The article examines the key aspects of a debate on the concept of the state and the relationship between freedom and the rule of law in economic studies. On the basis of selected research reports, the authors discuss the results of studies on the influence of economic freedom and the rule of law on prosperity. The paper reviews the most common definitions of economic freedom and the rule of law and methods for measuring them. It follows up with a description of the results of studies on how economic freedom and the rule of law influence economic growth. The analysis made in the paper shows that economic freedom and the rule of law are indispensable for sustained economic growth. They have a major positive influence on the rate of growth. Economic freedom promotes innovation in business and prosperity. However, the government tends to limit economic freedom and forces businesses to behave in a specific way to benefit the economy and the public. This works when the government acts in keeping with the rule of law, the authors say. The rule of law promotes business efficiency and leads to lower transaction costs, which results in faster economic growth, the authors conclude.