When the sovereign becomes the violator

National Review raises a question that any honest student of political economy must pause over: the administration that has loudly condemned the Chávez government's seizure of American property now appears, by inference from the lead, to be pursuing arrangements over Venezuelan oil that would quietly set aside the legal claims of those same American companies. If that inference is correct, the cynicism is considerable — and the damage extends far beyond any single barrel of crude.

I argued, in The Wealth of Nations, that the security of property is the first condition of productive investment. A merchant will sink capital into a distant enterprise only when he trusts that the law will protect what he builds. Confiscation by a foreign sovereign is an injury to that trust. But confiscation followed by a great power's quiet bargain — one that trades away the victim's legal claim for a political convenience — is an injury of a different and graver kind, because it teaches every future investor that the law is not a shield but a prop, to be kicked away when powerful interests find it inconvenient.

There is also, I must note, a second layer of concern that the mercantile interest tends to obscure. When a government attacks the property of foreign nationals, the consumer — in this case, every household that pays for energy — is the ultimate victim of the resulting disorder. Secure property rights and enforceable contracts reduce the risk premium that producers must charge; destroy them, and the cost is distributed invisibly but universally across the market. The merchant who loses his refinery in Maracaibo suffers acutely; the family that pays more for heating oil suffers diffusely. Political attention flows to the first; the second is forgotten.

What I find most instructive here is the institutional question the National Review story implicitly poses. The proper remedy for expropriation is adjudication: a neutral tribunal, a transparent process, an enforceable award. That is what distinguishes a commercial civilization from a system of rival plunder. The moment a great power substitutes a back-room arrangement — trading away private legal claims as though they were chips in a diplomatic game — it has adopted the logic of the very sovereign it condemns. It has said, in effect, that property rights exist only when powerful parties find it convenient to honor them.

I am not competent to judge the precise diplomatic geometry of what Messrs. Trump and his envoys may have negotiated, nor did I live through these events. I speak only to the principle, which is durable: the sovereign who undermines the rule of contract, even in the name of recovering stolen goods, weakens the very institution on which all honest commerce depends. The framework that makes exchange honest is not self-enforcing. It requires a sovereign committed to maintaining it — one who is as willing to honor an inconvenient legal claim as a convenient one. When that commitment wavers, the invisible hand has nothing solid to grip.