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A legal theory of finance - ScienceDirect
Source: sciencedirect.com
Article summary:
1. This paper develops the building blocks for a legal theory of finance, which holds that financial markets are legally constructed and occupy an essentially hybrid place between state and market.
2. Financial markets exhibit dynamics that frequently put them in tension with commitments enshrined in law or contracts, especially in times of financial crisis when the full enforcement of legal commitments would result in the self-destruction of the system.
3. The paper argues that uncertainty and liquidity volatility are two premises outside of yet reinforced by law, which can explain core features of contemporary global financial systems such as its inherent instability, organization into an apex and a periphery, differential application of law, and locus of discretionary power.
Article analysis:
The article “A Legal Theory of Finance” is a well-researched piece that provides an insightful look into how legal structures shape the behavior and outcomes within financial markets. The author presents a comprehensive overview of their proposed legal theory, providing evidence to support their claims from both historical sources as well as modern examples. The article also acknowledges potential counterarguments to their theory while providing evidence to refute them.
The article does have some potential biases worth noting. For example, it focuses primarily on the role of law in shaping financial markets without considering other factors such as economic conditions or political influences. Additionally, there is a lack of discussion regarding potential risks associated with this theory or any possible unintended consequences that could arise from its implementation.
In conclusion, this article provides an interesting perspective on how legal structures can shape financial markets and offers valuable insights into how these structures can be used to create more stable systems. However, it should be noted that there may be other factors at play beyond just legal structures that could influence outcomes within these markets and further research should be conducted to explore these possibilities before any conclusions can be drawn about the efficacy of this theory.