Tartle Best Data Marketplace
Tartle Best Data Marketplace
Tartle Best Data Marketplace
Tartle Best Data Marketplace
Tartle Best Data Marketplace
Tartle Best Data Marketplace
October 8, 2021

Is Wealth Inequality Entrenched in Our Legal Code? With Scholar and Author Katharina Pistor

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Money doesn’t grow on trees, but we know some people have vast reservoirs of wealth at their disposal. In certain cases, their tools for wealth creation are passed down from generation to generation. Why do these bottlenecks happen and why does wealth inequality exist? How can we work towards a more equitable society, where those in poverty have a better change at upward mobility?

The answers to these questions aren’t easy, especially when the law itself appears to be a hindrance to the masses. In this episode, Katharina shares her valuable insights on how the law works—and why it is not working in favor of the most vulnerable.

The Legal Code’s Role in Inequality

Policymaking around assets is concerned with creating conditions where everyone can prosper. As a result, the legal code is constantly designed and redesigned in an attempt to evolve alongside society.

However, Katharina discussed how the people behind the code have consistently chosen to angle the content towards their benefit as the resource holders. This means that when wealth is created, it is typically bottlenecked within families or corporations who have the resources and power needed to influence state decisions. These exclusive groups can generate value from that asset for a longer period of time.

This is where power asymmetry happens. The state is responsible for turning land into physical property, ideas into intellectual property, and assets into financial property. Legal backing is a social resource that is used to cordon wealth from the masses. It’s time we think of ways we can level out the playing field and stop this one-sided reinforcement of wealth accumulation.

The state endeavors to produce a legal environment where everyone is equally protected to the law. However, this lofty goal often discounts the reality that not everybody has equal access to the law. The privileged would have the resources to hire lawyers who can bend the law to their will across not just one, but multiple legal systems.

The mantra “it’s legal” now carries a darker undertone. 

Fitting in the Gaps Between the “Scaffolding”

Katharina described gaming the law as “exploiting every little gap in the scaffolding of existing regulations that we can find.” Lawyers are taught to look at the existing rules and regulations, and find a gap where the client can slip through. The really sophisticated ones know how to bend some of it.

It would be impossible to aim for the pillars, because these are parts of the case where their actions are clearly seen as illegal. Their goal is to fit new things in the gaps between the scaffolding. It’s taking the phrase “know the rules so you can break them” to a whole new level.

One poignant revelation in their discussion was Katharina’s explanation that the law can never really be complete. This leaves our legal system vulnerable to malicious actors in positions of power who are capable of exploiting the gap for private gain—reducing the law to a mere barrier in their climb to the top. It is truly a threat to both the rule of law and to democratic governments. 

Turning the Immaterial Into Assets

Where do we draw the line and who gets to do it? Having access to legal coding is the key to wealth. This isn’t just about physical or material assets; it’s also applicable to ideas as well. One key turning point in the discussion is their perspective on whether such a trend would carry over to digital assets, such as cryptocurrencies as well.

Katharina pointed out the irony in how Bitcoin only became valuable once it was centralized, and urged people to think of alternatives where real people can participate in the arrangement without having to delegate all their power to figureheads that may not align with the interests of the masses. 

The legal code is a collective commitment to stand behind a particular use of the collective means of coercion.The community designs who has access to that centralized needs of coercion and under what conditions. Under this definition, it would certainly carry over to digital assets too. Now, it’s up to us to push for an environment where social mobility and wealth creation is available for all.

Closing Thoughts

There is clearly an impetus for a platform where everybody has an equal playing field; a safe space for ordinary people to build a portfolio in transacting with today’s hottest asset, which is data. 

The TARTLE marketplace is a platform with the vision of bringing back power to the people. Users are fully equipped to profile and market their data to causes around the world that matter to them the most. Here, people have the opportunity to fight for something bigger than themselves while earning at the same time. Everybody has an opportunity to create wealth.

What’s your data worth?

Feature Image Credit: Envato Elements

For those who are hard of hearing – the episode transcript can be read below:


Alexander McCaig (00:07):

Good morning, everyone. And welcome back to TARTLE Cast. We're here with a very special guest, one of the finer minds in the world around property rights. And you know very well that here at TARTLE, we speak about data in terms of a right of ownership, because we fundamentally see it as an asset.

Alexander McCaig (00:28):

And there's been a wonderful book that came out. It was called The Code of Capital, and it was written by Katharina Pistor. And I hope I got your last name correct. And it was actually, quite fundamentally fabulous. And I had to ask her before the show, what sort of feeling she has for the future. And it's a strong feeling that what we have in terms of law code policy, whatever you would like to call it, put certain individuals on a path. And that path may not be beneficial for us going forward from the current trajectory we're on, with how we sustain certain rights around capital itself and its ownership. So, thank you very much for joining us today. We really appreciate you coming on the podcast.

Katharina Pistor (01:15):

Thank you for having me. Pleasure to be here.

Alexander McCaig (01:18):

Yeah, most definitely. So, just so we can kick this off, what was your incentive, your personal incentive to write this book?

