## Metadata - Author: [[Katharina Pistor]] - Full Title: The Code of Capital - Category: #books ## Highlights - The traditional concepts of the common law of property were created for and by the ruling classes at a time when the bulk of their capital was land. Nowadays the great wealth lies in stocks, shares, bonds and the like, and is not just movable but mobile, crossing oceans at the touch of a key-pad in the search for a fiscal utopia. ( . . . ) In terms of legal theory and technique, however, there has been a profound if little discussed evolution by which the concepts originally devised for real property have been detached from their original object, only to survive and flourish as a means of handling abstract value. The feudal calculus lives and breeds, but its habitat is wealth not land. ([Location 200](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=200)) - “Every individual,” Smith explained, “endeavours to employ his capital as near home as he can, and consequently as much as he can in the support of domestic industry; provided always that he can thereby obtain the ordinary, or not a great deal less than the ordinary profits of stock.”17 Why so? Because “he can know better the character and situation of the persons whom he trusts, and if he should happen to be deceived, he knows better the laws of the country from which he must seek redress.”18 ([Location 220](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=220)) - Today’s entrepreneurs no longer need to seek redress at home, and the fate of their wealth is no longer tied to the communities they left behind. Instead, they can choose among many legal systems the one they prefer, and enjoy its benefits even without physically moving themselves, their business, their goods, or assets to the state that authorized that law. ([Location 228](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=228)) - Opting out of one and into a different legal regime leaves only a paper or digital trail but will not compromise the code’s power as long as there is at least one state that is willing to back it. ([Location 232](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=232)) - Realizing the centrality and power of law for coding capital has important implications for understanding the political economy of capitalism. It shifts attention from class identity and class struggle to the question of who has access to and control over the legal code and its masters: the landed elites; the long-distance traders and merchant banks; the shareholders of corporations that own production facilities or simply hold assets behind a corporate veil; the banks who grant loans, issue credit cards, and student loans; and the non-bank financial intermediaries that issue complex financial assets, including asset-backed securities and derivatives. ([Location 242](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=242)) - The craftsmanship of their lawyers, the code’s masters, explains the adaptability of the code to the ever-changing roster of assets; and the wealth-creating benefits of capital help explain why states have been only too willing to vindicate and enforce innovative legal coding strategies. ([Location 247](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=247)) - Two legal systems dominate the world of global capital: English common law and the laws of New York State.19 It should come as no surprise that these jurisdictions also harbor the leading global financial centers, London and New York City, and all of the top one hundred global law firms. ([Location 251](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=251)) - The historical precedent for global rule by one or several powers is empire.20 Law’s empire has less need for troops; it relies instead on the normative authority of the law, and its most powerful battle cry is “but it is legal.” ([Location 255](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=255)) - For the global capitalists, this is the best of all worlds, because they get to pick and choose the laws that are most favorable to them without having to invest heavily in politics to bend the law their way. ([Location 259](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=259)) - Like most empires of the past, the empire of law is a patchwork; it consists not of a single global law, but of select domestic laws that are knit together by rules, including conflict-of-law rules that ensure the recognition and enforcement of these domestic laws elsewhere, as well as select international treaty law.22 The decentered nature of the law that is used to code global capital has many advantages. It means that global commerce and finance can thrive without a global state or a global law; and it allows those in the know to pick and choose the rules that best suit their or their clients’ interests. In this way, the empire of law severs the umbilical cord between the individual’s self-interest and social concerns. The legal decoding of capital reveals Smith’s invisible hand as a substitute for a reliable legal code—visible even if often hidden from sight, and with a legal infrastructure firmly in place that is global in scope—that is no longer serving its purpose. Effective legal protection almost anywhere allows private self-interest to flourish without the need to return home to benefit from local institutions. Capital coded in portable law is footloose; gains can be made and pocketed anywhere and the losses can be left wherever they fall. ([Location 261](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=261)) - Law is a powerful social ordering technology; it has been used for centuries to scale social relations beyond close-knit communities and to assure strangers that they can risk transacting with one another to the tune of billions of dollars without ever having to come face to face. ([Location 421](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=421)) - The legal code confers attributes that greatly enhance the prospects of some assets and their respective owners to amass wealth, relative to others—an exorbitant privilege.64 Choosing the assets and grafting onto them the legal attributes of priority, durability, universality, and convertibility is tantamount to controlling the levers for the distribution of