The fact that so much of the market has in recent decades come to be organised around derivatives probably does indicate a secular change around economic activity. This now takes place primarily around trading risk rather than trading property. The primary goal of investors is now „exposure“ to risks (and chances). If exposure can be achieved without actually acquiring property, so much the better: this is more convenient and cheaper.


In this respect, the transition from possession to exposure echoes what happened centuries ago during the transition from the control of labour to the ownership of capital. For capitalism, the control of labour itself (for example, in slave-owning societies or in feudalism) is replaced by control of what can be extracted from labour. Owning slaves comes to be seen not merely as unethical, but, more significant from the capitalist’s point of view, as counter-productive. As a form of economic organisation, it is simply inefficient. In particular, it fails to motivate workers to produce surplus value; the slave is only interested in reproducing his own conditions of existence.1 Far better than owning people is to confine oneself to owning what they produce – specifically, to owning what is left over after the labourers have fed and housed themselves. The left over component is the surplus value produced by labour over and above the cost of its own reproduction. “Capital” is that surplus value – extracted, preserved, and armed for future economic activity.


The transition from owning assets to owning risks is similar. By means of derivatives, unnecessary engagement with real things is bracketed; the essential interest is abstracted from concrete entities. In a traditional context, someone who wanted to invest in real estate would have to buy houses and, in consequence, would have to (a) raise capital (b) go through a time-consuming sale procedure, and (c) engage in all sorts of ancillary businesses such as being a landlord or a property developer. In the modern market, this is unnecessary. To gain “exposure” to the housing market, the investor need do no more than take a position on the appropriate index.


As was the case in the transition to capitalism, the basic assumptions involved in moving to a risk-based market are only partially understood. Clarifying these basic assumptions is a task for lawyers. As we shall see, the legal system is still some way from achieving this.


1Adam Smith, Wealth of Nations, (University of Chicago Press) i, 90

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