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.

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