*Katharina Pistor* # Progressive Summary # Definitions # Chapter Notes ## 1 - A legal regime Capitalism isn't just a financial regime. It's also a legal regime. It is characterised by three features: - Private legal empowerment. - Decentralised access to the state's coercive powers. - legal arbitrage > Students of capitalism, from Karl Marx to Joseph Schumpeter and beyond, tend to associate capitalism with the trade of goods and services, labor relations, private ownership of the means of production, the business corporation, banking, and money—which are all regarded as economic phenomena.2 In fact, these matters are legal to the core.3 Trade and commerce rely on contract law, enterprises employ organizational law, ownership is determined by property law, and every “I owe you” worth its stated amount is an enforceable contract that may also enjoy the explicit or implicit backing of central banks, the issuers of the currency that serves as a unit of account, a means of exchange, and a store of value. > Explaining capital is one thing; understanding capitalism, a system, is another. It cannot be fully explained by the sum of all the legal modules that code capital. Instead, understanding capitalism requires lifting the gaze from the micro-institutional level where capital is coded to larger forces that are responsible for the interplay of law with politics and the economy, and to their normative underpinnings. The word "capitalism" has a separate history from "capital". In the 18th century, people labeled capitalists were financiers who invested in the state debt that wexed and waned with the military adventures of the issuing sovereign. French political theorists established the term capitalism in the 1830s, and for them it stood for investing in state debt for private gain. The core logic of capitalism is the appropriation of collective resources (social as well as natural) in the pursuit of private profit and wealth. The social resources captured by capitalism are sovereign debt and the legal and monetary systems. These social resources further enable the appropriation of the world's natural resources – its land, subsoil, animals, oceans, and the air we breathe. Law is both a resource and the means by which other resources are exploited. Capitalism is a regime that "empowers (some) private actors to use private law to govern or even dominate others, while also protecting these practices against state intervention with the help of public law. Appropriation can be both brutal and subtle, direct and indirect. The latter are sophisticated techniques that operate through legal means and are backed by state power. Today, most appropriation is not done through physical violence, but by takings cloaked in law, in rights and claims that are based in property rights or contracts, and are enforceable in a court of law. Capitalist law prioritises private over public ordering, and largely exempts private parties from respecting others' individual rights enshrined in constitutional law. (This is more pronounced in some jurisdictions than others.) > A legal regime is a matter of human choice, though not of grand design; it is the product of the many choices that people make as individuals and as members of families, communities, and the polity they are a part of. If that is so, different choices are at least imaginable as individuals and collectives weigh in on the use and interpretation of existing law, imagine different uses, and even mobilize for formal legal change. > For transformative change, isolated alterations to existing laws or institutions will not be enough. Instead, it requires putting private law on normative foundations that are compatible with and supportive of the norms that animate constitutional democracy, including respect for human dignity, accountability, and collective self-governance. > Capitalism has always been characterized by deep contradictions, as Marx and Friedrich Engels noted. The reason that it has not yet succumbed to those contradictions lies in the willingness of societies to mobilize social resources whenever a crisis threatens capitalism’s future. The key resources employed, law and money, may appear to be infinite, but they are not. Their availability and impact depend on the continued political support for the authority of the law and the institutions of the state that uphold it. > It is not an accident that capitalism co-evolved with the rise of the modern state. As states solidified, local markets were integrated into national economies, not simply by natural evolution but by mobilizing public power to actively break down legal barriers to trade and commerce and by constructing legal systems at the local, national, and international levels. The great social transformation that paved the way to modernity began, in Polanyi’s account, with the elimination of Elizabethan poverty laws and the busting of guilds. It set the stage for the subordination of society to the market principle against which societies rebelled in the early decades of the twentieth century only to be subordinated once again in the later ones. > Just as markets were pried open for capitalist endeavors at home, European powers burst open foreign markets with military force in the name of development and destroyed ancient civilizations that stood in the way of colonization. They chartered trading companies that were run by private actors for profit and armed them with guns and the legal authority to govern the people conquered by the colonizing powers. These companies brought with them the law of the states that chartered them, which they used to assert private property rights, to enter into deals with locals, and, using the newly established courts, to enforce their claims against those locals. > Colonialism was not lawless but it did display law’s power over entire peoples whose own systems of social ordering were derided as uncivilized. Neither was colonial law only or even primarily about administrative or public law by a foreign state. Private law played a critical role, and not only in settlers’ colonies or to their benefit. Property rights vested the colonizers with control rights over resources, and debt contracts ensured that even rich locals became increasingly dependent on foreign creditors. Only the latter had access to the high-powered money of their own sovereign back in London or Paris, which enabled them to weather financial crises that arose, while locals often succumbed to those crises. > The end of colonialism also did not mark the end of the imposed law. Most former colonies kept the private law of their former colonial masters, even if they wrote new constitutions and abolished administrative laws and regulations that were used to suppress locals. And as foreign trade and investment became global, the laws of the leading capitalist economies, the United Kingdom and the United States, came to dominate international trade, investment, and the global financial system. In the post-colonial setting, conquest and the imposition of foreign law by force was no longer an option, but this did not stop the transplantation of law from the core to the periphery of the increasingly global capitalist system. It was not the logic of the regime but the means that changed for imposing foreign law when financial support for less developed countries was conditioned on the adoption of the “best practice” rules of “advanced” economies. In short, capitalism owes its global expansion not to an open and fair competition of alternative systems; it has been coded in law with both pressure and massive financial support from multilateral institutions and capitalist countries. ## 2 - Theories of Capitalist Law Karl Polanyi "identified the subordination of society to the market principle as one of the root causes for the backlash against democratic constitutionalism and the rise of communism and fascism in the first part of the 20th century." ## 3 - Legal Empowerment Power is the capacity to make others do what they would not themselves choose to do. # Quotes # References