wealth in society. ([Location 451](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=451)) - states are not neutral when it comes to whose interests in an asset shall be given priority; promises of future gains are more likely to find their blessing than claims that assert self-governance or seek to ensure environmental sustainability. ([Location 525](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=525)) - Most countries’ constitutions presume property rights but don’t define them, and it is rare to find so much as a reference to who, within the constitutional order, has the power to define new property rights or alter existing ones. ([Location 559](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=559)) - However, the logic of the rise and fall of assets—land back then and financial capital now—was exactly the same: too much debt piled on a legal structure that promised more than it could possibly hold, and that collapsed onto itself when this truth leaked out under less than benign economic circumstances. ([Location 1026](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=1026)) - Incorporation literally means the creation of a new corpus, a new person. The Romans already used corporate entities, but for organizing public services, not private business. In the twelfth century, canonist scholars conceived of the church as a corporate legal entity that conferred legal powers on ecclesiastical officers, including the pope, but also on churches and monasteries independent of their relations to secular powers. In a similar vein, kings chartered towns, granting them legal personality and the right to govern their own affairs.8 The modern business corporation possesses similar powers: it is considered a legal person and as such owns its own assets and can contract, sue, and be sued in its own name. Neither churches, cities, nor corporations can act without humans, but humans are merely their agents; the legal entity is the principal. ([Location 1029](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=1029)) - Most countries today recognize a corporation with all its powers, if it follows the rules of its chosen birthplace, whether or not it ever did or intended to do any business there. ([Location 1049](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=1049)) - the legal structure of Lehman Brothers resembled a family that sells off the family home to send the kids to college, giving each child a credit card that is drawn on the parents’ account, which will be replenished only with money the children will send home someday. ([Location 1070](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=1070)) - NC2 is a fairly complex debt instrument. It is the product of asset holders’ imagination and their lawyers’ coding skills. Yet, the legal modules for coding these assets should be familiar by now. They rely on property rights to land and collateral law (mortgages) that can be used to secure land for a personal loan. They use trusts and corporate law to protect the loans backed by mortgages, i.e., their assets, behind a legal shield and thereby separate them from other operations of the trust’s sponsor. Finally, they use contract law to subdivide and rank the claims against the pool, creating tranches that can be tailored to the needs of different investors and thereby ensure that all or at least most of them will find buyers. By combining these legal modules in new ways, new debt assets were minted in the trillions of dollars. ([Location 1630](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=1630)) - rating agencies have successfully defended themselves in the United States with the argument that they are in the business of offering opinions, and that their utterances should therefore enjoy the protection of free speech under the US Constitution’s First Amendment.21 The fact that they received remunerations for their “opinions” from banks and other clients that by far exceeded the returns made by other opinion providers, such as ordinary news outlets, did not prevent courts from granting them this constitutional protection. ([Location 1648](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=1648)) - economists and accountants have clung to the notion that capital is a physical input, one of the two factors of production, when in fact, capital has never been about a thing, but always about its legal coding; never just about output and input, but always about the ability to capture and monetize expected returns. ([Location 2168](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=2168)) - Marxists at least hold that capital is a relational concept, emphasizing the exploitative relation between capital and labor. Yet they too underestimate the role of law in the process of wealth creation. ([Location 2170](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=2170)) - By grafting the modules of the legal code of capital onto an asset, its holder obtains a right over and above others; her claims enjoy greater durability and face fewer obstacles to lock in past gains by converting them into state money. Last, these special rights are universal and can therefore be enforced against the world. ([Location 2172](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=2172)) - When the settlers arrived in the “new world,” they claimed that no one before them could possibly claim prior title, because only the settlers had discovered the land and improved it. No matter that the indigenous peoples had been there first; they were expelled from their land without due process or just compensation, because their claims were not recognized in law. Discovery and improvement were deemed sufficient to override the principle of seniority for ranking competing claims to the same resource. ([Location 2332](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=2332)) - In essence, “data-generating patents” give the patentee a head start over others in building a huge, private database that will be enforced through trade secrecy law long after the patent itself has expired. In contrast to conventional intellectual property rights, trade secrets have no time limit. ([Location 2376](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=2376)) - The big stumbling block for seamless global markets based