Host – Roge Karma (Ezra Klein on holiday)
Guest – Katharina Pistor
Capital is actively created by legal system
Landlord rights originating in feudal era have carried over to modern economy, and been applied to more and more assets
Legal precondition: the right to own something defines Capital
Capital has 4 attributes that allow holders to generate / protect wealth over time
1. Priority – competing claims, some have better rights than others
2. Durability – protect and separate certain assets
3. Convertibility – how financial assets attain durability, you can convert riskier assets into safer assets in crisis times
4. Universality – legal techniques will be enforced against the world; state will help protect you
Land and property rights are conflated, but think about all the open land that existed throughout history
When we want to MONETIZE the land, we need to allocate rights and exclude others, and then you can sell it, mortgage it
England took 200 years to enclose its land, turning land into capital through a complicated process
Distinction is between creation of wealth in front end, and distribution of wealth in back end – she’s focused on creation of wealth (the pre-distribution)
That creation process already has the DNA of a certain social structure – but it’s separate from back end, from re-distribution
Creation of capital of all types – whether land or today’s complex financial instruments – it’s all the same legal DNA
Land was most important source of wealth until 19th-20th century
IP rights is a newer type of asset – patents, copyrights, trademarks – these are legal inventions, enforceable IOUs
But the same general process (that applied to land) was applied to IP
But these same legal processes are responsible for a lot of inequalities and historic injustice
Corporations are separate legal persons
Creatures of the law, separate from its founders and management
Corporations live longer than humans
Limited liability rights
Broadens access to capital
Incentivizes risk taking
But in recent times, limited liability has changed in how its applied
When company fails, workers and creditors will lose
Sometimes this is abused – eg, a corporations can create another corporation – but if this subsidiary goes under, legal shield protects the main corporation
Lehman when it failed – had 200+ legal entities
60 entities in Delaware alone, 30 in UK
Why? Raise more debt finance, play tricks to funnel profits and shelter liabilities
eg, main entity shareholders get all profits and dividends, but the subsidiaries take the losses (ultimately the creditors)
*Stopped ~35 minutes into episode