Katharina Pistor (01:30):

I think I wanted to show people the underbelly of the capitalist system. I think most people don't understand the inner working of the system because that is coded in law. It's just like you look at a human body and you don't see the DNA, but it's all about the DNA.

Katharina Pistor (01:47):

And when I talk about the code of capital, I don't mean codification like a statute, but the process of coding capital of creating new capital. And I think people have to understand this, to understand where we are and where we might be going.

Alexander McCaig (02:00):

Right. And so, this really does bring some good understanding. You got some pretty heavy quotes in here. But the fundamental idea for this policy around assets is that you're trying to create conditions by which everyone should prosper. Correct?

Katharina Pistor (02:22):


Alexander McCaig (02:23):

And so, what we found is that the code that is written and much like a software program, it gets designed and redesigned over and over, and over, trying to evolve with how society evolves. We found that the individuals that write that code have written it specifically for their benefit as the resource holders. So, you can see that when wealth is created, the preservation of it typically tends to stay within those families or corporations, and it's backed by the states, because they can help lobby and rewrite that code to continue to protect that wealth, so that they can generate value from that asset for a longer period of time. And at the same time, it becomes very exclusive to those individuals that don't have that wealth, but are trying to gain it. And the system becomes very imbalanced, the power asymmetry is there, making it difficult for them to even economically uplift themselves. Is that correct?

Katharina Pistor (03:16):

Yes, that's exactly correct. And I think I really want to emphasize that this all works only because there is the backing of the state.

Alexander McCaig (03:23):

That's fire right there. Okay. So, please explain to the audience what you mean by backing of the state.

Katharina Pistor (03:31):

Well, what is a property right? A piece of land is just a piece of dirt. You can herd your cattle there, grow some plants on it. But if you want to exclude others from it without having your own private army, you need a title. And a title basically says you have the right to exclude others. And if they don't leave, we will back it. And we don't do this only with land. We do this for intellectual property rights, which are ideas propped up by law, which exist only in law. We do this with financial assets, which are contracts that you can enforce anywhere in the world because we ever advised them, believes that there are ultimately enforceable. There's some validity to them that comes from the legal backing.

Katharina Pistor (04:14):

So, it's a social resource, it's the law that we are using to create private wealth. And so, we have to think about how to balance that, so it becomes not this one sided reinforcement of existing wealth accumulation that you described.

Alexander McCaig (04:28):

Right. And there's nothing wrong with reinforcing the accumulation of wealth, but when it's reinforced to one specific party or a very small subset of people, it makes it quite difficult for those other ones that want to garner those resources to become a part of that wealth generation.

Alexander McCaig (04:45):

So, when we look at the evolution, well, in my eyes, when I look at the evolution of assets in the coding of this policy around capital, what it does is it has its own evolution for the purpose and benefit of a single few, but it doesn't have the code where it's actually inclusive for all. And there has been individuals that have tried, right? And I know you've named a few. But when we look at that, it's like, how do we take the evolutive steps within code, within policy, within contract law, right? To say, this not only works for them, but it also works for everyone at the same time.

Katharina Pistor (05:25):

Yeah. Formally speaking, it should work for everybody at the same time. If you work in the legal system, in a rule of law based system, we say everybody is equal before the law, but which does not mean that everybody has equal access to the law. It also doesn't mean that everybody has equal access to regulators or the tax authorities to negotiate with them some exemptions or some soft spots, where they can do stuff without being caught or being enforced against.

Katharina Pistor (05:51):

So, I think the issue is here that we have to move beyond this formalistic notion that everybody is equal before the law, and that's why it's just fine, and think harder about how some, not only have more resources, but also have then the resources to hire the lawyers, who can exploit the most complicated intricacies and arbitrage opportunities that come from really knowing the details of the law, not only one legal system, but multiple legal systems.

Katharina Pistor (06:18):

It also comes from the increasing ability to pick and choose your own law. Right? You can be in New York, but incorporate your company in Delaware. Or you can be in Israel, incorporate your company in Delaware. And nobody in Israel has written the law under which you do your business in Israel. And so, that's when these things fall apart, right? When the society has no longer control over the legal system, that some exploit for their own private gains.

Alexander McCaig (06:45):

And so, what they're exploiting is what we would coin the asset itself. Right? Do they live in this gray area of just saying, "Yeah, I know it's unfair, but it's legal." Does that mean it's the right thing to do? I mean, I understand that there's code, and then you get state backing behind it. Well, it's like if the state doesn't have morals or ethics, and these other individuals that have morals or ethics, and they're also writing that code, I don't think fundamentally that's a great path for us going forward, in terms of our economies or human beings, or even how we view other individuals assets. It becomes very difficult to create an atmosphere of respect for those great resource holders, if they live in this world of, "Oh, but it's legal."

Katharina Pistor (07:38):

No. I agree with that. So, I think the mantra it's legal is something you hear a lot. You also hear a lot, especially from the finance industry that they want to have legal certainty. Right? So, that basically means we want to have very clear rules, so that we can know how we can use them to our own benefits without facing costs that we can't predict from any kind of state intervention.

Katharina Pistor (08:00):

And they also, of course, very often want certain exemptions from the law, so they can do things legally that others can not do legally. And these kind of legal privileges add to the game.

