This post is part of a symposium on Katharina Pistor’s The Law of Capitalism and How to Transform It. Read the rest of the posts here.
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Katharina Pistor’s new book is an ambitious effort to define capitalism and law’s role in it, to explain why capitalism has been so difficult to regulate, and to prescribe a transformation of private law designed to durably transform capitalism. Capitalism, she argues, is “a legal regime that enables the appropriation of collective resources, including the law itself, for private gain. It describes 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.” The Realist core of this claim—that private law is state action and so requires justification from a public perspective—is familiar from Hale and Morris Cohen. Pistor goes further. She argues that “it also follows from the premise that capitalism is a legal regime that a transformative change is possible only through law,” specifically, that it “requires putting private law on normative foundations that are compatible with and supportive of the norms that animate constitutional democracy.” Pistor identifies the capabilities approach, developed by Amartya Sen and Martha Nussbaum, as such a foundation for “Just Private Law.”
My primary concern with this analysis is that it emphasizes a particular dimension of capitalist social relations as though it were the whole, and, as a result, focuses its attention on mostly ameliorative reforms, while understating the importance of reforms that would be truly transformative. My basic disagreement is with Pistor’s conception of capital and capitalism, which leads directly to her prioritization of private law reform. Without attending to the foundational role of market dependence for subsistence and production in the structure and dynamics of social relations in capitalism, it is impossible to diagnose which reforms could deliver real change.
In Pistor’s analytic framework, capital is an asset (“law is foundational for the production and reproduction of capital, the asset, and of capitalism, the regime”), capitalists are “traders in any asset that promises financial returns,” and capitalist ownership “is about maximizing pecuniary gain from an asset.” This picture is consistent with The Code of Capital, focused on the legal elements that make assets readily tradeable for profit. The regime, capitalism, is the legal framework that creates the tradeable assets, prioritizes private choice in their design, and gives capitalists asymmetric access to the means of legal coercion, thereby privatizing the coercive authority of the state on asymmetric terms that benefit those who can afford lawyers. These lawyers also enable legal arbitrage to exploit the inherent incompleteness of law and inter-jurisdictional variation.
This framework directs attention to a particular subset of profitable activities within capitalism and away from capital as a social relation. In a revealing aside, Pistor writes: “Capitalism’s initial rise coincided with the enclosure and privatization of land. Only when land can be sold and mortgaged can owners realize land’s expected future value today.” Her focus is clear: what made enclosures capitalist was their legal encoding of land as a profitably tradeable asset.
The problem with that interpretation is that, even after enclosure, substantial portions of land were encumbered by strict settlement. Converting them into tradeable assets required thousands of private estate acts granting specific relief. While a regulatory mechanism for case-by-case relief was introduced in the 1846 settlement by which Robert Peel’s government bought landowners’ acquiescence in repeal of the Corn Laws, it was only in a series of acts beginning in 1882—when rail- and steamship-laden grain shipments from America and Russia swamped Britain’s agricultural capitalists—that Parliament created general relief from strict settlement, converting Britain’s landed rentiers into financial rentiers. By then, the capitalist transformation this legal machinery supposedly enabled was long complete. What the Parliamentary Enclosures did do was expropriate the use privileges that gave large parts of Britain’s rural population direct access to the means of producing part of their subsistence—in some regions, as much as half of household needs. Their effect was to force rural families from partial into full market dependence for subsistence, checking the wage growth that had characterized the first half of the eighteenth century and proletarianizing the countryside, women and children above all.
My point is not historical pedantry but conceptual disagreement. Capital is not a machine, a plot of land, a bank account, or any constellation of tradeable contractual claims on resources or flows of money. Capital is a social relation. Tax farmers in the 18th century Ottoman Empire could and did buy, sell, and borrow against the tax farms (malikâne) they had acquired from the Sublime Porte, but that didn’t make the Ottoman Empire a capitalist society. So too with the Holy Roman Empire, where 16th century feudal lords mortgaged the in-kind and corvée labor obligations of whole villages of serfs to support their current consumption. As Marx explained in chapter 33 of Volume I, “capital is not a thing, but a social relation between persons, established by the instrumentality of things.” There, he describes a Mr. Peel (Robert Peel’s second cousin) who brought “with him from England to Swan River, West Australia, means of subsistence and of production to the amount of £50,000,” along with 300 working-class men, women, and children. On arrival, finding they could produce for themselves on abundant land, Peel was left without a servant and his “capital” inert. The parliamentary enclosures made landlords and tenant farmers more fully capitalist not by making land tradeable, but by making the partially market-dependent rural smallholders and cottagers into a fully market-dependent proletariat.
