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Europe and the logic of hierarchy


  • Kapadia, Anush


Building on the view that financial systems from contract and trading structures through regulation are artifacts of law and politics, this paper analyzes the fundamental reasons for the observed hierarchy in all financial systems. Why are financial systems hierarchical? The answer offered here is mutualization at scale: balance sheets with access to larger economic catchment areas impart liquidity discipline or elasticity on smaller balance sheets, thereby setting the terms on which the latter operate. Hierarchy then sets the logical limit to the constructive power of law viz. finance. Yet because hierarchy is an abstract, functional requirement, the concrete institutional form that expresses this function is indeterminate a priori. This openness is a key predicate of the constructive power of law and politics in finance, allowing us to conceptualize systems that are democratic even while they attend to the specific logic of financial systems. These themes are explored in the context of the European Economic and Monetary Union and its recent crisis.

Suggested Citation

  • Kapadia, Anush, 2013. "Europe and the logic of hierarchy," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 436-446.
  • Handle: RePEc:eee:jcecon:v:41:y:2013:i:2:p:436-446
    DOI: 10.1016/j.jce.2013.03.013

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    Cited by:

    1. Pistor, Katharina, 2013. "A legal theory of finance," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 315-330.
    2. repec:oup:cjrecs:v:10:y:2017:i:1:p:189-204. is not listed on IDEAS
    3. Pistor, Katharina, 2013. "Law in Finance," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 311-314.

    More about this item


    Comparative economic systems; Monetary policy; Central banking; Economic history; Economic systems;

    JEL classification:

    • P50 - Economic Systems - - Comparative Economic Systems - - - General
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe


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