Capital Markets and Financial Politics: Preferences and Institutions

Capitalism and Society, Vol. 7, Issue 1, Article 3, 2012

The Oxford Handbook of Capitalism, Dennis Mueller, ed., Oxford University Press, 2012

40 Pages Posted: 25 Jan 2013 Last revised: 8 Jul 2013

Multiple version iconThere are 2 versions of this paper

Date Written: 2012

Abstract

For capital markets to function, political institutions must support capitalism in general and the capitalism of financial markets in particular. Yet the shape, support, and extent of capital markets are often contested in the polity. Powerful elements - from politicians to mass popular movements - have reason to change, co-opt, and remove value from capital markets. And the competing capital markets' players themselves have reason to seek rules that favor their own capital channels over those of others. How these contests are settled deeply affects the form, extent, and effectiveness of capital markets. And investigation of the primary political economy forces shaping capital markets can lead us to better understand economic, political, and legal institutions overall. Much important work has been done in recent decades on the vitality of institutions. Less well emphasized, however, is that widely-shared, deeply-held preferences, often arising from the interests and opinions that prevail at any given time, can sometimes sweep away prior institutions, establish new ones, or, less dramatically but more often, sharply alter or replace them. At crucial times, preferences can trump institutions, and how the two interact is well-illustrated by the political economy of capital markets. Since North's [1990] famous essay, academic work has focused on the importance of institutions for economic development. Here, I emphasize the channels by which immediate preferences can trump institutional structure in determining the shape and extent of capital markets.

Comments on this paper can be found at: http://ssrn.com/abstract=2206904.

Suggested Citation

Roe, Mark J., Capital Markets and Financial Politics: Preferences and Institutions (2012). Capitalism and Society, Vol. 7, Issue 1, Article 3, 2012. Available at SSRN: https://ssrn.com/abstract=2206878

Mark J. Roe (Contact Author)

Harvard Law School ( email )

Griswold 502
Cambridge, MA 02138
United States
617-495-8099 (Phone)
617-495-4299 (Fax)

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