The legal foundation of capitalism
In the episode “The Morality of Capitalism,” Bob Zadek put it to Tom G. Palmer that capitalism presupposes a legal system, a moral system, a cultural and social system, and an economic system, and asked him to explain the legal and social arrangements “that all of us take for granted.” Palmer answered that the first point is to have as a legal foundation rule of law, the idea of property rights that are well-defined and legally secured, and that people can transact at relatively low cost. In poor countries that do not benefit from free-market capitalism, he said, property rights are not well-defined, so people spend much of their time fighting over them — whether water or land or anything else; they are not defended, the legal system or the police do not work, and typically the government is the biggest robber and predator around. Legal systems there are so inefficient, corrupt, and badly managed that normal business is very difficult because contracts cannot be enforced. That legal system, Palmer concluded, is an absolutely necessary foundation for free-market capitalism The Morality of Capitalism (2012).
Palmer added a second element: a culture that embraces innovation, one open to the future. He cited Joseph Schumpeter’s term “creative destruction” for the constant introduction of new products, ways of doing business, and kinds of organizations, and observed that the last 200 years have seen more change than all the change in previous millennia. Zadek framed the stakes in his own words, saying that in the past four years government has compromised the rule of law and the system of property, and that he fears the erosion of capitalism The Morality of Capitalism (2012).
Erosion and the lessons of the twentieth century
Burton Abrams’s episode on the worst economic mistakes of the twentieth century gave Zadek a catalogue of what he called the loss of the rule of law. Summarizing the closing section of Abrams’s book, Zadek listed rule of law, well-defined property rights, good rules for the central bank, economic freedom, and getting rid of money in politics. He said the complaints about Obamacare, the GM bailout, and the abrogation of mortgage obligations during the so-called subprime mortgage crisis were that we lost the rule of law, surrendered well-defined property rights, the central bank behaved very badly, and we are being deprived of economic freedom. Zadek’s takeaway was that all the mistakes in the book are still happening today, and that the public must learn from history to stop them Worst Ten Economic Mistakes of the 20th Century (2014).
Abrams did not dispute the summary; he said Zadek had said it all and that he hoped people would read the book, adding that he was trying to think of the next few follies to add to the next edition. Asked whether he blogs, Abrams said he does, occasionally, on the Independent Institute, which publishes his op-ed pieces and his blogs there Worst Ten Economic Mistakes of the 20th Century (2014).
Madison on voluminous and incoherent law
Zadek closed an episode on Bleeding Heart Libertarianism with a recorded clip of James Madison on the rule of law. In the clip, Madison says it will be of little avail to the people that the laws are made by men of their own choice if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man who knows what the law is today can guess what it will be tomorrow. Law, Madison says in the clip, is defined to be a rule of action, but how can that be a rule which is little known and less fixed? Zadek repeated the closing question back to the audience — how can that be a rule which is little known and less fixed — and called it the wisdom of James Madison Matt Zwolinski on Bleeding Heart Libertarianism (2014).
Earlier in that episode, Zadek had argued that complex legislation shifts costs disproportionately onto the poor, that the EPA regulations he discussed represented an abdication of Congress ceding too much power to the executive, and that the fault is complex legislation. He introduced the Madison clip as thoughts on the rule of law, saying he wanted to close the show with them Matt Zwolinski on Bleeding Heart Libertarianism (2014).
Venezuela: rule of law broken down
Fergus Hodgson, asked by Zadek whether principles such as private property, freedom of contract, and rule of law had survived in Venezuela, answered that in the formal or open market there really is no free market anymore and no real capitalism — at most some cronyism. He said there is no stable currency, no property rights, and that property can be confiscated arbitrarily, with price controls on basically everything, in particular the exchange rates with foreign countries Venezuela on the Brink with Fergus Hodgson (2017).
Hodgson attributed the breakdown to the Chávez regime, which he said expanded welfare programs to favored groups and broke down the rule of law, violating property rights at will — literally selecting places personally to be confiscated, even on TV, as a show of attack against the rulers of the past. More and more companies and people said “Forget it,” he said, and over a million Venezuelans have left the country since 1999, with exiles in Florida, in Doral near Miami, and as far as Ireland. He quoted Jacob Hornberger’s line that the real free market is the black market, and concluded that every principle of free-market economics is being violated, which is why there is no economic growth and no investment Venezuela on the Brink with Fergus Hodgson (2017).
