“Understanding Constitutional Economics: The Foundation of Fair Economic Systems”
The core principles of constitutional economics are:
- rule-based governance, on rules that citizens give their consent to follow,
- decentralized local and state government priority over centralized federal agenices,
- citizen participatory democracy, including citizen recourse when rules are not followed,
- economic freedom to pursue individual happiness,
- constitutional protections for individual civil and natural rights,
- fair constitutional rules that apply equally to all social classes.
When the rules are fair, and apply to all citizens equally, all citizens have an equal opportunity for financial success.
When the rules are unfair, only certain social classes benefit from the rules, and they use their unearned power to deny opportunities to other citizens.
The principles of constitutional economics were pioneered by James M. Buchanan, and his colleagues, at George Mason University.
His theory of government focuses on the economic analysis of constitutional rules and their impact on political and economic decision-making.
In Constitutional Economics, James Buchanan wrote that,
“Uncertainty about where one’s own interest will lie in a sequence of plays or rounds will lead a rational person, from his own self-interest, to prefer rules and arrangements, or constitutions, that will seem fair, no matter what final positions he might occupy.” (1991).
The practical application of Buchanan’s fair rules is that if a person does not know where that person would end up in the future economy, that person would choose fair rules for everyone.
Buchanan’s fair economic rules are aimed at creating the greatest prosperity for the greatest number of citizens.
The two essential conditions for Buchanan’s constitutional system to work are the belief that individuals pursue their rational self-interest, and that the constitution identifies the pursuit of the rational self-interest as the economic goal of a democratic republic.
Buchanan emphasized allowing ordinary common ctizens to design fair constitutional rules and advocated written constituional barriers to restain the the predatory state, in such matters as money creation and setting interest rates.