Social scientists have paid insufficient attention to the role of law in constituting the economic institutions of capitalism. Part of this neglect emanates from inadequate conceptions of the nature of law itself. Spontaneous conceptions of law and property rights that downplay the role of the state are criticized here, because they typically assume relatively small numbers of agents and underplay the complexity and uncertainty in developed capitalist systems. In developed capitalist economies, law is sustained through interaction between private agents, courts (...) and the legislative apparatus. Law is also a key institution for overcoming contracting uncertainties. It is furthermore a part of the power structure of society, and a major means by which power is exercised. This argument is illustrated by considering institutions such as property and the firm. Complex systems of law have played a crucial role in capitalist development and are also vital for developing economies. (shrink)

Much has been written about the value of law, mostly in ideational terms. In this article, I draw attention to law’s pecuniary value. Law, I argue, is the very stuff from which many wealth generating, or capital, assets are made, foremost among them intangible assets that account for most of the private wealth today. For law to serve as a fountain of wealth, it must be backed by state power, and indeed, sovereign states have been more than willing to offer (...) a helping hand. They have found intellectual support in neoclassical economics and in its off-spring, law and economics, theoretical approaches that have sought to ground law in the scientific analysis of the economy, in efficiency rather than in justice. In doing so, they have averted their eyes from the fact that the most critical source for wealth, that is law, is itself of the state and should be subject to social norms enshrined in our constitutions, not abstract welfarism. (shrink)

State sovereignty is closely intertwined with, but not limited to, control over territory and people. It has long been recognized that control over monetary affairs is a critical part of genuine sovereignty. In this Article, I go a step further and argue that the relevance and importance of territorial versus monetary sovereignty has shifted in favor of the latter. This shift goes hand in hand with the rise of credit-based financial systems. Such systems depend, in the last instance, on backstopping (...) by an entity with control over its own money supply and no binding survival constraints. Only states with monetary sovereignty fit this pattern. All others are de facto more like private entities, which by definition cannot manipulate their own survival constraint. States can surrender their monetary sovereignty directly by adopting another currency or by issuing their own debt in foreign currency and under foreign law. They also compromise their sovereignty by permitting unlimited capital inflows denominated in currencies other than their own. This is because in times of crisis they will not be able to rescue the domestic financial system from its tendency to self-destruct without subjecting itself to a sovereign debt crisis and the implied need to rely on a lifeline from other states or supranational entities. (shrink)

In Capital and Ideology, Thomas Piketty poses the intriguing thesis that ideology, or ideas about how society should be governed, is a powerful determinant for how society will be governed-as long as we take advantage of historical switch points. In this review essay I challenge this thesis by pointing out that many powerful ideas have run aground because of countervailing institutional arrangements. Oftentimes, they are leftovers from earlier times that precede the change and are now strategically employed for reconstituting private (...) wealth. Clearly, ideology and institutions are deeply intertwined. I credit Piketty for putting ideology on the map of institutionalists in history, political sciences, sociology, and law. I therefore call for more research on the interaction of ideas and institutions. (shrink)