Constitutional economics is a research program in economics and constitutionalism that has been described as explaining the choice "of alternative sets of legal-institutional-constitutional rules that constrain the choices and activities of economic and political agents". This extends beyond the definition of "the economic analysis of constitutional law" and is distinct from explaining the choices of economic and political agents within those rules, a subject of orthodox economics.Ludwig Van den Hauwe, 2005. "Constitutional Economics II," The Elgar Companion to Law and Economics, pp. 223–24. Instead, constitutional economics takes into account the impacts of political economic decisions as opposed to limiting its analysis to economic relationships as functions of the dynamics of distribution of marketable goods and services.
Constitutional economics was pioneered by the work of James M. Buchanan. He argued that "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."James M. Buchanan, 1986. "The Constitution of Economic Policy," Nobel Prize lecture.
Constitutional economics has been characterized as a practical approach to apply the tools of economics to constitutional matters. 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.Christian Kirchnez, The Principles of Subsidiary in the Treaty on European Union: A Critique from a Perspective of Constitutional Economics, 6 TUL. J.INT'L. & COMP. L. 291, 293 (1998) Another example is to study the "compatibility of effective economic decisions with the existing constitutional framework and the limitations or the favorable conditions created by that framework".Peter Barenboim, 2001. "Constitutional Economics and the Bank of Russia," Fordham Journal of Corporate and Financial Law, 7(1), p. 160.
Origins
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. Later, McKenzie's neologism was adopted by another American economist, James Buchanan, as a name for a new academic sub-discipline. It was Buchanan's work on this sub-discipline that brought him the Nobel Memorial Prize in Economic Sciences for his "development of the contractual and constitutional bases for the theory of economic and political decision-making" in 1986.
Constitutional economics draws substantial inspiration from the reformist attitude which is characteristic of Adam Smith's vision, and that Buchanan's concept can be considered the modern-day counterpart to what Smith called "the science of legislation."
Positive constitutional economics
Within positive constitutional economics, the tools or methods are unique from normal economic tools because of the cross-disciplinary nature of the program. The main tool of positive constitutional economics is "comparative institutional analysis", with four main elements:Voigt, Stephan (1997). "Positive Constitutional Economics: A Survey," Public Choice, 90(1/4): 11–53). The first element examines how certain constitutional rules arose and what factors caused the rules to be developed as a result of aggregated individual inputs. The second element looks at how rules are distinguishable between individual and collective factors, though Voigt acknowledges this research method is rarely used. The third element is the possibilities of further constitutional (or rules) change. Any proposed change to constitutional constraints, or rules of constraints, are subject to economic scrutiny for their effects on efficiency and equity. The fourth element of positive constitutional economics examines the economic effects of developed or modified change to rules.
Normative constitutional economics
Normative constitutional economics focuses on legitimizing the state and its actions as the best means of maximum efficiency and utility, judging conditions or rules that are efficient, and discerning and studying the political systems to maximize efficiency, where the outcome of collective choices are considered "fair", "just", or "efficient".
Both Buchanan and Stefan Voigt argue the foundational assumption of normative constitutional economics is that no single individual's goals or values can supersede the value of another's. Therefore, a universal, absolute social norm or goal is impossible. Buchanan viewed politics as a form of exchange, such as when individuals agree to exchange goods. He believed that if people are acting rationally in their own perceived self-interest, and if the decision is voluntary and informed, any such agreement is "efficient" and therefore normatively ought to occur.
Methodological individualism leads Buchanan to the normative claim that a political theory very similar to that of John Rawls in his seminal 1971 work, A Theory of Justice, would best realize individuals' unique goals. Complete with a veil of ignorance and a priori decisions of social goals, Buchanan says political economy does not have a social engineer or moral purpose but only assists individuals in their search for rules that best serve their individual purposes. For Buchanan, the "good" society is one that furthers the interests of individuals, not some independent moral or teleological end.
