Constitutional economics

**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

## 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.