The code of capital: how the law creates wealth and inequality

By M. Sivaraman. International Journal of Environmental Studies, 2019

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Capital drives economic production and determines, in part, the distribution of income and wealth. Katharina Pistor’s goal in The Code of Capital is to explain capital’s inextricable link to the law: “fundamentally, capital is made from two ingredients: an asset, and the legal code” (2). When it is at its best, the book argues in favor of this thesis or discusses, in an innovative way, how the law affects economic life. Much of the book, however, is a frustrating jumble of platitudes, history, argumentation, and legal commentary. As a result, readers will walk away from TheCode of Capital unenlightened about the nature of capital and unconvinced that it has some profound connection to the law. In conventional economic terms, capital denotes a class of inputs to production— assets (to use Pistor’s terminology) that are needed to produce goods and services. Imagine a firm that manufactures hammers. This firm uses raw materials, such as wood and steel; warehouses for storage; and cash to fund day-to-day operations (“working capital”). The raw materials, warehouses, and cash are examples of capital. The firm transforms these and other assets—most important, the labor of its employees—into hammers. As Pistor points out, not everyone uses “capital” this way. The term has no commonly accepted definition, and for her, “its meaning remains obscure” (9). This is a fair point, but given that her book is explicitly about capital (in particular, about capital’s connection to the law), one would expect her either to bring clarity to this muddled term or to provide a working definition. Pistor does neither. What she does do is survey different definitions which have been given over the years, tell us what capital is not (e.g., “it is critical to note that capital is not a thing” [10]), and gesture at the need for a capacious definition (9–13). As a result, the concept of capital does not end up doing much work for Pistor. Indeed, what this book is really about is best described by its subtitle: this is a book about how the law creates (or, more precisely, affects) wealth and inequality (and other features of economies). But that is not surprising or novel. While

Subfields: Finance

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  1. Jenna Burrell
  2. M. Fourcade

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