The Rule of Law
The Rule of Law is a phrase we are hearing more frequently.
If you haven’t heard of the Rule of Law you are not alone!
If you have heard of it, you must be an expert at constitutional law.
In the United States the Rule of Law is derived from the Constitution. Although the Rule of Law in concept has been around for thousands of years.
It started with the Codes of Hammurabi
Hammurabi (c. 1810 – c. 1750 BC) was the sixth Amorite king of the Old Babylonian Empire from c. 1792 BC to c. 1750 BC.
The only reason I know about Hammurabi is that I had to study in detail the Codes. I took a class on Ancient Mesopotamia. (History, economics, and investing do coexist)
The term “Innocent until proven guilty” comes from the Code.
There were some very harsh punishments in the Code, like an “eye for an eye” not a type of punishment that would be legally enforced today.
In today’s Rule of Law, human rights violations are one priority.
Why are we hearing about the Rule of Law today? Because one of the primary tenets is “No man or woman is above the law.”
I’ll leave that part to your imagination.
President Biden:
“American democracy only works if we choose to respect the rule of law and the institutions that were set up in this chamber behind me, only if we respect our legitimate political differences,”
Merrick Garland:
Attorney General Merrick B. Garland explained the concept of the rule of law in a Saturday speech before new immigrants at Ellis Island.
“The protection of law — the rule of law — is the foundation of our system of government,” Garland told the new citizens.
“The rule of law means that the law treats each of us alike: There is not one rule for friends, another for foes; one rule for the powerful, another for the powerless; a rule for the rich, another for the poor,” Garland said.
Merrick Garland lectures on ‘the rule of law”.
Using the reach of the commerce clause, Congress and the administrative agencies regulate almost every aspect of the U.S. economy, theorizing that a national economy demands national regulations. Conservative states’ rights advocates may not like it, but, for most Americans, the interconnected character of modern American society leads them to expect the government to assist in the development of the economy. In a reciprocal relationship, the Constitution benefits the economy, and the economy is bolstered by the constitutional system.
The Constitution and Economic Benefits| Encyclopedia.com
The Rule of Law is not about one specific law.
The Rule of Law encompasses all the laws that as members of society we are expected to follow.
At this point you should be asking what the Rule of Law, the Constitution and the Judicial system have to do with investing?
In order for financial markets to function we need stable governance and regulatory oversight.
We take for granted the complexity of what it takes for the financial markets to operate on a daily basis.
The financial markets are highly regulated. To work for a brokerage firm or an investment management firm means following all of the rules and regulations surrounding financial transactions.
The SEC penalizes individuals and firms who fail to follow the rules and regulations, also known as compliance.
There will always be individuals who are scamming or breaking the law, but they are not the majority of people working in the financial industry.
We may not be happy with the prices of stocks today or higher interest rates. But we have liquid markets meaning, we have prices. As long as there is a bid price and an ask price stocks and bonds can be bought and sold.
We have thousands of investment options. We have deep capital markets.
We can watch daily how stocks and bonds are trading.
The antithesis is a country without the Rule of Law.
Can you imagine living in a country with no transparency?
There exist countries where corruption is so deep that following rules and regulations is an aberration.
In countries where there is no Rule of Law black markets for currency or property exist. Individuals and institutions go to great lengths to get money and assets OUT of a country, and into a safe haven.
When there is no trust in a banking system or financial system you have an economy that is vulnerable. Countries with persistently high inflation, countries where assets can be confiscated and countries that are led by an autocrat are unstable. There cannot be one person who arbitrarily decides what the rules are and who they apply to.
We know there are people who believe that the rules do not apply to them. People who have total disregard for the rights of other people. People who believe it is their constitutional right to break laws.
Can someone break the Rule of Law? Yes. And people who do break the rule of law are not above the law.
What Exactly Is the Rule of Law? | Published in Houston Law Review
Rule of Law – Annenberg Classroom
Code of Hammurabi: Laws & Facts – HISTORY
Opinion | Jamie Raskin on The Second Amendment – The New York Times (nytimes.com) (this article might require a subscription to The New York Times)
This website is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services by The Modest Economist LLC.