on domestic law, however, is bankruptcy law. As suggested earlier, bankruptcy is where life and death decisions are made and where losses must be accounted for. Not surprisingly, sovereign states have been reluctant to relinquish control over this sensitive legal domain. ([Location 2653](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=2653)) - The counterparties to derivatives are in the business of minting private money, assets that are cloaked in law to give them the appearance of state money, only at higher rates of return; and invariably they will find themselves from time to time unable to convert their private money into state money at the speed and for the price they desire. ([Location 2709](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=2709)) - The Eli Lilly case and the story about bankruptcy safe harbors for derivatives illustrate how traditional law enforcement agencies, such as courts and regulators, have been put in the service of capital. The holders of capital do not always win their first battle; rather, they chip away at existing legal barriers slowly but stubbornly until little stands in the way for principles that, not too long ago, appeared—to use Justice Cardozo’s words—as “unbending and inveterate,” to erode into sand. ([Location 2809](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=2809)) - The interpretation of law is always an act of lawmaking; this lies in the nature of trying to make sense of words in light of the complex reality of facts to which the law is applied. Still, the open-ended language of the treaties and the absence of a higher court that would unify its interpretation gives arbitrators enormous interpretative powers. Moreover, arbitration is a one-off affair; there is no appeal, there are only annulment proceedings, which, as mentioned, are difficult to win. ([Location 2875](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=2875)) - Legal change is part and parcel of political and social change, and foreign investors should not be given a veto right over such change by threatening with a multi-million dollar liability claim. ([Location 2893](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=2893)) - Lawyers have been in the business of coding capital for centuries, but the value of their coding efforts has increased over time with the changes in the nature of the assets they code as capital. They started with land, an asset that exists outside the law, and transformed it into capital; they have ended up creating the very assets in law that shower their holders with huge returns. ([Location 3038](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3038)) - the lawyers I have described, from the English country solicitors all the way to the partners of the global law firms, are not rent seekers, as Magee would have it; they don’t skim the cream off of business activities that could just as well operate without them; rather, they make the cream. ([Location 3051](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3051)) - Global capital exists and thrives without a global state or a global law. The explanation for this is that law has become portable; it is possible to code assets in the modules of one legal system and still have them respected and enforced by courts and regulators of another country. ([Location 3077](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3077)) - what distinguishes the common law from the civil law is the latitude it gives private lawyers in fashioning the law. They don’t just advise on existing law, they constantly make new legal rights from old cloth. They need no one’s approval as they embark on coding assets as capital; all they need to do is to mimic the argumentative strategies that have convinced courts in the past to uphold the coding of new assets, adapting the argument to the new assets and to the specific needs of their clients. At times, they will have to defend their work in a court of law, but there they will confront a judge, who only recently was one of them, because in common law systems, judges are recruited from the practicing bar. ([Location 3103](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3103)) - Even today, all law students in Germany are trained to become judges, not private attorneys; only after they qualify as a judge may they take up the private legal profession. ([Location 3177](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3177)) - To summarize, in civil law countries, private attorneys emerged later than in England, and they have never gained the kind of autonomy from the state that characterizes the private legal profession in England. This autonomy, combined with the fact that, in the common law, they have the opportunity to fashion new law subject only to occasional vetting by a court, has given the common law the comparative edge in the coding of capital. Civil lawyers have caught up with their Anglo-Saxon peers in recent decades, but their own legal system affords them a less accommodating playing field, which is why they often avail themselves of the common law system and seek access to its world of law by merging with firms from this legal origin. ([Location 3182](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3182)) - American lawyers had something else to offer. The country was not a major colonizer, but its own legal system offered plenty of opportunities for lawyers to develop their skills in more than one legal order and exploit differences among them to advance their clients’ interests. The United States has a highly fragmented legal system, more so than most other federate states. The areas of the law that make up the code’s modules, including contract, property, collateral, trust, and corporate law, are governed not by federal (central) but by state law.58 The field is even more crowded in financial regulation, where states not only compete with each other, they compete with federal law, and at the federal level, multiple regulatory agencies compete with one another. ([Location 3250](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3250)) - A survey of the most popular law that is used in arbitration shows that 40 percent of all contractual disputes were governed by English law, with another 17 percent by the laws of the state