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Lookup NU author(s): Professor TT Thiruvallore Thattai
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This paper discusses the history of debt in the late 17th and early 18th centuries – a period of radical change in finance which has come to be called the 'Financial Revolution'. It argues that the Financial Revolution marked a decisive shift in the legal understanding of debt, away from the traditional relational understanding which saw debt as a socially-embedded relationship between debtor and creditor, and towards a more commodified understanding which treated debt into a commodity capable of being traded on a market, with an existence independent of the social relationship between the original debtor and creditor. This shift had a twofold effect. Firstly, it moved the legal system away from an understanding where debt was seen as an expression of individual need, to which society had a religious and moral obligation to respond, to one which saw the taking on of debt as no different from the acquisition of any other commodity and, hence, as the product of a free choice rather than as a manifestation of a need. Secondly, it resulted in debt increasingly assuming legal forms that are far more complex, and capable of far more manipulation, than other means by which purchasing power may be acquired. The 2008 financial crisis instantiates the complexity of the debt-based structures that the commodified understanding of debt facilitates, and the role of this complexity in causing crisis. This paper argues that whilst derelationalisation was not without its logic, the propensity towards instability is inherent in the commodified character of debt. Debt is a fictitious commodity, not a true one, and the key lesson which the history of the construction of this legal fiction offers is that a regulatory system which ceases to remember its fictional character will promote instability.
Author(s): Arvind TT
Editor(s): Aldohni, AK
Publication type: Book Chapter
Publication status: Published
Book Title: Law and Finance after the Financial Crisis: The Untold Stories of the UK Financial Market
Year: 2017
Pages: 8-26
Print publication date: 07/01/2017
Acceptance date: 01/12/2016
Publisher: Routledge
Place Published: Abingdon, UK
URL: https://www.routledge.com/Law-and-Finance-after-the-Financial-Crisis-The-Untold-Stories-of-the-UK/Aldohni/p/book/9781138936362
Library holdings: Search Newcastle University Library for this item
ISBN: 9781138936362
