A Legal Foundation for Exchange

THE connection among law, exchange, and human welfare has been recognized at least from the time of Adam Smith.1 Voluntary exchanges obviously play a central role, if not the central role, in a market economy by allowing goods and services to be transferred from lowerto highervalue uses. The existence and frequency of exchange does not depend, however, solely on the desires of the trading partners. In addition, the law can either lower the costs that private parties must bear in exchanging goods and services, or raise these costs so that in the extreme case no exchanges can take place at all. The most prominent legal foundation for exchange is the judicial enforcement of contractual promises. But there are additional legal prerequisites for exchange that are less obvious but of equal importance. This paper explores one of those additional prerequisites by analyzing how the assignment of rights and obligations by courts or legislatures can either facilitate or hamper exchange.2 This legal foundation for exchange is illustrated in a broad range of common-law and (to a lesser extent) statutory contexts. The assignment of legal rights takes place at two separate times. First