Abstract
Katharina Pistor proposed the Legal Theory of Finance (LTF), based on the premise that finance is legally constructed. In this paper, we apply network science to provide empirical evidence from glo...
Highlights
Majority of economic and finance theories presume, and often implicitly, a system of law and adjudication
Our findings are in line with Chinazzi et al (2013) who report in the Post-Mortem Examination of the International Financial Network that in 2008, the United Kingdom replaced the United States as the number one country using the binary hub centrality (BHC) measure core-periphery structure of the global financial networks (GFN) did not change
In line with Winecoff (2015), we find that there is a continuation of the prominence of the United States as the most important node in the GFN and a lack of emergence of any of the major emerging economies into the core of the GFN
Summary
Majority of economic and finance theories presume, and often implicitly, a system of law and adjudication. The LTF argues that finance is hierarchical and the stringent enforcement of legal obligations in financial markets depends on one’s hierarchy in the financial network. The four fundamental arguments of the LFT are: 1) financial instruments are legally constituted; 2) law contributes to the instability in financial markets; 3) there is a pecking order of the modes of payment, implying an inherent hierarchical nature of finance; and 4) there is an inverse relationship between the obligatory nature of contractual and legal commitments on one hand and the hierarchical nature of finance on the other, where law tends to be more elastic at the apex and binding on the periphery of the financial system (Pistor, 2013b). Anush Kapadia argues that given the ascent of integrated financial markets, the popular definition Max Weber gives to the state as a community that asserts monopoly over the means of coercion must be restated as a “‘human community that successfully claims the apex of a hierarchical credit system because it is legitimate within a given territory’” (Kapadia, 2013, p. 439) (emphasis in original)
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