Constitutional economics

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. 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. 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.' 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. 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'. 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 M. 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. Constitutionalism has been the subject of criticism for its previous ignorance of economic issues but this criticism was taken into account by the development of constitutional economics. 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. 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.” According to Buchanan 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'. 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.'