Code of Capital
Capital is the defining feature of modern economies, yet most people have no idea where it actually comes from. What is it, exactly, that transforms mere wealth into an asset that automatically creates more wealth? The Code of Capital explains how capital is created behind closed doors in the offices of private attorneys, and why this little-known fact is one of the biggest reasons for the widening wealth gap between the holders of capital and everybody else. In this revealing book, Katharina Pistor argues that the law selectively "codes" certain assets, endowing them with the capacity to protect and produce private wealth. With the right legal coding, any object, claim, or idea can be turned into capital - and lawyers are the keepers of the code. Pistor describes how they pick and choose among different legal systems and legal devices for the ones that best serve their clients' needs, and how techniques that were first perfected centuries ago to code landholdings as capital are being used today to code stocks, bonds, ideas, and even expectations--assets that exist only in law. A powerful new way of thinking about one of the most pernicious problems of our time, The Code of Capital explores the different ways that debt, complex financial products, and other assets are coded to give financial advantage to their holders. This provocative book paints a troubling portrait of the pervasive global nature of the code, the people who shape it, and the governments that enforce it.
Stats for nerds
4recommend
9mentions
8people
2020–2023years
56% recommend44% neutral
Mentions per year
What Hacker News says
- Alternately, recognize that Capitalism is chaotic and prone to collapse. Then require risk management be updated accordingly AND use something like Socialism for when that chaos and risk are unacceptable.
And then don't mix the two.
Basically the (idealized) Democratic Socialism of the Nordic governments.
Food for thought:
David Graeber in Debt: The First 5,000 Years asks if Capitalism might be intrinsically unmanageable, so therefore prone to collapse. He notes that every economy in history experienced a debt crisis, requiring intervention (eg revaluing currency, revolution).
More recently, Katarina Pistor wrote The Code of Capital, which documents the modern economy built on top of our shared legal fiction of property. Here's a pretty good interview. https://the-ezra-klein-show.simplecast.com/episodes/katharin...
FYI, I'm not an economist, so I'm not aware of anyone making the specific case that Capitalism is chaotic and so therefore will eventually collapse (aka chaos theory).
- I highly recommend reading The Code of Capital by Katharina Pistor. The book does a good job explaining the essential aspect of law in codifying assets into capital. Wealth is impossible to own and maintain without legal support.
- I recently read a fantastic book called "The Code of Capital" by Katharina Pistor(https://press.princeton.edu/books/hardcover/9780691178974/the-code-of-capital) that documents how lawyers use legal code to protect wealth. The author covers several types of assets, the financial instruments used to protect them, the role of the State as a coercive threat to enforce priority claims (who gets to claim the assets first during bankruptcy), and more importantly, the role of lawyers in coming up with ingenious schemes that take away the power of the state as the final arbiter of priority claims.
I especially loved the chapter on law firms and their role in perpetuating the status quo over the years, as well as the chapter on Cryptocurrencies. The author brings up most of the same points as the HN crowd, such as the deflationary aspects, the fact that smart contracts are prone to bugs and not a substitute for real-world contracts (which are more flexible), the problem of the "genesis block" and who determines the initial distribution of property rights on the chain etc.
But, the author is not all negative about blockchains and brings up some positive attributes worth discussing. Early on in the book, the author emphasizes the problem of the current global capital system without a global enforcer, i.e capital freely flows across borders and lawyers are free to figure out the best jurisdiction for their assets. She points fingers at top law firms in NYC/London and their clients. They ensure that a lot of disputes end up in private arbitration and later claim that courts do not have the expertise to handle such cases, thus pushing for further privatization. Over the years, these law firms have amassed a huge amount of internal data, and companies pay these firms to get access this data. Rather than legal services, the author argues that this data is the cash cow for these law firms. She hints that blockchains, being decentralized, could have the effect of making a lot of this data public.
One other positive aspect of blockchain tech she hints at that I don't see discussed very often is that it potentially makes contract language accessible to a much larger population by virtue of being coded in an actual programming language rather than in highly verbose English. Reading financial documents today is a skill in its own right, because different words can mean different things in different contexts and in different legal systems. And this context is changing all the time and open for interpretation. The author argues that this wiggle room afforded by the language allows lawyers to chip away at restrictions and has created the current global economy which is incredibly complex and not comprehensible to many. Standardizing the language used in these contracts and making it verifiable in a programmable way could go a long way in simplifying things. I can imagine a future where a much larger proportion of the population can at least program in Python or follow pseudo code. Considering the effect the financial system has on all of us, its language and methods should be far more accessible than it currently is.
Perhaps Blockchains could have some indirect benefits in the form of making contract language readable, and making private and historical data accessible to a larger population?
- No, they are not part of the natural order of the universe, but with respect, thinking about this in "ruling class" terms is completely wrong.
Neither word "ruling" nor "class" means anything in modern Western society, and neither do the two of them together. Using inaccurate and imprecise language commits two sins- fails to communicate why things are and fails to elucidate how they might be changed.
The word owner has precise meaning, as does the word creditor. This behavior is entirely about protecting the interests of owners and creditors. Sometimes people/orgs playing these roles are large and powerful but often they are not.
