WHAT IS 'Constitutional Economics - CE'

Constitutional Economics is a branch of economics focusing on the economic analysis of the constitutional law of a state. People often view this field of study as differing from more traditional forms of economics, because it focuses specifically on the ways the constitutional rules and economic policies of a state benefit and restrict the economic rights of its citizens.

BREAKING DOWN 'Constitutional Economics - CE'

Constitutional Economics emerged in the 1980's as a field of economic study investigating the economic conditions as they are constructed and constrained within the framework of a state’s constitution. Constitutional economics principles are used to estimate how a country or political system will grow economically, since a constitution limits what activities individuals and businesses can legally participate in.

Although the term was first coined by economist Richard Mackenzie in 1982, another economist, James M. Buchanan, developed the concept and helped to establish constitutional economics as its own sub-discipline within academic economics. In 1986, Buchanan was awarded the Nobel Prize in Economics for developing “the contractual and constitutional bases for the theory of economic and political decision-making.”

Because constitutional economics studies the ways legal frameworks influence and impact economic development, the field is often applied to developing countries and countries with changing political systems.

The Origins of Constitutional Economics

Constitutional economics is usually seen as a direct descendant of public choice theory, which originates in the 19th century and concerns itself with the ways economic tools organize and influence political behavior.

One of the defining texts of public choice theory, The Calculus of Consent: Logical Foundations of Constitutional Democracy, was published in 1962 by James M. Buchanan and Gordon Tullock. Cited by Buchanan as a “politics without romance,” public choice theory investigates the economic functions and tensions between citizens, government and the persons who comprise governing bodies.

For instance, public choice economists would investigate the theoretical underpinnings of the ways in which governing officials use their positions to foreground their own economic interests while simultaneously pursuing goals of public good. Principles of public choice theory are often invoked when explaining the economic decisions of governing bodies which seem in conflict with the desires of a democratic electorate, such as pork-barrel projects and the engagement of political lobbyists.  

In addition to Buchanan, many public choice theorists have been awarded Nobel Prizes in Economics, including George Stigler in 1982, Gary Becker in 1992, Vernon Smith in 2002 and Elinor Ostrom in 2009.

  1. James M. Buchanan Jr.

    James M. Buchanan Jr. was an American economist and architect ...
  2. Economic Conditions

    Economic conditions are the state of the economy in a country ...
  3. Experimental Economics

    Experimental economics studies human behavior in a controlled ...
  4. Business Economics

    Business economics applies economic theory and quantitative methods ...
  5. Economic Growth Rate

    An economic growth rate is a measure of economic growth, typically ...
  6. Economic Integration

    Economic integration is an arrangement between different regions ...
Related Articles
  1. Insights

    Harvard and MIT Professors Win Nobel Memorial Prize in Economics

    British economist Oliver Hart, 68, and Finnish economist Bengt Holmström, 67, were honored with the award today for their contributions to contract theory.
  2. Investing

    The difference between finance and economics

    Learn the differences between these closely related disciplines and how they inform and influence each other.
  3. Insights

    Trump Sued Over Foreign Emoluments

    The federal lawsuit alleges that Trump is at risk of violating a clause in the constitution.
  4. Investing

    Why Colleges Want Economics to Be a STEM Major

    The answer has less to do with philosophy and more to do with immigration policies.
  5. Insights

    Economic Indicators for Germany

    Here is a list of the top macro-economic indicator data sources for Germany.
  6. Investing

    How 5 Influential Economists Changed Americas History

    Find out how five economists made contributions to financial theory that crossed over into many aspects of social history in America such as Adam Smith.
  1. What impact does economics have on government policy?

    Learn about the impact of economic conditions on government policy and understand how governments engineer economic conditions ... Read Answer >>
  2. Who sets fiscal policy, the president or congress?

    Discover how fiscal policy is set in the United States, including how all three branches of government can affect a given ... Read Answer >>
  3. Is economics a science?

    Learn how economics fits into the category of social sciences, and discover the arguments critics make against this classification. Read Answer >>
  4. What are examples of economic values in use today?

    Learn some examples of economic values in use today as the global marketplace expands and new theories emerge to explain ... Read Answer >>
  5. What is demand-side economics?

    Learn the basic theory of demand-side economics, which emphasizes the importance of aggregate demand and supports government ... Read Answer >>
  6. What is the relationship between human capital and economic growth?

    Learn what human capital and economic growth are, how human capital is related to economic growth and see examples of the ... Read Answer >>
Trading Center