Rule of law as a social precondition
Jayant Bhandari, in “Capitalism and Morality: Twin Pillars of the West,” placed reason at the foundations of the whole thing: when a society becomes rational, he said, it tends to develop compassion, a sense of the rule of law, a sense of morality, and as a consequence capitalism becomes the way people transact with each other. Capitalism cannot be imposed from the top, he argued; it requires a society that believes in morality, where people transact more or less honestly, who are self-responsible and do not beg for free stuff. Only proud people can have capitalism in their societies Capitalism and Morality: Twin Pillars of the West (2017).
Zadek restated the point as a question — that you cannot go into a third-world country and impose capitalism by rule of law, because it needs the petri dish in which to take root — and Bhandari agreed. Bhandari added that for 300 to 500 years Christian missionaries and European colonial powers understood they had to wean superstitious, tribalistic mindsets out of these societies and teach the concept of reason, and that after the Second World War political correctness led Western societies to think all that was needed was a proper set of institutions imposed on these countries. In every single case, he said, once democracy was imposed in third-world countries the situation became worse, not better Capitalism and Morality: Twin Pillars of the West (2017).
Effective government and free cities
Mark Lutter’s episode on free cities and charter cities opened with Zadek’s own framing: libertarians support free minds, free markets, and limited government, but the concept of small or limited government is misleading, because libertarians who look forward to free markets and economic growth desperately need strong government in certain respects. Without a strong government that enforces a rule of law, enforces contract obligations, and creates a way to peaceably resolve disputes, Zadek said, the free market cannot function The End of Nation-States? (2018).
Introducing Lutter back after a break, Zadek described him as proposing and seeking to educate people on the economic benefits of nothing other than rule of law, a common law system, the ability to enforce contracts, and honest government, with which modest ingredients economic growth is almost unlimited. The lesson Zadek drew was that libertarians do not simply want less government; what is desperately needed is effective government, because in certain areas without effective government economic growth is almost impossible. He said Lutter would explain miracles in the Far East, in China, that could not have taken place without the creation of free cities The End of Nation-States? (2018).
Originalism and the law that governs governors
Randy Barnett, in the episode on Amy Coney Barrett, gave two reasons for originalism. The first, he said, has to do with the rule of law: judges take an oath to adhere to a written constitution, all government officials take an oath to adhere to the written constitution, and the reason we give them power is in return for that promise to follow the Constitution. A written constitution provides a rule of law to govern those who govern us. The Constitution, he said, does not govern “We the People” — with the exception of the 13th Amendment, which bans slavery, it does not bind the people; it is the law that governs those who govern us. Absent that law, if those who govern us could make up whatever laws govern them, it would be the same as if he and Zadek could make up whatever laws governed them for their convenience, and change them as they wished — a very chaotic way to have a society, like having “living speed limits” instead of a speed limit for everybody Amy Coney Barrett on Trial (2020).
The second reason, Barnett said, is that our particular Constitution happens to be a good constitution, and if it is followed we would be better off than if we merely follow the constitution given to us by nine justices on the Supreme Court. Following the original meaning, he argued, would reduce the significance of national elections and of who gets to be on the Supreme Court, because it would allocate power to 50 states for 50-state solutions to social and economic policies. He noted that the 14th Amendment would still protect individual rights against one’s own state, and that 50-state solutions would decentralize and diffuse intense social and political conflict Amy Coney Barrett on Trial (2020).
Across episodes
The topic recurs across the excerpts without a single settled argument. Palmer (2012) and Abrams (2014) treat rule of law as a foundation being eroded at home by bailouts, mortgage abrogation, and complex legislation; Hodgson (2017) describes an outright breakdown abroad in Venezuela; Bhandari (2017) and Lutter (2018) shift the question to preconditions — whether rule of law can be imposed from outside or must grow from a society’s own rationality and culture; and Barnett (2020) grounds it in constitutional interpretation and the oath. The later treatment does not resolve the earlier one; it moves the argument from what rule of law secures to what sustains it.
What the sources do not cover
The excerpts do not define rule of law in a single canonical formulation, nor do they trace its intellectual history beyond the Madison clip and Palmer’s reference to Schumpeter. They do not describe the administrative state in any detail, despite an episode summary naming it as a topic, and they do not report what any court held in the cases the speakers allude to. The Venezuela excerpt ends before Hodgson’s discussion of the flight of the middle class, and the free-cities excerpt ends before Lutter’s account of Singapore, Hong Kong, and Shenzhen.