Katharina Pistor (08:10):

And I agree with you in the long term, this really undermines our credibility in the legitimacy of the law. I mean, do we really believe the law is fair? If some can game it, they really are gaming the law by basically saying, "We are exploiting every little gap in the scaffolding of existing regulations that we can find. And we are trying to force this argument. It's only what we can really nail down as clear prohibition or something, something that could constrain us, and the rest we will use to fashion new types of assets, as best as we can." And I think that's fundamentally a threat for both the rule of law and also democratic self governments.

Alexander McCaig (08:55):

Oh gosh, that's right on point. You use the metaphor scaffolding, and I find that fundamentally interesting. Scaffolding goes on the outside of the structure. It's not really the meat and potatoes of what's going on here. It's also hollow. So, could you tell me why you chose scaffolding as a metaphor to describe that?

Katharina Pistor (09:18):

Quite frankly, a lawyer, I teach with, always explains to my students how you create new assets as a high powered lawyer in a New York law firm, you basically look at all the existing rules and regulations as the scaffolding, and you're finding a gap for your client to go through. So, you don't want to hit any of the pillars because that would mean it's illegal, it's void, and you don't get what you want. You want to fit these new things in the gaps between the scaffolding.

Katharina Pistor (09:47):

And what sophisticated lawyers do, they know exactly how the scaffolding works. They try to bend maybe some of those, but in principle, they're just trying to work in the gaps, so that they can produce things that are legal, even if they violate the spirit. So, when you talk about the tissue in between, that should be the spirit. And you would hope that we respect that there's actually something of a purpose of the law that shall be achieved. And of course, the law can never, ever be complete. So, it will always, always have gaps. But if we tolerate the gap exploitation for private gain, then we are reducing the law to a kind of scaffolding that is only, basically a blockage, a barrier to achieve what you really wanted to achieve.

Alexander McCaig (10:33):

So, was this, your initial draw to law, was the fact that it's this always evolving thing, it was always this, "How do I move through this environment and find out where these points actually are?" You're engineering the things that determine how society actually operates within its legal bounds and parameters. Is that something that really drew you into It?

Katharina Pistor (10:58):

No, because I was trained in Germany. And in Germany, we are all trained to be judges. And we take the law, it's given. And we enforce the law. And we have a very rigid doctrinal approach to applying it to cases. And when you do your first internship in the law firm in Germany, they basically tell you, "Forget what you learned at university. You're now here to put yourselves into the shoes of the client."

Alexander McCaig (11:20):


Katharina Pistor (11:21):

It's more the Anglo-Saxon spirit of the law, this engineering, this constant change. Also, in the Anglo-Saxon systems, you become an attorney first, and you work as an attorney for many, many years before you are being appointed to the bench to become a judge. So, the mindset is much more one of creativity, helping your client, rather than the top down Germanic idea of you're being trained as a judge. And when you are qualified to be a judge, you can also be a lawyer. So, the lawyers are a little in the hierarchy of norms looked down on. And the judge is the preeminent symbol of the legal system.

Katharina Pistor (11:59):

So, I wanted to be a judge. I started off thinking I would become a criminal judge. And then got interested in history and comparative law. And here I am.

Alexander McCaig (12:09):

I mean, you're talking about capital, I mean, some of where the biggest crime actually sits. So, I think you're in the right wheelhouse, my friend.

Jason Rigby (12:15):

Can we get into a little bit with, because you talked about new assets, and you talk about it in your book too. I want to get into what you think, with what's happening with decentralization, Bitcoin, because that's basically an asset, Internet Gold, whatever you want to talk about it. Do you see that as a revolution, or do you think it's not really anything?

Katharina Pistor (12:35):

I think it's more of the same just with a new technology. So, credit or debt assets have been created since the 12th, 13th century when we allowed actually to assign contracts. So, you have a note. You have a bill of exchange. You can dress this up further. And the Bitcoin, it's treated as just another thing. I think the original idea behind Bitcoin was to make it a kind of a currency, a trustworthy means of payment, right? But it's treated as an asset. You can debate whether it's speculative or not, because we are pricing it in dollars. And we're thinking about what are the future returns that I can get from this particular asset?

Katharina Pistor (13:17):

And so, the question is, what is the backing behind Bitcoin to give it that kind of value? Right? And I think there is, of course, and I discuss a little bit in the book is whether the digital code might be replacing the legal code. It's basically the opposite what Larry Larson discussed years ago, where he said actually, a code is law. And I'm saying law is code. But of course, that raises then the question, is the new digital code a potential alternative to the legal code? And to some extent I would say yes, because what is the legal code in the end? It's basically a collective commitment to stand behind a particular use of the collective means of coercion, right? So, we pull our means of coercion together. That's what the state is. And then we design who has access to that centralized needs of coercion, under what conditions.

Katharina Pistor (14:09):

And in Bitcoin, you're basically writing a digital code that precommits, and that is supposedly immutable, maybe not entirely, but it's supposedly immutable, and that can be used to verify certain types of transactions. And we basically all commit to live by these rules when we use Bitcoin. So, it's a rule-based system. And I think the idea is that if you hold these assets and these rules have value, it's is the rules that give it in the end, the value it has. It can be sold for a good price later.

