several legal modules (property, collateral, corporate, trust, bankruptcy, and contract law) have been used historically to code [*63] different types of assets (land, firms, debt, and knowhow) as capital. She accomplishes this by using illustrative cases ranging from land enclosures in the sixteenth century England to disputes between settlers and indigenous peoples; from the rise and fall of Lehman Brothers to patent wars over genetic testing.

The second question that Pistor’s book tackles is the changing composition of wealth –or the “metamorphoses of capital,” to use the words of Thomas Piketty’s (2014) concept. Piketty’s historical data shows that while agricultural land represented the major share of the total national wealth in Western Europe at the start of the eighteenth century, its share declined overtime as the value of housing, and industrial and financial assets increased. Pistor argues that the metamorphosis in question “goes hand in hand with grafting the code’s modules onto ever new assets but also, from time to time, stripping some assets of key legal modules” (p. 5). In other words, the legal privilege bestowed on particular groups of assets by the code changes over time, and this is critical to understanding both the decline of land as wealth and the rise of financial assets.

If the code is essential to the making of capital, then the masters of the code are the protagonists of this story. This is the third question that the book sheds light on and Pistor dedicates a full chapter to it: the professional actors that have the expertise to tackle the code in ways that would benefit particular asset holders, thereby shaping “the creation and distribution of wealth in society” (p. 159).

The masters of the code, Pistor explains, “don’t just use and apply existing law; they actively fashion new law—subject only to ex post scrutiny by a court, or, if they so choose, by private arbitrators, many of whom, of course, are their peers” (p. 162). The “true masters” are products of elite law schools and are compensated extremely well, making their services available only to a wealthy minority. Their power derives from their expertise, but also from the particularities of the common law system, which, in contrast to the civil law system, gives private attorneys a significant latitude in fashioning the law (p. 169).

The fourth question the book wrestles with concerns the role law has played historically in distributing wealth. “Having rights,” as Pistor argues, “empowers individuals and groups” (p. 35). Law, by virtue of the way it grants rights and privileges, empowers some individuals and groups more than others. This is obviously a question about whose claims are honored if there are competing claims to the same asset; which assets are protected and privileged by the code over others, and how those assets are protected. The [*64] legal concept of property rights is a case in point. It has been argued, most notably perhaps by Nobel Laurate Douglass North (1981), that the existence of secure property rights was key to the development of modern capitalist economies. However, as Pistor argues, “it is easy to agree that the state should protect property rights and enforce contracts; more important, but less often asked, is the question, who determines what assets or claims deserve to be coded as property or receive legal protection on par with property rights” (p. 222).

As Pistor elaborates, when the enclosure of the commons started in England, “rights to land were neither unified nor absolute; there were only ‘greater’ or ‘higher’ rights” (p. 30). When the landlords erected fences around the land that they claimed was theirs, and petitioned courts “claiming title based on first use,” not only did the commoners tear down those fences, they also petitioned the courts with lawyers representing them (p. 31). It was a matter of uncertainty, and up to the courts, then, whose claims to the land would be recognized. Over the course of time, landlords who invoked seniority prevailed in the courts (p. 31). Similarly, in the legal disputes between European settlers and indigenous peoples, it was the courts that made the call as to whose rights would be acknowledged. The example Pistor gives, the legal battle between settlers and First Peoples in New Zealand, is highly revealing in terms of the distributive powers of the law. In this case, First Peoples claimed ownership based on the seniority principle. Although it had been invoked successfully by English landowners during the enclosures, this time the seniority principle did not curry favor with the court chaired by an English judge. The court instead maintained that “First Peoples had no notion of individual ownership,” and ruled in favor of the settlers who had “discovered the land and improved it” (pp. 33-34).

Another question the book tackles concerns the relationship between state, law, and capital. Pistor nods to Weber in highlighting that the power of law comes from the “state’s monopoly over the means of coercion” (p. 17), and does not dismiss the Marxian conceptualization of law as a tool that serves the interests of owners of capital. From her perspective, however, law does not simply reflect the social relations of production under capitalism; law is what makes capital and the social relations what they are. “Once the bourgeoisie gains control over the state and its lawmaking apparatus, it will, of course, use it to entrench its power,” she argues (p. 207). What is crucial to understand is “the central role of law in the making of capital” (p. 208)—how the state, through legal coding, makes and protects capital. [*65]

In a word, THE CODE OF CAPITAL is phenomenal. It is a major accomplishment in terms of the big questions it takes on, the theoretical contributions it makes, and the historical insights it provides. It is sure to inspire many a work, both historical and comparative, in law, political science, sociology, history, and economics.


North, Douglass C. 1981. STRUCTURE AND CHANGE IN ECONOMIC HISTORY. New York and London: W. W. Norton & Co.

Piketty, Thomas. 2014. CAPITAL IN THE TWENTY-FIRST CENTURY. Cambridge: Massachusetts: Harvard University Press

© Copyright 2020 by the author, Basak Kus.