Abstract: Strong financial markets are widely thought to propel economic development, with many in
finance seeing legal tradition as fundamental to protecting investors sufficiently for finance to
flourish. Kenneth Dam, in the Law-Growth Nexus, finds that the legal tradition view inaccurately
portrays how legal systems work, how laws developed historically, and how government power is
allocated in the various legal traditions. Yet, after probing the legal origins’ literature for
inaccuracies, Dam does not deeply develop an alternative hypothesis to explain the world’s
differences in financial development. Nor does he challenge the origins core data, which could be
origins’ trump card. Hence, his analysis will not convince many economists, despite that his legal
learning suggests conceptual and factual difficulties for the legal origins explanations. Yet, a dense
political economy explanation is already out there and the origins-based data has unexplored
weaknesses consistent with Dam’s contentions. Knowing if the origins view is truly fundamental,
flawed, or secondary is vital for financial development policymaking, because policymakers who
believe it will pick policies that imitate what they think to be the core institutions of the preferred
legal tradition. But if they have mistaken views, as Dam indicates they might, as to what the legal
traditions’ institutions really are and which types of laws really are effective, or what is really most
important to financial development, they will make policy mistakes ─ potentially serious ones.