Jason Rigby (14:43):

Yeah. You use the word spirit. Do you think decentralization for equality, do you think that spirit, do you think that will last? Or do you think the centralized identities will come in swoop and regulate it? What is your feeling on that?

Katharina Pistor (14:58):

Well, I think the big irony for Bitcoin is that it became valuable only once it was centralized, right?

Alexander McCaig (15:06):

Snap. You are sharp as a tack, aren't you?

Jason Rigby (15:10):

Yeah, that it's good. Yep.

Alexander McCaig (15:11):

Wow. You said dirt, right? It's land. It's just dirt. But when a collective comes together and they say, "Hey, this is actually worth something. Now, I don't have a bunch of nights standing around on a field in my feudal system to protect my land.

Alexander McCaig (15:30):

So, in crypto I have an encryption system. That's essentially my field of nights. So, if they exist in code itself, well then the security of that asset, the way I securitize it and protect it in this new digital evolving medium, this scaffolding is really a function of, well, how am I many people want to stand around the building, holding the scaffolding up and say, "Okay, we like this encryption." It's that collective agreement that I think is the precursors to all value before something is an asset. A state can't come in and say, well, they could, they can say, "Oh, well this is valuable and you have to value it." Well, people would be like, "No, I don't want to value it. I want to value something else."

Alexander McCaig (16:15):

So, when the code follows what the state determines as value, I think is that's the trajectory that's dangerous, rather than saying, the collective society has come together and said, "We have determined that this is something that's valuable to us." And I think that Bitcoin is not so much, everybody is hyped up about the value of it as an asset. I think it's really more of a statement towards that trajectory, which you were talking about. I think that's why it's had such a social calling and rise, wouldn't you say?

Katharina Pistor (16:49):

Yeah. No, I agree. I agree with that. And I think it's an aberration that it is used primarily as a speculative asset, or increasingly so, or maybe not primary, but I think that's what it has become in some ways, but I agree with you. So, I think collectively, we could also decide to back other kinds of operations, and basically write a code that could be much more decentralized and much more accessible by individuals and group associations that get together to use that resource.

Katharina Pistor (17:18):

And the one thing I would say is, what the state basically does when it makes a mandate that you value something like the state's currency, right? It issues currency. What it really does then is basically says, "You have to use uses because you have to pay your taxes in that currency." And when it issues debt, it basically says, it levers our future productivity in a way, right? But whether we allow the state to do this, to what extent, and/or whether we could think about a system where we can have a more decentralized coordination around the central resource, which is our commitment to live by certain rules, I think that's something that many people are looking for right now. I just finished reading the book by Helene Landemore, Open Democracy. I'm not sure whether you've had her on the show, but that would be-

Alexander McCaig (18:07):

No, she's come on next now, that you said that.

Katharina Pistor (18:11):

Yeah, because she's basically rethinking democracy in those terms, how can you really have a more participatory arrangement with real people being there and not delegating all the power to some agents who make decisions that might not be aligned with the interest of people?

Alexander McCaig (18:26):

All right. This is interesting here. So, the state issues debt, and then makes a requirement that you pay it back. And what they determine is the nominal value in a specific currency on your future work. That's essentially what they're doing. Now, from what I understand and what you wrote in your book is that, and this is not you, who coined this definition, is that humans are often excluded from the definition of capital, and they cannot offer themselves as collatable, and thereby monetize their own labor. Why is it that the state can monetize our future labor, but we can't monetize our own future labor as an asset. That is something that I think is fundamentally incorrect.

Katharina Pistor (19:20):

Well, I think actually we can capitalize our future labor. I think the impetus comes from basically a rejection of slavery. The idea that actually people have been used as collateral, people have been used as property rights, right? And so, we are basically trying to say, I think people who are saying it can't be human, are basically saying, that's something that cannot be used as an asset, should not be used as an asset. But what you can do is you can set up a limited liability company. You commit in kind your labor and you pay yourself in dividends rather than income, and you save taxes. And there are enough people who do that. That's a capitalization of your own labor.

Katharina Pistor (20:03):

So, the legal tools are there to do exactly this and many people employ those legal tools to do that. I'm not sure whether this is what you have in mind. But I think when the state, or you can also say corporation, as the firm does the same thing when it raises debt, it basically makes a commitment to pay back with future income. And the future income is produced by workers and the whole operation of the firm, et cetera. That's also pooling resources is of course, critical for economic develop. None of us has enough. Maybe some of the very rich ones have now enough to right invest, but we want to pool. We want to also pool our commitment to a code, and we want to pool resources.

Katharina Pistor (20:42):

The question is always, who then has the agency to do, to commit on those resources, and what kind of mechanisms of accountability or actual participation do we have when these commitments are made?

Alexander McCaig (20:57):

So, now that's in a very material sense, right? So, I think in terms of policy and coding, and the value of that capital against something material, it's not so nebulous, but then what happens when that begins to transition into things like property rights around ideas, intellectual property? It's a much more nebulous world. So, how do we come together and collectively look at this and say, "This is an intellectual property." And we would define it as an asset. Do you see that as a trajectory that will continue and actually grow as things become more digital and less material?

