The Code of Capital

Describing the distribution of wealth, Katharina Pistor likens the graphical representation to an elephant's head: “The broad forehead holds 50 percent of the world's population; over the past 35 years they captured a paltry 12 percent of growth in global wealth. From the forehead a curve leads down toward the trunk and from there, steeply up to the raised tip. The trunk is where “the one percent” sit; they hold 27 percent of the new wealth, more than double the amount held by the people clustered together on the elephant's forehead. The valley between the forehead and the trunk is where lower-income families in the advanced Western market economies are bundled together, the “squeezed bottom 90 percent” of these economies.”

The Code of Capital seeks to underscore the role that legal structures play in establishing and perpetuating this massively unequal distribution of wealth in today's world. Pistor argues that we can't properly understand inequality without understanding key legal structures - most importantly, the body corporate.

In Pistor's account, there are two key legal processes that occur. The first is to take something of value and transform it into an asset. This is done by giving it the attributes of priority rights (meaning the ability to assert one's control over it), durability, universality (meaning it is recognised widely as an asset), and liquidity (meaning it can be turned into fiat currency reliably). Secondly, these assets are owned by companies that are legally constructed to shield their owners from risk, shift losses away from owners, and can persist indefinitely.

Through these two sets of legal processes, value can be turned into a maximally profitable asset and held in such a way that it acrews to the very rich with minimal risk of losses being sustained and very little way for those assets to be taken away from them.

Pistor supplements this core analysis with plenty of examples and some great legal economic history. She also shows how powerful and wealthy people are able to use their wealth to further change the legal rules to sure up their position, creating a sort of negative flywheel effect whereby they become ever more entrenched in their wealth and accrue ever greater portions of new wealth to themselves.

I think this is a fascinating book and a great read for anyone seeking to understand the modern global economy. Well worth a read. I'd suggest pairing it with something like Martin Wolf's ‘The Crisis of Democratic Capitalism' as I think these together make for a good layman's explainer on some of the causes and effects of our increasingly staggering levels of global inequality.