Decoding Constitutional Economics: Everything You Need to Know

Constitutional Economics is all about taking into account the impact of political and economic decisions. It is also referred to as the joint study of economics and constitutionalism. According to Economists, it is the economic analysis of the constitutional law.The term ‘Constitutional Economics’ was first coined by the U.S economist named Richard McKenzie in 1982. The term was again used as a name for a new academic sub-discipline by an economist named James M Buchanan.

The prime motive of bringing Constitutional Economics into effect is to understand the importance of the constitution in economic development. To put into the words of U.S Judge Richard Posner, “effective protection of fundamental economic rights promotes economic growth.’

How Constitutional Economics came into Existence?

As mentioned earlier, James M Buchanan introduced Constitutional Economics as a sub-discipline. Constitutionalism has always been a subject of criticism for its previous ignorance of economic issues. However, this criticism is taken into account by the development of Constitutional Economics. The theory came into existence when the economists realised that Constitutional Economics approach allows for a combined economic and constitutional analysis, helping to avoid a one-dimensional understanding.

The theory came into existence when the importance of involvement of constitution in economic growth was realised. Within favourable Constitutional Economics, the tools and methods are different. A new law was passed to ensure the economic growth of the country by following the constitutional method. It is more critical in transitional and developing countries to implement Constitutional Economics.

In the post-colonial era, the importance of constitutionalism emerged in third world countries. The economic development and its process worked according to the need of the constitution. There were a different set of rules for farming to ensure the requirement of GDP in the country. A budget was set for the third world countries to invest in various sectors. At present, the Constitutional Economics process is widely implemented in third world countries.

The formation of Constitutional Economics in a scholarly direction is different from the actual analysis. Constitutional Economics is subjective in the U.S and U.K. It has a different set of ethics. Apart from that, there are different normative theories related to Constitutional Economics. According to the theory, Constitutional Economics is the only way to ensure a considerable growth in the country. The process helps to understand the condition of the country to ensure production growth in terms of industry or farming.

Constitutional Economics and Law

According to U.S Judge Richard Posner, there is an interrelationship between constitution and economy. The economic analysis shows that if a constitutional method is to be followed in the country, there should be a specific law to ensure the same. Therefore, legal decisions in the case of GDP production, taxes, revenue collection, gross national income, etc. are implemented.

There is a normative law in Constitutional Economics. It has been found that law demands in legitimising the need for constitutional involvement in economic development. On the other hand, there is another theory (as a positive branch) which is interested in explaining the economic effects of alternative constitutional rules. It also adds analysis to emergence and modification of constitutional rules.

How Constitutional Economics Help Countries to Grow Big?

According to the experts, Constitutional Economics is important for the economic growth because of the systematic approach that it follows. It plays a significant role in the country’s growth as it helps to set the objectives of the budget. Apart from that, the fiscal year of the country is dependent on multiple things. With the process of Constitutional Economics, a lot of things in the country are managed in a systematic order.

According to the statement of the World Bank, the fiscal year of the countries that tend to follow Constitutional Economics is better than the rest. The country can steadily control problems like high unemployment rate, inflation, increase in the ratio of the poverty line, etc.

It will not be wrong to say that Constitutional Economics is an excellent process to implement and ensure the economic growth of a country.

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