Katharina Pistor (21:39):

Well, I think other people have already argued and made the point that, since the 1980s the value of public traded firms comes mostly from their trademark, other intellectual property rights or financial assets, all of which have their existence or owe their existence to the code, to the legal code, right? Intellectual property rights do not exist outside the law. And you can see this, even if you read the US constitutions and the amendments, right? The property rights is assumed. Just say, property rights are protected. You can't take property away without just appropriate compensation. But there is a provision in the constitution that says, Congress shall make a law about intellectual property. You have to make that. It doesn't exist it. With land, we can still have the idea. I think it's the wrong idea, but it's something, an object out there that is not assetized or commodified, or not coded.

Katharina Pistor (22:33):

In truth, I think it becomes property only once you have the legal code. And ideas become assets, only once they're legally coded. Where you draw the line here is always a big question, because I think, especially in a world where most assets are, actually owe their existence to that code, the question is, how far you want to go? Because if you have access to the coding, you create the assets that you can then dress up further in the law. And that's how you create wealth. So, what you can patent, whether it's the genetic code, whether it's just organizational stuff, filing systems.

Katharina Pistor (23:06):

Google is a filing system, got a patent for it. Should it have? We can debate that. But now it's a little late. These things were debatable. The point is that we have seen this very strong push, especially in the United States. But in a competitive capitalist system, the push is always to grant more rights to those who promise that they can make value out of that. Right? And so, again, having access to the coding is the key to wealth.

Alexander McCaig (23:34):

So, really then when someone is investing with any great sense, you're not really investing into the company, you're investing into the state, and them supporting the code that supports the company.

Katharina Pistor (23:46):


Alexander McCaig (23:46):

That's going to shake some people up. So, I'll explain to you for us here at TARTLE. We afford people in 222 countries, the ability to take their data and put it into a fungible, tradeable asset that has a market value price to it. And we are doing this before there is any code that supports it. We support it with a human code and respect that when I go to acquire data, I know that the genesis of it comes from an individual. Right? And so, we ask on our marketplace that those people that come in to buy it, respect that aspect and treat it as such as an asset. And much of that is an intellectual property right, but we see it as a human right, like your right to your thoughts.

Alexander McCaig (24:38):

So, what's your kind of take on what we're doing, if we're sitting in this very nebulous realm, where there is no code, truly supporting what we're doing? But there's a great agreement across 99% of the countries in the world where people are like, "Yeah, this is something where we collectively come together and say, "This is a valuable asset to us." What are your thoughts on that?

Katharina Pistor (24:59):

Yeah. I think before we had the state with the centralization of the means of coercion, and even within the state, we do a lot of things by simply abiding by social norms. Getting together as groups that commit to certain ways of doing things. And we internalize certain norms as we grow up. But even beyond that, we can create new clubs, associations, parties, whatever, where we agree together to certain types of norms. And then the question is, how far can you go with this? How much can you scale this up?

Katharina Pistor (25:32):

I think historically, the state was really, and the state's law was the most important scaling, social scaling technology, because information costs were high, right? But if you have an authority or a state that is powerful, that backs what you have, then people start respecting that. And if the state then really good on those promises.

Katharina Pistor (25:49):

I think with the reduction information costs with information technology where people can communicate across state borders very easily, can commit to certain things. And you might even be able to monitor whether they commit. I'm not sure what you do when people violate your rules. Do you expel them? That would be a classic enforcement device, right? You don't put them in prison, your expel from the community-

Alexander McCaig (26:10):


Katharina Pistor (26:10):

... to ostracize reputation damages. These kind of things are well known from the literature. And these are social norms that work really well. If you have the information, access to information, you can monitor, and you have some mechanisms to ensure that people comply.

Alexander McCaig (26:27):

Would you like to know how the mechanisms work, because you might find this interesting?

Katharina Pistor (26:30):


Alexander McCaig (26:30):

So, for instance, if somebody tries to do something that would be inappropriate or try to do any sort of market cornering or abuse, the nature of how this system works. It's very a fairly model. The seller and the buyer on both sides of this marketplace have the ability to block the individual from interacting with them again.

Alexander McCaig (26:53):

So, now say for instance, the government of India comes to buy data from many other countries, say from 10 million individuals, well, they do something inappropriate or actually try to shortchange people, or try to abuse them, and not look at them with the appropriate value. Those 10 million can choose to block India altogether. And that same power is also vice versa for the others. So, if somebody is just trying to falsify things over and over, and over, then the larger aggregate buyers can come in and say, "We should buy from this person. We should exclude them from participating in this system." And then we, as the monitoring third party can even stop people from coming in that may be bad actors in the first place by screening them out of that.

Katharina Pistor (27:36):

Yeah. I think these are mechanism that you would find elsewhere as well. It's ostracization, basically. It's in the middle ages when the state wasn't very powerful, yet you make somebody basically an orphan in the law. Everybody can enforce against that person. You can even kill people without facing sanctions yourself.

Alexander McCaig (27:59):

We're not killing people here. We're just preventing you from participating in the marketplace, that's all.