There is a huge literature here. The most recent best book I've read on these issues is Katarina Pistor "The Code of Capital."
Highly recommend pursuing a path to adopt more precise language on these matters. Cheers.
- Huge, huge topic. You will have to pick a path through the enormous jungle.
The starting point I would recommend is bottom up, through accounting and financial statements. Core knowledge, of both practical and intellectual value. Tons of books here, I particularly like
Thomas Ittelson - Financial Statements
Accessible, straightforward, friendly.
After that, any of the collections of
Warren Buffett's Letters to Shareholders
are both entertaining and intellectually valuable, and provide great insight. Read forward, eg, from his first letters in the 1960s, to now.
One of the realizations in the journey is that there are, and have been, a lot of different kinds of money- credit money and exchange money and asset money and so forth. A relatively abstract/intellectual but immensely useful survey is
The Nature of Money - Geoffrey Ingham
The concept of an asset is critical to the functioning of the financial system. New kinds of assets are created all the time. One of the best written books I have read recently goes into venture capital and debt asset creation:
The Code Of Capital - Katharina Pistor
The role of different kinds of money in history, especially US history, is absolutely fascinating. I am in the middle of
American Bonds - Sarah Quinn
and can recommend.
I do not especially recommend the Dalio books or Graeber's Debt or Ferguson's books. They are fine but I did not find them helping me build understanding. Not quite junk food, but definitely not protein.
I unfortunately have not found any of the books I have seen about the Federal Reserve to be worthy of recommending. My wife works there and so I have perhaps a unique perspective. But nothing conveys the challenge and the mechanics of what they do. Still looking. The papers the various Fed banks publish, as well as the papers published by the Bank of England, are uniformly outstanding.
Finally, some of the bitcoin people have written about money. Tho I am a believer in bitcoin I absolutely recommend against most of them, especially Saifedean Ammous's book. Do not read.
Good luck!
- Condolences ;)
As Herman Daly has noted: know your enemy.
I've found in particular the rationale around land rents for minerals and extraction, dating to David Ricardo, are an interesting place to poke around. Hotelling's Rule is based on that, though through an intermediary.
There's also the associated legal concept of the Rule of Capture, which is applied to the notion of property rights in mineral resources is also based on some curiously fallacious legal argument. Which also leads me to realise that amongst various categories of knowledge, legal practice seems to be its own animal, based variously on statute, precedent, and persuasion, rather than empirical foundations.
(Other realms of knowledge include revelatory knowledge, commonly in religion; convention and authority, in various fields; communities of practice as with technical arts and some societies; and poetic or literary knowledge, essentially of narrative and record which are passed down but again need have no basis in any external empirical foundations.)
There's the equivocation between economic wealth and accounting profits, which are ... somewhat related ... but divided by the fact that the former includes all accounting of external costs and benefits, whilst the latter does not. Financial systems are cost- and risk-externalising machines.
I've recently discovered Katharina Pistor through the Ezra Klein podcast. She writes on the relationship of property to economics. She is hitting on themes I'd been struggling towards and does some excellent analysis and research. Transcript:
<https://www.nytimes.com/2023/01/13/podcasts/transcript-ezra-...>
Book: The Code of Capital (2019) <https://libgen.rs/book/index.php?md5=D936D0247CB138F23F157A7...>
Naomi Oreskes and Erik Conway have just published The Big Myth, which looks at the selling of the notion of free markets, specifically in the US. It's an outgrowth of their earlier work on disinformation in the tobacco, CFCs/ozone layer, lead, and oil / global warming disinformation campaigns by major corporations.
<https://www.kirkusreviews.com/book-reviews/naomi-oreskes/the...>
I've yet to land a copy, but from several interviews the work seems useful though quite probably incomplete, as there was an earlier practice of such advocacy in Britain, as evidenced by The Economist's prospectus announcing in 1843 a new publication "THE ECONOMIST, which will contain— First.—ORIGINAL LEADING ARTICLES, in which free-trade principles will be most rigidly applied to all the important questions of the day..."
<https://www.economist.com/unknown/1843/08/05/prospectus>
A later editor of the Economist, Francis Wrigley Hirst, was key in persuading Oliver Wendell Holmes of the concepts of free markets and their applicability to the realm of free speech, ultimately leading to the expression "the free market of ideas" in a 1950s US Supreme Court judgement. That draws on (though mischaracterises) John Stuart Mill's writings on free speech and liberty as well.
I've written on that last variously on HN, this seems a reasonably coherent summary:
<https://news.ycombinator.com/item?id=22850549>
For those interested in more, an Algolia search: <https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...>
Susan Gordon's written on how J.S. Mill's notions have been distorted and misrepresented in "John Stuart Mill and the 'Marketplace of Ideas'" (1997) <https://philpapers.org/rec/GORJSM> (full text on Sci-Hub / LibGen).
Other criticism of the concept, Stanley Ingber, "The Marketplace of Ideas: A legitimizing myth": <https://scholarship.law.duke.edu/cgi/viewcontent.cgi?article...> (PDF)
There's more, though this is a good start and seems to be less generally acknowledged even amongst notable critics of economic orthodoxy. Steve Keen, Philip Mirowski, and Mariana Mazzucato would be other good names to read.
