How ‘Big Law’ Makes Big Money

From The New York Review of Books:

“There is an estate in the realm more powerful than either your Lordship or the other House of Parliament,” one Lord Campbell proclaimed to the peers in the House of Lords, in 1851, “and that [is] the country solicitors.” It was the lawyers, in other words, who kept England’s landed elite so very, well, elite: who shielded and extended the wealth of the landowners, even granting them legal protection against their own creditors. How did they pull off this trick? Through a nimble tangle of contracts, carefully and complicatedly applied, as Katharina Pistor explains in her lucid new book, The Code of Capital: by mixing “modern notions of individual property rights with feudalist restrictions on alienability”; by employing trusts “to protect family estates, but then [turning] around and [using] the trust again to set aside assets for creditors so that they would roll over the debt of the life tenant one more time”; and by settling the rights to the estate among family members in line for inheritance. Solicitors maximized their clients’ profits and worth through strategic applications of the central institutions at their disposal: “contract, property, collateral, trust, corporate, and bankruptcy law,” what Pistor calls an “empire of law.”

The landowners themselves may not have understood this morass of legal relationships, this web, in Pistor’s words, of “claims and counterclaims, rights and restrictions on these rights.” No matter: by lawyers’ legal codifications, their wealth was increasing. The sort of legal logic applied in nineteenth-century England grows only more complicated, and more profit-generating, when the asset in question is not a hectare of country land but stocks and bonds and shares—when an entire organization is coded as a legal person (who can own assets and who can sue) through incorporation. The very form of a corporation, “by encouraging risk taking, by broadening the investor base and thereby mobilizing funding for investments, and by creating the conditions for deep and liquid markets for the shares and bonds that the corporation issues,” maximizes profit. And though today we live in a nominally democratic society, Pistor argues that a “feudal calculus” extends to our age: superior legal coding—that is, fancy private lawyers. Using the central institutions of private law, they make certain assets more valuable, and more likely to create value. “For centuries,” she writes,

private attorneys have molded and adapted these legal modules to a changing roster of assets and have thereby enhanced their clients’ wealth. And states have supported the coding of capital by offering their coercive law powers to enforce the legal rights that have been bestowed on capital.

Corporate law is “no longer primarily a legal vehicle for producing goods or offering services but has been transformed into a virtual capital mint.” Nowhere is this more true than in financial services corporations.

. . . .

Since the 1960s lawyers associated with the school of “law and economics,” developed at the University of Chicago by Aaron Director and Ronald Coase, among others, have been explaining how legal devices are invented to enable transactions to be conducted more efficiently. The basic line of argument is clever but monotonous. In case after case, the true function of a legal construction is shown to be that it aligns incentives of various economic actors—businesses, consumers, workers, and governments—in efficient and productive ways. For example, although granting property rights secures a kind of monopoly for owners, it encourages investment because legal owners can expect to reap the long-run benefit of up-front expenditures.

Link to the rest at The New York Review of Books

As far as the last paragraph about “granting property rights,” that’s what happens when you buy a house. Your “monopoly” on your house means you get to choose who lives in it. If a stranger walks into your house off the street and falls asleep on the couch and you don’t like him/her doing that, local law enforcement will come and arrest that person and remove them from your house because, as the owner, you have a monopoly right to exclude those who you don’t want sleeping on your couch.

For the record, PG is not now nor has he ever been a part of Big Law. The closest he has ever come to working with financial services corporations occurred a long time ago when he represented a small country bank in a single litigation matter (yes, he/they won), but that’s it.

On the other hand, a long time ago, he used to do a lot of consumer bankruptcies for indigent Legal Aid clients and financial services corporations were usually among the largest creditors who were stiffed in the bankruptcy court.

As far as the OP, Big Law and Big Clients, if you don’t want a complex economy and its accompanying benefits, there are a variety of places with much simpler economies and much greater poverty that may be available for you.

One more point – the various kinds of modern property rights established by law include copyrights, that allow you to prevent others from meddling with the invisible intellectual property that is represented by the books and stories you write.

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