Katharina Pistor (28:04):

That's it. Basically, you're banned from the community in one way or another. And it works. The question has always been, can this work at scale? And the historical examples that people point to are middlemen who have this information, very often ethnically homogeneous middleman, who can monitor each other, and then they share information. So, you contract with these guys, right? And nowadays you do something similar as you monitor the process, but we have much better access to information and can respond much easier. So, I think these kinds of mechanisms become available again to us because of the technology we have today.

Alexander McCaig (28:38):

Yeah. And that's what's so interesting. As technology is developing, and you speak to this code, and I feel like and what we're doing, and all of the participation of people all over the globe, are going to be the ones that end up writing that code, where the states will look at what we are doing, and then have to write the code off of the processes that what the globe has said, this is what we fundamentally see this value in it. And it's a very cross border thing. So, I think it's going to create some very interesting scaffolding in which individuals will look at that and be like, "I wonder where these property rights sit? How they should operate? And how this affects many other different markets?"

Alexander McCaig (29:17):

Because when we look at it, for a long time, people have been taking the value of data, these larger resource holders, the Google, for instance, and holding all that value for themselves. The code for them said, "We never had to share that value to anyone." And still that code really isn't there. So, when we saw it, we're like, this is an obvious asymmetry. So, our arbitrage was to say, "Well, that scaffolding sucks. Let's just rip it down all together and start building up our own." And then from that, they would have to work within the means and ways of which this marketplace operates itself.

Alexander McCaig (29:55):

So, I think the metaphors that are carried for how you say the code is really evolving capital, I think is so fundamentally interesting, and not the vice versa approach. So, I sincerely appreciate the take that you have on that. And I think it's a strong trajectory going forward for us to say, let's look at how that code evolves, and let's apply that code, to not just look at it for the power of the state, but the power of all.

Katharina Pistor (30:25):

Yeah. And I think even in principle, in a democratic state, which we should think of the state as the powerful, but it has been provided to some extent, right? It has been so centralized and captured by fundamental interests. And so, the way out of that may very well be exactly what you're doing, decentralize, find new ways of committing and monitoring a code that offers an alternative to what the current practice is.

Alexander McCaig (30:51):

Yeah. I love that. And I needed some clarification on this, because I don't understand it. I'm unlearned in this part. You said, two legal systems dominate the world of global capital. That's English common law and the laws of New York State. Could you just give me some insight into what that means just for my own curiosity?

Katharina Pistor (31:12):

Yeah. When you think about globalization, people very often think this is outside existing nation states, and some things happening out there in the economies. In fact, the economic relations between companies or financial asset holders are legally coded. The question is only, in which legal system? And so, because you need the enforceability, you need the credibility of some power that stands behind it. And it doesn't really happen through the harmonization of laws. So, states don't get together and write a new code for contract law. That doesn't exist in the international sphere. They just respect certain things.

Katharina Pistor (31:46):

Every state has its own set of rules. We call them conflict of law rules or choice of law rules, where they basically advice the judges under what conditions they can enforce foreign law in their own courts. So, somebody who has written a contract under French law, it comes to an American judge, can they enforce French law in American court? Under certain circumstances they can. These rules can be used to then basically harness the powers of a particular legal system by advising clients, "Choose that law." Right? So, for finance, for international trade, because of the way the law has developed, the friendliness of judges towards commercial activities, et cetera, and because of also the lawyers who have been very active there, most of the choices that are being made are made in favor of one of these jurisdictions. So, New York for contract law. Delaware for corporate law. English law very powerful as well for many transactions. So, you would not choose some obscured legal system. You wouldn't choose one where you know it's hostile to the whole idea of coding and creativity in the law.

Katharina Pistor (32:52):

And your hope is what the lawyers will tell you is whether that contract, that you're now writing in English law will be enforceable in a German court. And that's the job that lawyers do. And by stitching together transactions in different legal systems, very often in those two, you can create basically a global system. Global system, most of the tradable assets today from sovereign debt of emerging markets to all kinds of debt instruments, and their derivatives are coded in English and New York law. And they're enforceable in English and New York courts, but many of them would also be enforceable in the court elsewhere. It's a patchwork in the way. It's not an integrated global legal system. We don't have a global state. We now have global law, right? That's how we put these things together.

Alexander McCaig (33:36):

So, you said enforceable because even people in Australia could own American debt. So, you would essentially have to be enforceable because of the medium on which this thing is transactioning and can be held cross border. So, then we're like, well, I guess the patchwork means that what upholds in the US, is also going to have to uphold in Australia. Is that how that would work?

Katharina Pistor (33:57):

Yeah, that's basically why individual countries have changed their conflict of law rules, such that there have become more and more open to respecting foreign law within their own jurisdiction, even on matters that are sensitive.

Katharina Pistor (34:09):

So, for example, what is a property right? Used to be entirely, matter of state law, because what is on your territory, everything that's located here, the state would say, "My property regime will govern." But financial assets don't have a location, right? So, then you have to find a different rule. And the rule is basically, wherever you issue these assets, and then you choose the place where you issue the assets, and then you have the law. And then it becomes portable.

Jason Rigby (34:36):

I want to get into this, because this was very interesting in the book, you use the word obscure law earlier and NAFTA. And then you talked about the tribunals. Can you explain that? Because to me, that seemed very, very scary.

