Constitutional economics is a program of joint study of economics and constitutionalism. It is often described as "the economic analysis of constitutional law." Constitutional economics tries to explain the selection of constitutional rules "limiting the choices and activities of economic and political agencies." This is different from the approach of traditional economics.  Also, constitutional economics studies how well economic decisions of the state agree with the existing constitutional economic rights of its citizens." For example, proper distribution of economic and financial resources of the state is a big question for every nation. Constitutional economics tries bringing together constitutional economic rights of the citizens and economic policy of the state.

Origins
The term “constitutional economics” was created in 1982 by the U.S. economist Richard McKenzie. Then it was used by another American economist – James M. Buchanan – as a name for a new academic sub-discipline. Buchanan’s work brought him in 1986 the Nobel Prize in Economic Sciences for his "development of the contractual and constitutional bases for the theory of economic and political decision-making."

Buchanan rejects "any organic conception of the state" as superior in wisdom, to the citizens of this state." This philosophical position forms the basis of constitutional economics. Buchanan believes that every constitution is created for at least several generations of citizens. Therefore, it must be able to balance interests of the state, society, and each individual.

There exists an important opinion that constitutional economics can be regarded as the modern "science of legislation."

The constantly growing public interest in constitutional economics has already brought to life several academic journals, for example, "Constitutional Political Economy" (established in 1990).

Judicial interpretation
The U.S. judge Richard Posner stresses the important role of state constitution in the economic development. He asserts that "effective protection of basic economic rights promotes economic growth."

The Supreme Court of India used practical interpretation of the Indian Constitution to protect the poorest and most oppressed groups of the population in several cases of public interest litigation.  This is an example of real life application of the methodology of constitutional economics.

Importance for transitional and developing countries

Constitutional economics pays special attention to such topic as proper national wealth distribution. Many countries with changing or developing economic systems still regard their constitutions as abstract legal documents having nothing in common with actual economic policy of the state. Three quarters of all independent states are still living under nearly absolute state control of the national economy. Neither civil society nor individual citizens in these states have any influence on the decisions taken in the process of national wealth distribution. Therefore, constitutional economics is especially important for the countries whose political and economic systems are in transition and where the state rarely respects constitutional economic rights of its citizens.

Related pages
 Budget
 Constitution
 Constitutionalism
 Economics
 Democracy
 Government
 Parliament
 Political economy
 Political science
 Rule of Law
 James M. Buchanan
 Welfare state

References

Other websites
 Backhaus, Jürgen G., ed. The Elgar Companion to Law and Economics:
 Farina, Francesco, 2005. "Constitutional Economics I," pp. 184-222.
 Van den Hauwe, Ludwig, 2005.  "Constitutional Economics II," pp. 223-38.
 James A. Dorn, 2004. "Creating a Constitutional Order of Freedom in Emerging Market Economies,"  Economic Affairs, 24(3), pp. 58–63. Abstract.
 Buchanan, James M., 1974.  The Limits of Liberty: Between Anarchy and Leviathan  Library of Economics and Liberty
 _, 1986. "The Constitution of Economic Policy," Nobel Prize lecture,  reprinted in American Economic Review, 77(3), p p. 243-250.
 _, 1987. "constitutional economics," The New Palgrave Dictionary of Economics, v. 1, pp. 585–88.
 _, 1990a. "The Domain of Constitutional Economics," Constitutional Political Economy, 1(1), pp. 1-18. Also at Buchanan, 1990b.
 
 _ and Gordon Tullock, 1962. The Calculus of Consent. University of Michigan Press. Chapter-preview links.
 Constitutional Political Economy. Description and abstract links.
 Bruno Frey, 1997,  "A Constitution for Knaves Crowds out Civic Virtues," Economic Journal, 107(443), p p. 1043-1053.
 Friedrich A. Hayek, 1960.  The Constitution of Liberty. Chicago. "The Rule of Law," ch. 11. 
 _.  Law, Legislation and Liberty.  Chicago. 3 v.:
1973. v. 1. Rules and Order. Scroll down to chapter-preview links.
1976. v. 2. The Mirage of Social Justice.  Links.
1979. v. 3. The Political Order of a Free People. Links.
 Dennis C. Mueller, 2008. "constitutions, economic approach to,' The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
 
 Sutter, Daniel, 1995. "Constitutional Politics within the Interest-Group Model," Constitutional Political Economy, 6(2), p p. 127 -137.
 Voigt, Stefan, 1997.  "Positive Constitutional Economics: A Survey," Public Choice, 90(1-4), p p. 11-53.

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