Photograph by Nathaniel St. Clair
The popular political discourse frequently presents the idea that redistribution happens or can happen after markets yield conditions of inequality. But this narrative is fundamentally mistaken and misleading. Redistribution begins before firms, markets, or competition exist at all, because the legal concepts we use themselves confer economic value and they do so unevenly. The legal coding of capital acts as a distribution mechanism, routing economic value upward to the extremely rich.
Capitalism is not ultimately defined by exchange through markets, economic competition, or even property. Though it contains these elements, other systems have likewise included them. Capitalism depends on a suite of special legal attributes for capital. More precisely, capitalism is a system in which the state and the law define what is and can be capital in terms of the legal qualities created for and attached to it. As legal scholar Katharina Pistor writes, “Capitalism, it turns out, is more than just the exchange of goods in a market economy; it is a market economy in which some assets are placed on legal steroids.”
Professor Pistor argues that “capital is not a thing, but a quality, although most [economists] don’t know it yet.” Within this insight is the essential task of shifting our attention from the owners of capital to what makes something capital in the first place. The idea of capital as a quality and not a thing troubles some of the core assumptions of standard economic narratives. An economist might say that land plus labor and savings yields capital. Pistor’s argument is that in fact, an asset transforms into capital when the state, through the law, imbues it with certain powers and rights. It is decidedly not a question of protecting existing wealth, but of changing the social ontology and the real-world relationships of power.
The law determines whether an asset or an organization can survive forever, whether an asset can serve as collateral, whether a claim has priority over a competing one, whether there is personal liability for tortious conduct, whether an asset will generate monopoly rents, whether ideas can be private property, and whether and when there are particular legal protections and causes of action, etc. The state creates new forms of economic power that are kept beyond the reaches of ordinary people and the types and scales of property available to them. Thus is capital legally constituted wealth.
Capitalism is not only an economic system, and the power of capital within this system is not only economic power. It is an instantiation of state power. It is a system constituted by political and legal power in order to code selected organizations and asset categories with asymmetrical and differential capacities. The kinds of accumulation and inequality we find today are only possible within this framework. The state doesn’t ever merely “intervene” in the capitalist system, which is always already a system of both production and government. The state defines the concepts and categories through which this system operates, conferring power and privilege “by subtler chains than of old.” There is never an economic sphere that has an existence independent of political authority. The state creates and empowers the legal concepts determining the parameters of property, capital, contract, corporate structure, securities, lending and money, etc., and it selectively attaches different powers and prerogatives to each.
In this way, Pistor’s work bears a resemblance to Ellen Meiksins Wood’s account of capitalism. Wood argues that although our social system recognizes a difference between the political and the economic spheres, this kind of neat distinction is only possible because the foundational and constitutive work of political power has already been completed. The distinction itself is historically produced, and the political work (for example, using the law to push farmers off of their land, then consolidating and enclosing that land) recedes with surprising speed into the background of daily social life. Productive life within capitalism may then seem to take place and unfold independently from the political world, even as all of its concepts and institutions rest on political power.
Pistor’s work thus also presents a diagnostic argument remarkably similar to that of American individualist anarchists like Ezra Heywood. She says, “Capitalism empowers private actors to use critical social resources—the law and the money system, to list only the most obvious—to build private wealth and power at the exclusion of others, and with little accountability of those who have amassed this power over others they seek to control.” We take for granted the ruling class’s claim that the extreme structural inequalities of the present are natural features of a liberal society and a free market economy, yet even the billionaires feel comfortable admitting that we don’t have a free market of any kind.
Heywood argued that in fact “the natural laws of value and exchange condemn speculative increase.” We don’t know, because we’ve never tried anything but a political economy granting massive amounts of wealth and special legal position to large-scale masses of capital—precisely because, as Heywood also pointed out, property, wealth, and capital don’t naturally grow and accumulate, but “tend[] to diffusion and decay.” A system in which capital grows itself by itself is not possible absent the coercive power of the state. Heywood understood that without the continuous support of government, massive concentrations of capital would wither through physical depreciation in various forms, reduction and division through the generations, and true competition in the market. The concentrations of capital we have in the system today require enormous investments of “public” money and exemptions from rules everyone else must play by.
We can observe how the law’s coding of capital inoculates it at every stage and scale, and how this process leads to crisis. The monopolies and extremes of consolidation and concentration we find today are the sure results of this system: in the capitalist political economy, the larger companies consume their competitors and build legal and regulatory moats to protect their space from competition. That is, capitalism entails the destruction or preclusion of free markets. This is not at all surprising to anyone who has studied or experienced this system, but we are nonetheless compelled to accept the constant equating of capitalism with real, substantive economic freedom. Heywood did not oppose industry or trade, only the idea that wealth should enjoy an arbitrary legal right to increase itself without work. Elsewhere he writes,
Thus, by the perpetual value and increase allowed money, capitalists acquire a kind of supernatural power over laborers; so that a man of one generation can tax all future generations with the support of his offspring; and interest is the golden chain which binds the Prometheus industry, in order that vultures of moneyed aristocracy may feed on its vitals.
The system of capital aggrandizement undertakes redistribution less through visible and explicit subsidies (though these are crucial) than through the ordinary functioning of legal and economic concepts and institutions. Because the political-economic choices are there, but embedded in law, the system performs an alchemical transformation, making contingent privileges appear as natural rights or features of a free market. This successfully hides the system’s consequences for distribution and inequality and its political nature and origin. In short, it is a masterwork of the ruling class.
If the state wanted to give a direct subsidy of $250 million to a particular firm or industry, it would, in theory at least, have to pass through a normal appropriations process, ostensibly with hearings, detailed budgets, and discrete goals. It would be visible and politically contestable, even if only in a ceremonial or pro forma sense. But much greater transfers have been and continue to be achieved through subtler means that do not appear as transfers, baked into the system’s code, in Pistor’s terms.
If such effects can be accomplished through opaque legal doctrines around business organizations, intellectual property, creditor and debtor relationships, the tax system, banking and financial services, and securities, among many other areas (the list is always growing by design), then many of the most decisive transfers of substantive power and wealth can appear as both pre-political and pre-economic. They disappear entirely from the public or social consciousness.
Discussing “the transformation of private law after 1790,” legal scholar David Sugarman contended that “subsidisation through technical legal doctrine mystified the underlying political choices. It avoided spreading the cost over a wider segment of society and the more open public discussion and scrutiny that would have resulted if development had been encouraged by direct taxation.” This is part of how it is possible for the capitalist system to masquerade as a meritocratic free market. The state can distribute economic opportunity, bargaining power, and returns through juridical means no less than fiscal ones. It has many tools and continues to reconstitute economic hierarchies through complex and inaccessible privileges to capital. From the perspective of the capitalist and his counselors, the best subsidy is one that fades away into the background of the legal system itself, disappearing as a permanent feature of its design.
This system will be impenetrable and unchangeable for as long as we assume the truth of its concepts and categories. In treating capital as an object or thing, rather than as a kind of relationship produced by the force of law, we allow massive acts of economic pre-distribution to capital to pass as the neutral working of a free economy. Capitalism is a political and juridical system more than and before it is an economic one. If we can’t see the source code, we can’t mount a serious challenge to this political and economic system.
The post “Capital Is Not a Thing”: The Legal System’s Pre-Distribution of Economic Power appeared first on CounterPunch.org.
This content originally appeared on CounterPunch.org and was authored by David S. D’Amato.