Market Exchange and the Rule of Law: Confidence in Predictability

Abstract

Law and economics is a significant field of analysis in legal studies and in economics, although there have been a number of controversies about how best to understand the relationship between economic relations and the regulatory role of law. Rather than surveying this field and offering a criticism of various theories and engaging in the dispute between different perspectives on the relationship between the two, in this article I take an approach rooted in neither mainstream economics nor in formal legal philosophy. Rather drawing on a recent well-rounded statement of behavioural economics and a synthesis of previous work on the narrative of the rule of law, I seek to explore how and why contemporary capitalism seems to have become so tied up with the rule of law, and what this might tell us more generally about the role of law in market relations. This analysis goes beyond the relatively commonplace observation that capitalism requires property rights, contract law and market institutionalisation to function, to ask ‘what exactly is it about the rule of law that seems so necessary to establishing and maintaining market exchange(s)?’.