of New York. ([Location 3283](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3283)) - Something is lost, however, when cases are resolved not in a courtroom where they can be seen, dissected, and critiqued by others, but in its shadows. Disputes are the oxygen that keeps law alive and ensures that it is continuously adapted to a changing world. When cases are no longer vetted in the open, the law becomes stale and judges lose expertise, thereby giving lawyers and their clients even more reasons to avoid them. More generally, dispute settlement has private and ([Location 3318](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3318)) - When entire areas of the law are carved out from the public space that courts provide, the private benefits of out-of-court dispute settlement may well exceed the social benefits. In fact, the main beneficiaries of private settlements may not even be the parties to the dispute, but their attorneys. Perhaps they have to forego a larger fee in a case they settle; but they benefit overall, because in the absence of cases that clarify the law, their advice will be sought more frequently. Moreover, as time goes by, private attorneys become the only repeat players in solving disputes over contracts, which they themselves have fashioned, and can therefore position themselves as the only authoritative spokespersons for the law. ([Location 3323](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3323)) - available data suggest that disputes over major global transactions are increasingly resolved through arbitration, not litigation. And these are big cases. Data from 2013 based on surveys of law firms with substantial arbitral practices showed that of 109 cases these firms reported on, most had more than $500 million at stake, and close to half exceeded the $1 billion threshold. ([Location 3331](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3331)) - Arbitration started off as a welcome alternative to a slow-moving court system and attracted disputes because it was faster, cheaper, and offered arbitrators with expertise in the business, not generalist judges. Each party to the dispute typically selects one arbitrator, and these two appoint the third. ([Location 3335](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3335)) - Creating, enforcing, verifying, and vindicating priority claims against the world is arguably the most important function of states—next to maintaining peace externally and internally. ([Location 3539](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3539)) - In summary, the process of formalizing preexisting rights gives whoever is literate in words, script, or digits the upper hand, leaving the less resourceful ones behind. It is well-documented, for example, that in titling programs, male members of the household often receive title when land relations are formalized at the expense of females; and collective use rights are regularly sidelined in favor of individualized property rights, which give the select few the opportunity to monetize the assets in question for personal gain. ([Location 3552](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3552)) - Yet, the ability to spend money one does not have is—for better or worse—the very essence of capitalism. Other forms of private money, the notes, bills of exchange, asset-backed securities, etc., are IOUs that are all assigned and traded with the expectation that they are convertible into state money whenever needed, and hopefully at a profit; convertibility may not be guaranteed, but the promise of convertibility makes these assets attractive and finds them buyers. ([Location 3641](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3641)) - Today’s dealer banks take a similar position as intermediaries for all kinds of assets; they buy in the expectation of selling at a higher price; and by accepting all kinds of assets, they provide liquidity in the form of hard currency to the market. Critically, the most privileged among the old merchant banks and today’s major dealer banks always have access to state money. Without it, they would be doomed whenever private demand for these assets dries up. ([Location 3648](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3648)) - In a futures trade, parties are betting on the ability to predict future price movements, but they will have to deliver, even if they lose. In short, trading in futures is just another way of spending money you don’t have. ([Location 3657](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3657)) - With the help of the digital coding technology, it may well be possible to gain a better check over the hierarchy of money. I have argued throughout this book that only states can effectively back money, because only states have the power to unilaterally impose burdens on others. The digital code, however, offers an alternative. The future costs of a financial crisis may be built into the code in such a way that all who benefited from the asset in question (Bitcoin, for example), will have to chip in when its survival is at stake. Losses, in short, would be mutualized through a collective backstopping mechanism that is baked into the immutable, digital code. ([Location 3695](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3695)) - It remains to be seen whether digital coders can tighten the screws and more effectively impose losses on all holders of a digital currency—perhaps adjusted for the benefits they derived from them. If they succeed, they will have offered the world a truly innovative solution to the curse of private debt finance, and that is its tendency in crises to protect the gains of the few and leave it to the rest to socialize the losses—not by an invisible hand, but by the guiding hand of a state. ([Location 3707](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3707)) - The battle between the two codes, the digital and the legal, is on. Each has its own advantages and disadvantages. The legal code has proven to be highly malleable and adaptive to change, but mostly for the benefits of those with access to good lawyers. In contrast, the digital code has the potential to be more inclusive, provided that this still new technology is used to provide low-cost access to both assets and