4 Equity as a wealth generator: the background
So far this course has examined the tension between equity as idea and law. Central to this so-called tension is the argument that there is a growing divide between these two approaches caused by equity’s role in and exposure to capitalism. This section of the course will argue that the transformation of equity that corresponded with the rise of capitalism reveals a body of law that was not so much dragged away from its foundational principles by capitalism, but was instead well-placed to meet the demands of capitalism and maximise individual benefits under it. In other words, in stark contrast to its philosophical ‘utopian’ foundations, equity, and in particular the mechanisms that it helped create and administer, namely trusts, became indispensable tools for capitalism through a combination of accident and, more importantly, design.
This course will only talk about trusts generally. However, within the capitalist context two main things can be said about the relationship between opportunism and trusts that also reveal why equity might be said to be complicit in opportunism and not just a counter-measure to it:
- Insofar that trusts offer individuals a significant means of tax avoidance, they arguably correspond at some level with Smith’s notion that opportunism ‘often consists of behavior that is technically legal but is done with a view to securing unintended benefits from the system, and these benefits are usually smaller than the costs they impose on others’ (2012, pp. 10–11).
- Trustees who breach a trust by, for example, treating trust property as if it were their own personal property clearly demonstrate opportunistic behaviour, much in the same way that a thief or fraudster does.
So how did equity go from being capable of restraining, if not entirely preventing or countering, an individual’s opportunistic tendencies under capitalism, to a law that, to all intents and purposes, creates the very conditions in which opportunistic behaviour is able to occur and even thrive?