A Guide to the Legal Fictions That Create Wealth, Inequality and Economic Crises
\u201cCapitalism, it turns out, is more than just the exchange of goods in a market economy,\u201d Katharina Pistor writes. \u201cIt is a market economy in which some assets are placed on legal steroids.\u201d\n\nPistor is a professor of comparative law at Columbia Law School, the director of the Center on Global Legal Transformation at Columbia University and the author of \u201cThe Code of Capital: How the Law Creates Wealth and Inequality.\u201d In the book, Pistor argues that economic value isn\u2019t just captured by markets; it is created by the legal system. An asset like a piece of land or a machine has some intrinsic value. But it is only when you graft legal attributes onto those assets \u2014 backed by the coercive power of the state \u2014 that they are transformed into wealth-generating capital.\n\nPistor\u2019s theory has sweeping implications for some of the most fundamental economic questions of our time: How is wealth actually created? Why does our current economic system produce such huge inequalities? What causes financial crises? In Pistor\u2019s telling, you can\u2019t begin to answer such questions without understanding the legal foundation that our economy is built on.\n\nThis is a conversation that delves into the deepest layer of our economic system \u2014 one that shapes all of our lives even as it remains largely invisible. We discuss the four legal attributes that transform an ordinary asset into a wealth-generating device, how the law creates corporations and financial instruments out of thin air, the \u201cfeudal calculus\u201d that underpins our modern economy, why focusing solely on wealth redistribution will never be sufficient to solve economic inequality, how private lawyers \u2014 operating outside democratic institutions \u2014 end up shaping the rules of our economic system, the \u201claw and finance paradox\u201d that explains why financial crises happen, how legal manipulation has eroded the \u201csocial contract\u201d of capitalism, whether the law can work as a tool to help fight climate change and more.\n\nMentioned:\n\n\u201cA Legal Theory of Finance\u201d by Katharina Pistor\n\nBook Recommendations:\n\nCapital in the Twenty-First Century by Thomas Piketty\n\nCrashed by Adam Tooze\n\nAges of American Capitalism by Jonathan Levy\n\nThis episode is guest-hosted by Rog\xe9 Karma, the senior editor for \u201cThe Ezra Klein Show.\u201d Rog\xe9 has been with the show since July 2019, when it was based at Vox. He works closely with Ezra on everything related to the show, from editing to interview prep to guest selection. At Vox, he also wrote and conducted interviews on topics ranging from policing and racial justice to democracy reform and the coronavirus.\n\nThoughts? Guest suggestions? Email us at ezrakleinshow@nytimes.com.\n\nYou can find transcripts (posted midday) and more episodes of \u201cThe Ezra Klein Show\u201d at nytimes.com/ezra-klein-podcast, and you can find Ezra on Twitter @ezraklein. Book recommendations from all our guests are listed at https://www.nytimes.com/article/ezra-klein-show-book-recs.\n\n\u201cThe Ezra Klein Show\u201d is produced by Emefa Agawu, Annie Galvin, Jeff Geld, Kristin Lin and Rog\xe9 Karma. Fact-checking by Michelle Harris and Mary Marge Locker. Original music by Isaac Jones. Mixing by Jeff Geld and Sonia Herrero. Audience strategy by Shannon Busta. The executive producer of New York Times Opinion Audio is Annie-Rose Strasser.