Katharina Pistor (34:49):

Well, this is really, it's an interesting evolution. And it started really with NAFTA in a big way, that sovereign states enter into contracts with one another. We call those international law. And in those international contracts to which only sovereign states can enter into, they empower private parties to sue one state in a private arbitration tribunal, if an investment is infringed, right?

Katharina Pistor (35:20):

So, some of the investment, you can understand that states want to say, "Don't expropriate our companies have come to your shore." We can understand that. It's another issue to say, and if you do something that looks like an infringement, my company, or the company from my country can take you, sovereign state, into private arbitration and you have to pay up. Now, why do states pay up? That they could decide not to. Most states pay up because they're afraid that they won't have foreign capital inflows anymore if they don't.

Katharina Pistor (35:53):

But the implication of this model has been that since the 1990s, late 1990s, we have had a proliferation of bilateral investment treaties between sovereign states, empowering firms from their own countries to be protected when they enter other countries. And so, we have also seen the proliferation of state or investor state dispute, which are resolved by private arbitration tribunals, that don't have to look at the local law in the country that is affected by it. They only look at the international treaty, which happens to be relatively thin. And with the right interpretation, gives the investor a lot of rights.

Katharina Pistor (36:36):

There are really interesting developments here. I listened to a webinar yesterday about the Energy Charter Treaty, which basically protects oil-producing companies which are using these provisions to take countries to arbitration for damages, if they adopt climate change, protecting legislation, because it affects their property rights.

Alexander McCaig (36:59):

Are you shitting me?

Katharina Pistor (37:01):

No, I'm not kidding you. Hundreds of millions of dollars because it's considered a regulatory taking.

Alexander McCaig (37:07):

They're feeling like they're being infringed upon their business practices, if somebody chooses to adopt something that's for the climate.

Katharina Pistor (37:14):


Alexander McCaig (37:15):

I'm going to throw this table right now, out the window in studio.

Jason Rigby (37:17):

So, how does that work, especially on the tribunal side of things? Because it seems like you're just being able to alter law.

Alexander McCaig (37:23):

Yeah. And does that mean the state is nervous, they'll end up losing funding from these larger oil corporations, which really do generate a lot of income for that state.

Katharina Pistor (37:33):

Yes. [crosstalk 00:37:35]. If we're not able to start doing anything, because this basically, it's preemptive, the power to bring these suits and preempts, very often legislation, especially in poorer countries.

Alexander McCaig (37:46):

What do you do? How are you supposed to get anything done then?

Katharina Pistor (37:53):

So most of these treaties last only for 10 years, but they're very often grandfather the protections that you have granted for another 10 years. So, we have basically, this was the idea of the 1990s. The markets know better. So, you empower private actors. And you empower private actors against state actors. So, our political coordination to say, we have to now do something about climate change, may very well be slowed down and made much more costly, because powerful investors will bring these kinds of suits. And so, the lawyers on the side of trying to protect the climate, are all trying to work out possible solutions, but there's no easy one.

Alexander McCaig (38:30):

Oh, great. So, why don't we just grandfather in five trees, which cumulates to 50 years. And by that time we got no atmosphere left.

Katharina Pistor (38:40):

There we go.

Alexander McCaig (38:40):

That is just horrific to hear something like that. So, then are there examples in the past, where things, not specifically, climate related things, but where someone has come up against this, what was the catalyst that truly effectuated the greater change that needed to happen, even when there were actors that didn't want that change to occur? Are there any great examples of that?

Katharina Pistor (39:05):

Yeah, but unfortunately only major crises, which we don't really like to have. But in one example is what I discuss in the book is the major depression in agriculture in England, in the 1870s that finally, finally, finally gave rise to a reform of property rights, which they had debated for the entire 19th century. And they could implement only after that.

Katharina Pistor (39:26):

So, I think unfortunately because vested interests have so much power, and you don't want to rock the boat, and we all are afraid of a real crisis because we don't know how we can come out of it, that we delay and delay, and delay, and hope that we can prevent the crisis, but we don't change the system. And if we don't change the system, we will basically end up in the crash at some point.

Alexander McCaig (39:48):

Yeah. It's bound to happen regardless.

Jason Rigby (39:52):

And you talk about in the book, and I'm going to read this part, because I think it's really cool. You said the lure of money and the temptation to create more of it can fuel growth and wealth. But if pushed too far, it can have crows with effects on the economy, bouts of hyperinflation in some. Do you see that's what's going on right now?

Alexander McCaig (40:05):

That's a delicious statement by the way. Very well written.

Katharina Pistor (40:09):

Thank you. I'm not afraid about inflation right now, so I think that's a little bit hyped up.

Alexander McCaig (40:14):

No pun intended.

Katharina Pistor (40:16):

No pun intended.

Alexander McCaig (40:21):

I'm sorry. I'm shameless. I can't help myself.

Katharina Pistor (40:23):

Yeah. I think, in a way to some extent, I would say that the continuous support by central banks of private assets, even years and years after the crisis was probably more dangerous for our system than a massive influx of public money to get out of the COVID crisis, that is much more widely spread and helps also small owned businesses and families, rather than only the big asset holders.