James Buchanan's views on the ethics of constitutional citizenship
According to Buchanan, political efficiency, like market efficiency, occurs when all individuals in the community agree to the political structures.Buchanan, James M. (1988). "Contractarian Political Economy and Constitutional Interpretation," The American Economic Review, 78(2): 135–39. Buchanan's argument is similar to a social contract view of government, where individuals agree to place constraints on themselves in exchange for anticipated benefits,Van den Hauwe, Ludwig (1999). "Constitutional Economics," in The Elgar Companion to Law and Economics Second edition, edited by J. Backhaus. Edward Elgar Publishing Limited: Cheltenham, UK. Buchanan argued that just as a market transaction occurs through voluntary, mutually beneficial exchange, so with political "exchanges" of rights and authority.Buchanan, James M. (1990). "The Domain of Constitutional Economics," Constitutional Political Economy, 1(1): 1–18.
Buchanan believed that the ethic of constitutionalism is a key for constitutional order and "may be called the idealized Kantian world" where the individual "who is making the ordering, along with substantially all of his fellows, adopts the moral law as a general rule for behaviour"James Buchanan, The Logical Foundations of Constitutional Liberty, Volume 1, Liberty Fund, Indianapolis, 1999, p. 314
Buchanan introduced the cross-disciplinary concepts of "constitutional citizenship" and "constitutional anarchy". According to Buchanan, "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 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."Buchanan, J. Logical Foundations of Constitutional Liberty. Vol. 1. Indianapolis, 1999. p. 372. 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.
Crucial to understanding Buchanan's system of thought is the distinction he made between politics and policy. According to Buchanan, politics is about the rules of the game, where policy is focused on strategies that players adopt within a given set of rules. "Questions about what are good rules of the game are in the domain of social philosophy, whereas questions about the strategies that players will adopt given those rules is the domain of economics, and it is the play between the rules (social philosophy) and the strategies (economics) that constitutes what Buchanan refers to as constitutional political economy"."Where Economics and Philosophy Meet: Review of The Elgar Companion to Economics and Philosophy with responses from the authors", The Economic Journal, 116 (June), 2006
Hayek
Buchanan is not the only contributor to normative constitutional economics. Economist Friedrich Hayek also wrote extensively on the topic of constitutional economics, even if he did not name constitutional economics specifically. Hayek defends a representative constitutional democracy as the best structure of government.Hayek, Friedrich A. (1973). Law, Legislation, and Liberty, Chicago: The University of Chicago Press. Hayek's main project was the vindication of freedom and establishing criteria for a regime of freedom.Hayek, Friedrich A. (1960). The Constitution of Liberty, Chicago: The University of Chicago Press.
Hayek was worried by the kind of state that Buchanan/Rawls deemed normative. Hayek thought it necessary for a return to the traditional views of government, human nature, political philosophy, and economics. He believed the Buchanan/Rawls state had the almost inevitable propensity to totalitarianism as the state seeks to maximize individual utility.
Economic analysis of the US Constitution
The generally accepted birth of constitutional economic analysis of US Constitution was Charles Austin Beard's landmark 1913 book An Economic Interpretation of the Constitution of the United States.Beard, Charles A. (1913). An Economic Interpretation of the Constitution of the United States, New York: Macmillan Publishing Co, Inc. 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.Voigt, Stephan (1997). Positive Constitutional Economics: A Survey, Public Choice, 90(1/4): 11–53). Beard's main thesis was that the U.S. Constitution "was essentially an economic document based upon the concept that the fundamental private rights of property are anterior to government and morally beyond the reach of popular majorities."
Writing in 1987 for the Yale Law School, Jonathan Macey synthesizes the history of constitutional economic analysis applied to the US Constitution. Macey offers a different analysis of the US Constitution and responds critically to Beard's view of the Constitution.Macey, Jonathan R. (1987). "Competing Economic Views of the Constitution," Faculty Scholarship Series, 56(50): 50–80.
As Macey understood Beard a famous and crucial part of the Constitution, separation of powers, was actually a means of allowing hegemony of resources in the hands of the rich few. Macey could not disagree more; he argues that the Constitution and separation of powers were created to hinder aggregate political and economic power. He points to Federalist No. 10, James Madison's argument of the necessity of factions due to what he saw as truths of human nature.
Separation of powers