Two items on my summer reading list focused on economic growth and the special role played by property rights. For once, Amazon recommended an appropriate follow-up, Katharina Pistor’s The Code of Capital.
Hernando de Soto stressed the importance of formal property rights as the foundation for growth-oriented economic activity. Formal, legal property rights turn otherwise “dead capital” – typically the real estate held by the global poor only by extra-legal and local social conventions – into live capital that can be used to invest in production capacity. Pistor, a legal scholar, lays bare by what alchemy the legal profession turns dead capital into live capital. Her analysis shows how private legal professionals use existing law to create capital out of, well, all sorts of things, really. Whereas de Soto focused on turning dead real estate into live capital, Pistor shows how lawyers have breathed economic life into all sorts of social relationships, thereby revealing to what degree the notions of “property” and “capital” are fluid and historically contingent.
In particular she shows how the formal property rights to land – the foundation of economic growth for de Soto – were first patched together out of a hodgepodge of legal devices. The all-important feature of alienability – the capacity to sell land or deed it over to a creditor – was not a given: It had to be encoded in law and accepted in practice, against other social conventions, e.g. that a family had an inalienable ancestral claim to land, regardless of what might be owed to creditors.
The model of property rights established for land has since been extended to all sorts of other social practices including promises (debt obligations) and ideas (intellectual property).
I’m still contemplating the implications of Pistor’s work, but what stands out to me are the fluidity and contingency of property rights. For example, with respect to whether property is alienable: Although alienability – through sale and foreclosure – is essential if you want to breathe life into capital and create growth, it is not the case that alienability is always desired by those who use lawyers to encode their property formally. On the contrary, lots of effort goes into creating contracts and legal mechanisms that shield property from creditors, or prioritize some creditors’ claims over others’. There is no equilibrium notion of property rights towards which legal practice has tended over time. There is a constant negotiation and renegotiation of what rights property involves, whose rights they are, and what types of things – land, promises, ideas, etc. – can be considered property.
This points again to a central preoccupation of the Ruminathans: What are the rules by which we negotiate in everyday situations?
The Ruminathans 