Constitutional economics

[hotlip]

Constitutional economics

Constitutional economics is a research program in economics and constitutionalism that has been described as extending beyond the definition of "the economic analysis of constitutional law" in explaining the choice "of alternative sets of legal-institutional-constitutional rules that constrain the choices and activities of economic and political agents." This is distinct from explaining the choices of economic and political agents within those rules, a subject of "orthodox" economics.[1]

Constitutional economics studies the "compatibility of effective economic decisions with the existing constitutional framework and the limitations or the favorable conditions created by that framework."[2] It has been characterized as a practical approach to apply of the tools of economics to constitutional matters. [3] For example, a major concern of every nation is the proper allocation of available national economic and financial resources. The legal solution to this problem falls within the scope of constitutional economics.

Constitutional economics takes into account the significant impacts of political economic decisions as opposed to limiting analysis to economic relationships as functions of the dynamics of distribution of "marketable" goods and services. "The political economist who seeks to offer normative advice, must, of necessity, concentrate on the process or structure within which political decisions are observed to be made. Existing constitutions, or structures or rules, are the subject of critical scrutiny."[4]

Origins

The generally accepted birth of constitutional economics was Charles Austin Beard's landmark book, An Economic Interpretation of the Constitution of the United States [5]. While most scholars today reject Beard's overall thesis, he initiated a new method of economic and political thought that would evolve into contemporary constitutional economics analysis.[6]

Beard's main thesis was that the U.S. Constitution was an economic document created by men who were economically motivated.[6] Beard's work was unique because it was the first economic perspective on what had previously been political, philosophical, and legal topics; Beard set out to create a new history of American law, one founded on economic methodology and analysis distinct from the traditional philosophical, political, and religious interpretations [5]. Like the work of Charles Darwin or Sigmund Freud, once scholars read and understood Beard, returning to the old methods of analysis was impossible.

Specifically, Beard was cynical of the Founding Fathers, seeing the drafters of the Constitution as purely motivated by concerns for personal wealth and affluence. Beard stripped America's founding of what makes it uniquely moral and noble and developed a history of the founding no different than any other nation in history, one of greed, self-interest, and Machiavellian power politics. Obviously, such a thesis would be unpopular because it reduces America's saintly image of the Founding Founders to that of selfish, greedy bourgeois-capitalists in the Marxist class struggle. The result, according to Forest McDonald, is that both public and academic audiences did not embrace Beard's thesis [5]. Today, McDonald says, many scholars believe Beard was generally influenced by the growing Marxist thought of the day [5].

The term "constitutional economics" was coined in 1982 by the U.S. economist Richard McKenzie to designate the main topic of discussion at a conference held in Washington, D.C. McKenzie's neologism was then adopted by another American economist, James M. Buchanan, as a name for a new academic subdiscipline. It was Buchanan's work on this sub-discipline that brought him the Nobel Prize in Economic Sciences for his "development of the contractual and constitutional bases for the theory of economic and political decision-making" in 1986.

Buchanan rejects "any organic conception of the state as superior in wisdom, to the individuals who are its members." This philosophical position is, in fact, the very subject matter of constitutional economics. A constitutional economics approach allows for a combined economic and constitutional analysis, helping to avoid a one-dimensional understanding. Buchanan believes that a constitution, intended for use by at least several generations of citizens, must be able to adjust itself for pragmatic economic decisions and to balance interests of the state and society against those of individuals and their constitutional rights to personal freedom and private happiness.

Buchanan introduced rich cross-disciplinary concepts of "constitutional citizenship" and "constitutional anarchy." Constitutional anarchy is a modern policy that may be best described as actions undertaken without understanding or taking into account the rules that define the constitutional order. This policy is justified by references to strategic tasks formulated on the basis of competing interests regardless of their subsequent impact on political structure. At the same time Buchanan introduces the concept of "constitutional citizenship," which he designates as compliance of citizens with their constitutional rights and obligations that should be considered as a constituent part of the constitutional policy. Buchanan also outlines importance of protection of the moral principles underlying constitutional norms.

James Buchanan wrote that "the ethics of constitutional citizenship is not directly comparable to ethical behavior in interaction with other persons within the constraints imposed by the rules of an existing regime. An individual may be fully responsible, in the standard ethical sense, and yet fail to meet the ethical requirement of constitutional citizenship." [7] Buchanan considered the term "constitutionality" in the broad sense and applied it to families, firms and public institutions, but, first of all, to the state.

Buchanan's Nobel lecture quoted the work of the late 19th century Swedish economist Knut Wicksell, who greatly influenced Buchanan's research: "If utility is zero for each individual member of the community, the total utility for the community cannot be other than zero." In epigraph to the chapter of Nobel lecture entitled "The Constitution of Economic Policy" Wicksell states that "whether the benefits of the proposed activity to the individual citizens would be greater than its cost to them, no one can judge this better than the individuals themselves."[4]

In 1990, Buchanan, along with a few other budding constitutional economists, launched the journal Constitutional Political Economy with the purpose of further researching and developing the discipline. Buchanan wrote the vanguard article entitled "The Domain of Constitutional Economics," establishing the bounds of the emerging study and cementing the various topics he developed in 1962 and 1986. Buchanan gave a technical definition of constitutional economics as the research program directed at the rules of institutions in which individuals make choices, along with the process of creating these rules. While ordinary economic inquiry focuses on the choices within the rules or the constraints imposed on the individuals, constitutional economics aims at the actual rules themselves, the choice among constraints. Individuals agree to place constraints on themselves in exchange for anticipated benefits, a similar to a social contract view of government [8]. Just as a market transaction occurs through voluntary, mutually beneficial exchange, so with political "exchanges" of rights and authority [9].

With this theory, politics becomes a form of exchange and is therefore worthy of economic analysis, thus establishing the formal beginning of constitutional economics. By the end of the article, Buchanan enters philosophical territory, almost verging on skepticism, saying that each individual must perceive phenomena through his particular "window" and agreement is impossible when everyone views reality from different windows. Due to radical individualism, constitutional economics can include only people who view the world through economic paradigms or windows, not idealistic, goal-driven paradigms.