Katharina Pistor (40:48):

But I think that one of the big problems that we have to get over is that after the 2008 crisis, we did not really reconfigure our financial system, but supported it. And whenever the market throw a little tantrum, the central banks backstopped it again. And so, the reliance on that kind of social resource again, our money system is also a social resource, has created even more private wealth on that end. And I think that is ultimately politically much more problematic than the public money right now.

Alexander McCaig (41:22):

That's incredible. And so, when you're teaching your law students and you're writing your book, what is it that you really, at the end of their semester, or when you get to the end of this book, what is it you really wanted to leave with them or the readers as a message for them to carry forward in their lives?

Katharina Pistor (41:42):

Yeah. I want them to understand that law is malleable, that you can be creative with it. But that also, if you pursue only one path, it can really be really dangerous for society.

Katharina Pistor (41:52):

I think most lawyers are trained to become such sophisticated technician, that they don't see the social impact of what they're doing. And I know that they also work in law firms, where there are incentivized in such a way that, that that's what they do, right? The promotion system, it works. It's very hard for them to keep an eye on the social implications. But I want at least to assure that they try.

Katharina Pistor (42:19):

So, I don't teach corporations. I teach US corporations. I teach them what the law is that they have to master. But almost in every case, you could debate it this way or that way. And you can make decisions that have that implication, or these implications. And so, just opening more avenues for different perspectives, this is what I try to do. And especially this broader vision, not this very narrow silo vision.

Alexander McCaig (42:44):

No, I love that. And we all feel that it's just so fundamentally important to really look at those social implications. They should give B Corp certifications to specific lawyers, "Oh, you're doing this for people. You're really doing it for society and the planet. I'm going to give you a B Corp stamp." I think that sort of approach is one that we need. I think it's one that will help preserve us as a species, if we take on that evolutive attitude of, is it really of a great benefit for society or a select benefit of the few?

Alexander McCaig (43:21):

And the way that you've shared this, articulated it, detailed it and helped us walk us through how these technicians actually work, create wealth, and then preserve that wealth, I think it enlightened me enough to the fact where I can not wait to share this information with many other people that I come in contact with. And I got to tell you, I would have loved to have you as a professor, if Columbia would have ever accepted me. I'm not that intelligent. But I would have loved to have had you as a professor, hands down.

Katharina Pistor (43:51):

Thank you.

Alexander McCaig (43:53):

No problem.

Jason Rigby (43:54):

Yeah. I wanted to ask one last question because you have this, is your last statement in the book.

Alexander McCaig (43:58):

Hit it.

Jason Rigby (43:59):

If these trends continue, naked power wants more gain, sway over legal ordering, as it's done over most of human history. And we'll all be worse off for it. So, it's like a, to me, it seemed bleak. Is that what you see? I mean, that's your last statement in the book. Does it look bleak for us?

Katharina Pistor (44:18):

It is a little bleak in the book, and I'm wrestling with that. I'm a positive person in principle. I am more a sunny person than a dark person. But the conclusion, I couldn't really escape from the book. So, I still believe that large complex social systems need codes that they agree to. And maybe you're creating something that is really an alternative, but as long as we live with the law, we have to make sure that this law serves all of us, because it is also a fragile system. It only exists and it's functionable, if it's credible and legitimate in the eyes of the people, not in the eyes of those who want to use it for their own purpose.

Katharina Pistor (44:59):

And if you destroy this before you have any alternatives, then what's left? Then you have naked power, right? And we've been in societies like that. So, the amazing things that for centuries, of course, we've had wars and destruction, and horrible things as well, right? But the amazing things that we have created, economies that have produced so much wealth and private wealth, but also national wealth and prosperity for so many. And so, we have to think about how to protect that resource, this collective resource. And I think that is going off the rails and that's a real danger.

Alexander McCaig (45:32):

So, now I got goosebumps running up and down me. Where is it that individuals would go to purchase your book, find out more about you, maybe try and apply to your classic Columbia. Because if they don't, it'd be a really stupid choice not to. I think everybody should probably take it, just after talking to you. I could probably talk to you for a couple more years to try and figure out how I can put my head on straight. Where are they going to find out more?

Katharina Pistor (45:59):

Well, I'm on Twitter. I'm on LinkedIn. I'm not on Facebook. That's basically probably one way to find out more about me. I have a faculty page, but I'm not that present in social media. I've written this book, you can find on YouTube and other channels, other lectures that I've given about the book and related stuff. So, I think if you just Google, Google means, we say all subject to the same, digital coding devices to get the information. But yes, I think you should find more.

Alexander McCaig (46:28):

Well, that's amazing. I'm really happy that your life path has brought you from Germany, here to the United States. I think this is just fundamentally, so enlightening. And I really want to thank you again for coming on the show.

Katharina Pistor (46:40):

Thank you for having me.

Alexander McCaig (46:43):

Thank you. Appreciate it.

Katharina Pistor (46:43):

Yeah. Have a good day.

Speaker 4 (46:51):

Thank you for listening to TARTLE Cast with your hosts, Alexander McCaig and Jason Rigby, where humanity steps into the future, and the source data defines the path. What's your data worth?