coding devices. While we cannot affirm yet which one will come out on top, all indicators suggest that the arbiter over this battle will be the “legacy” institutions: the courts and legislatures that are themselves products of law. This seems to be a strong predictor for which of the two codes will emerge from this battle victoriously. ([Location 3735](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3735)) - recall that English landlords first fought for priority rights over the commoners. After they had effectively excluded the commoners, they used their title to raise debt finance and mortgaged their land to creditors. However, when creditors tried to seize their property to recover the value of the loans they had extended to them, they cried foul and turned to lawyers and to courts for help. The lawyers helped them to protect their family wealth behind the legal veil of the trust and thereby to immunize it from their personal creditors; and the courts recognized and enforced these new boundaries, keeping creditors at bay. In doing so, they prolonged land’s status for a few decades as the most important source of wealth.4 It took a major economic depression to redraw these boundaries in law and to empower creditors to fully enforce the mortgages they had obtained. Creditors soon learned to play the same game. They lobbied hard for bankruptcy rules that would uphold their rights and give secured creditors priority rights over unsecured creditors, although they faced considerable push-back from entrepreneurs who convinced the English parliament that insolvency was not necessarily evidence of their immorality, but just as likely, of bad luck. Indeed, persons that qualified as “traders” received special treatment in bankruptcy. Unlike the paupers, who were imprisoned for failing to pay their debt, bankruptcy offered a cleansing process for them, whereby they could rid themselves of past obligations.5 The latest champions of debt finance, the derivative traders of our own time, similarly demanded and obtained exemptions from general bankruptcy rules to ensure that they could re-position their portfolio at any time, even if this put other creditors at risk. The last thing any creditor wants is a run on the debtor’s assets—unless of course she gets there first, which is what bankruptcy safe harbors are all about. They allow creditors of privileged assets to net out their claims before any other, including secured, creditors get their share, while everybody else has to yield to the automatic stay.6 ([Location 3768](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3768)) - Capital owes its vibrancy and frequent transmutations (from land, to firms, to debt, to ideas, etc.) to the fact that private and not state actors code capital in law. Asset holders in search of higher returns and greater wealth have been the main driver for adapting the modules of the code to ever newer types of assets, but they needed lawyers to, quite literally, perform the deed. ([Location 3822](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3822)) - Most of the time, the boundaries of the code’s modules are pushed slowly, step by step. If a legal module, such as the trust, can be used to harbor land and thereby protect it from creditors, perhaps it can protect other assets as well, such as government bonds or corporate shares, and eventually mortgage pools or their derivatives, such as CDOs. This gives you the history of trust law in a nutshell, from its feudal origins to modern-day shadow banking. ([Location 3847](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3847)) - When new assets are coded as capital or established coding practices are extended beyond existing boundaries, every little step is carefully argued by the asset holders and their lawyers, the code’s masters. They tend to be blind to the social implications of their actions, if only because the rights they claim can be traced to a legal order that has separated content from form—not the substance of a right, its purpose, but the form itself is what matters, as well as the legal coding techniques that can extend the legal attributes of capital to yet another claim that promises monetary returns. The autonomy of individual subjective rights as the foundation of the capitalist legal order creates the conditions for pushing the outer bounds of private entitlements. ([Location 3859](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3859)) - Two features of private law have greatly facilitated a pattern of development that has bestowed legal privileges on some at the expense of others: its incompleteness, or indeterminacy, and its malleability. Indeterminacy makes law gameable; private law being not only indeterminate, but also highly malleable, makes gaming even easier. ([Location 3864](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3864)) - The power of private law in coding capital is further evidenced in how infringements of this law are policed: it lies in the hands of private parties, not the state. There is no public agency that monitors ordinary breaches of contracts, infringements of property rights, or shareholder rights. The state, through its police force, prosecutors, or regulators, intervenes only when breaches reach the threshold of theft, fraud, or embezzlement—and even these boundaries are constantly under attack. Victims of lesser transgressions have to take the law into their own hands; and they will often have to bear the costs for doing so. ([Location 3887](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3887)) - For good reason, the law does not give access to courts to just anybody. As a general rule, only someone who was a party to the contract that was breached, is the owner of the property that was damaged, or was the victim of a harmful tortious action, has “standing” in court. If this were not the case, anybody with a grievance might file a suit, impose costs on others, and clog the court system. But for the legitimate plaintiffs, the costs of private policing often exceed its benefits, and many victims will discover a loss that empowers them to bring an action only too late to recover anything; they may be formally barred by statutes of limitation, which bar litigation after the lapse of time, or may find it