Without a workforce forced to sell its labor because of its own dependence on markets for subsistence, ownership of resources in production, however well specified in law as assets, does not become capital. It only does so within the social relations of capitalism, in which the role of capitalists is as both owners of property in resources in production and those who do the cognitive managerial work of organizing production, always in relation to others who occupy the roles of workers—whether manual or clerical, skilled or unskilled, formally equal or status subordinated—as well as to other capitalists, rentiers, and professional managerial class cognitive workers, all operating under market imperatives for production. “Capital” and “capitalists” only have meaning within a historically specific form of social life—capitalism—that emerged in societies in which institutional changes made commodity exchange the dominant form by which households acquire subsistence needs and organizers of production acquire production inputs.
This conceptual difference drives a programmatic one. Pistor argues:
No doubt, well-crafted housing policies, expanded health care, and an infrastructure that provides clean water and sustainable energy to all would do much to accelerate the pace of change. What I am suggesting is that if we limit ourselves to regulatory law and do not also change private law, including tort and contract law, as well as the procedural rules that govern litigation, little will be achieved, because strategic actors will once again exploit the duality of public and private law to avoid their responsibilities to others.
The changes that Pistor advocates aim to rebalance private law in favor of consumers and workers vis-à-vis capitalists. Her emblematic proposals include limiting contract enforcement against those whose consent is not real—a robust version of the unconscionability doctrine; shifting to a precautionary principle in torts, to tighten constraints on what corporations can get away with; refusing to recognize property claims when the origin of acquisition is itself wrongful, such as property in databases built on violations of user privacy rights; attenuating the limited liability of shareholders, requiring instead a duty of good care in corporate law; and significant reform of access to courts—in terms of the rules of civil procedure, class actions, and even citizen tribunals.
My point is not that these reforms are a bad idea. Many are good and could improve the asymmetric power distribution between corporations and consumers or workers. The problem is emphasis and prioritization. Treating housing, healthcare, and infrastructure as mere “regulatory law,” contra “private law,” rather than as pillars of a broad program of decommodification, and characterizing such policies as something that would “accelerate the pace of change,” rather than as the primary engine and precondition of change, underscores the cost of the conception of capitalism that shapes the entire book. Housing, healthcare, and similar reforms go to the heart of the matter: to market dependence for subsistence. These reforms directly determine the degree of desperation that workers face and that forces them to sell their labor on pain of destitution. And while Pistor correctly diagnoses that capitalists will seek ways out of any new institutional settlement, it is precisely the incompleteness of law and the opportunities for arbitrage she emphasizes that assure that a change in private law cannot be the primary avenue of transformation. What her conception of capitalism misses is that capitalists themselves incessantly pursue power, including by leveraging law and legal arbitrage, because they have no choice: they are compelled by market imperatives for production. Only reforms aimed at transforming the institutional drivers of these market imperatives themselves, for both subsistence and production, can hope to contain capital.
Decommodification of access to basic needs, freedom from want, is the precondition to any meaningful transformation of capitalism. Certainly, reform of contract, property, tort, civil procedure, and corporate law have important roles to play. But to assess the transformative, as opposed to ameliorative, potential of any legal reform, we have to tie it directly to how it affects market imperatives for subsistence and production, and how these structure class and class power under different regimes within capitalism. What makes social democracy different from liberal oligarchy is not primarily enforceability limits on mass market contracts, a robust precautionary principle in tort, or less unequal access to justice in civil disputes. What distinguishes social democracies is universality and generosity of access to the basic means of subsistence, attenuating market dependence for subsistence. A truly transformative social democratic approach must pair such a program with meaningful socialization of markets in labor, knowledge, credit, and infrastructure, attenuating market dependence for production by creating socially embedded alternatives for organizing production.