difficult to obtain the evidence needed to make their case. Taken together, these hurdles give the coders of capital a first-mover advantage. A practice that may have been deemed a transgression of the rights of others when first introduced can therefore spread and evolve into a new standard of behavior before it is legally challenged; after all, if everybody does it, it can hardly be wrong. Courts might even sanction it as the new standard of behavior. ([Location 3901](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3901)) - In sum, the code of capital benefits from law’s indeterminacy, from private autonomy that makes the modules of the code highly malleable devices in the hands of sophisticated lawyers, and from the fact that aggressive coders can play offense and exploit first-mover advantages. Under these conditions, there is little reason for asset holders to bargain with the state as rational choice theorists would have it; all they need is a good lawyer who commands the skills to code their assets as capital. And, contrary to Marxists, they don’t need to storm the Bastille to exercise power; they only need to position their lawyers at the major intersections of the nation’s capital to manage the traffic lights so that they can ride a green wave. ([Location 3927](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3927)) - Public power is essential for ensuring that the code’s attributes are respected and enforced. Two parties can agree to a contract and live up to its terms, but if they want to prevent others from interfering with their agreement, they need more. Anyone can assert physical control over physical assets and claim that it has always been hers; but it takes vigilance and resources to protect assets in this fashion. If these costs can be socialized by delegating the protection of legal rights to a state, asset holders save huge costs. ([Location 3933](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3933)) - The state and its agents, the courts and regulators, often play a passive role. There are times when they actively break down barriers to new coding strategies or extend additional legal subsidies to holders of capital—typically in the form of exemptions from existing rules or tax benefits. For the most part, however, the state needs to do little more than recognize and enforce the rights that private parties have coded in order to protect, and even expand, the interests of the holders of capital. ([Location 3949](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3949)) - Measures taken by states to strengthen the rights of the underprivileged were always viewed with suspicion and depicted as a potential infringement of private rights; as entitlements, not legal rights. Rights were deemed not only superior, but qualitatively different, because they were of God, of nature, or could be rationalized by efficiency claims. ([Location 3987](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3987)) - Once the claims of capital holders have been vindicated in law, they assure a trickling-up effect, or perhaps horizontally to other aspiring asset holders around the globe, but with no guarantee of any trickling down. ([Location 3992](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=3992)) - Albert Hirschman illuminated the power dynamics in organizations, a firm, an association, or a state, by suggesting that any member of such an organization has essentially three options: exit, voice, and loyalty.32 Members can vote with their hands or with their feet; if neither works, they have no option but to be loyal. In large organizations with many members, only few have an effective voice. This is why exit is such an important option to have. Not everybody, however, has the same exit options. It takes resources to move physically, and it takes law and good lawyers to move legally. ([Location 4025](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=4025)) - If the capacity to create or secure private wealth is coded in law, as I have argued throughout this book, then the power to control the coding of capital is key for the distribution of wealth in society. ([Location 4040](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=4040)) - Subsidies and other “entitlements” are typically viewed with great suspicion, because they are regarded as distortive of markets and lead to inefficiencies, even corruption. Yet, the legal protections capital enjoys are arguably the mother of all subsidies. Without the code’s modules and the possibility to fashion them to one’s liking, neither capital nor capitalism would exist. ([Location 4050](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=4050)) - The feudal calculus stands in direct tension to the aspiration of democratic polities for which law is the primary tool of collective self-governance. In the current configuration of rights and law, this tool is bent toward capital. Rising inequality is the logical conclusion of a legal order that systematically privileges some holders’ assets, but not others. ([Location 4061](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=4061)) - holders of assets that currently enjoy the status of property rights or similar entitlements will demand compensation for expropriation should the scope of their legal rights be curtailed. Given the amount of wealth that is tied up in property rights, collateral, trust, and corporate law, a peaceful or affordable reconfiguration of rights may well be beyond reach. ([Location 4081](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=4081)) - Yet, the fact that capital depends on state law and state enforcement of private contracts and deeds gives agency to lawmakers, legislatures, courts, and regulators. If they can free themselves from the cognitive (and in some cases) financial grip of capital, they may help advance the project of democratic self-governance. The basic task would be to roll back control by current asset holders and their lawyers over the code of capital by limiting the choices lawyers have at their disposal when coding capital, but also by granting special legal protections to assets (and their holders) that have been neglected in the past. ([Location 4084](https://readwise.io/to_kindle?action=open&asin=B07KM2FW65&location=4084))