Constitutional Interpretation: Burke and Buchanan and their 18th Century Intellectual Roots

There is a respectable tradition of Burkean constitutional interpretation in legal scholarship whereas Edmund Burke is a relatively neglected figure in constitutional political economy. A comparison of the constitutional interpretations of constitutional political economy and Burkean legal scholarship provides a potentially fruitful outcome for both. This is particularly so given the 18th century intellectual roots of each. An examination of the Burkean tradition demonstrates why it is methodologically inductive, evolutionary and pessimistic, compared to the deductive, individualistic and optimistic approach of the Smithian tradition of constitutional political economy. Interestingly, these sharp distinctions in method produce similar results.

The European Union: confederation,federation or association of compound states?

The European Union of today is neither a confederation nor a federation, but rather an association of compound states. It is shown that this mixture of two forms of constitutional contracts implies inconsistencies prone to political deadlocks. A Buchanan/Tullock/Rawls approach to a reform suggests a clear choice between either a confederation or a federation. In this paper, however, it is proposed to follow a Hayekian approach in which issue fields are allocated to a confederation or to a federation, respectively depending on the revealed homogeneity of preferences of the citizens across the Member States. Hence both, Council and European Parliament, would remain the central decision makers but with separate tasks. Suggestions are made how to improve their election and their decision rules. The paper should contribute to the debate on reforming the European institutions which emerged after the rejection of the constitutional draft by the French and Dutch voters in 2005.

Constitutional interests in the face of innovations: how much do we need to know about risk preferences?

In constitutional political economy, the citizens’ constitutional interests determine the social contract that is binding for the post-constitutional market game. However, following traditional preference subjectivism, it is left open what the constitutional interests are. Using the example of risk attitudes, we argue that this approach is too parsimonious with regard to the behavioral foundations to support a calculus of consent. In face of innovative activities with pecuniary and technological externalities in the post-constitutional phase, the citizens’ constitutional interests vary with their risk preferences. To determine what kind of social contract is generally agreeable, specific assumptions about risk preferences are needed.

The Austrian roots of the economics of institutions

This paper presents an analysis of the way the Austrian theory of institutions evolved from Menger’s main works. It also tries to advance the idea that the economics of institutions, when it deals with the emergence and evolution of rules and norms from interacting individuals, is inspired by Menger’s work and more generally by the Austrian analysis of the emergence and evolution of institutions. Recent works in the economics of institutions build on this earlier Austrian work to make it more formalized and testable.

Constitutional choice and European immigration policy

The EU’s immigration policy is evaluated from the standpoint of constitutional economics. The main conclusion is that European immigration policy is trapped in a system of constitutional regulations that is too rigid as it is exclusively oriented towards the protection and securitisation of European borders. As such, it is not capable of allowing the development of a problem-solving capacity based on successive trials, and this produces negative outcomes for the whole of the EU.

Buchanan on monetary constitutions

Buchanan’s reflections on monetary issues have been mostly neglected, despite their great interest both per se and for a deeper understanding of his general constitutional endeavour. We will thus propose a comprehensive assessment of Buchanan’s writings on this topic, focusing in particular on the different political models that have been developed to argue in favour of constitutional constraints on the governmental power to create money and on the implications that one can draw from our author’s monetary papers for the structure and the objectives of his constitutional discourse more generally.

Constitutional coordination in unstable party systems: the Brazilian constitution of 1988

Constitutional assemblies are a common feature of many democratic transitions. However, the goal of coordinating constitutional choice would seem nearly impossible when assemblies are comprised of highly fragmented and volatile political parties. Building on Knight’s bargaining model, this article argues that the main challenge to coordination in unstable party systems is the procedural disequilibrium that results from incomplete information over breakdown payoffs. The likelihood of compromise in such circumstances is a function of the ideologies that frame constitutional choice and inform coalition-building. Thus, unstable party systems are not chaotic, although they may be deeply conflict-laden. These issues are illustrated empirically via the Brazilian Constitution of 1988, which demonstrates the possibilities for a stable constitutional order emerging from a fragmented and volatile party system.

America’s neglected debt to the Dutch,an institutional perspective

America’s early constitutional development owes a good deal to the experience and policies of the Dutch republic. Many of the parallels are direct: In the late 16th century, the Dutch fought a successful war to secede from a major empire. They wrote a declaration of independence and adopted a federal model of Republican governance almost exactly two hundred years before the Americans. Somewhat later, the Dutch republic and its political institutions subsequently inspired and protected enlightenment scholars. Its leading political family and army played a crucial role in curtailing English absolutism in England and in England’s American colonies, and its federal template provided a model for early American institutions.

Inputs and institutions as conservative elements

Ludwig von Mises argued that capital goods were “conservative elements” that constrain future production decisions. Similarly, social capital and institutions also constrain future production decisions. These insights are applied to the institutional transformation of the post-Reconstruction American South. It is argued that the structure of social capital that developed in the South was inappropriate to the formal institutions that emerged as a result of the Civil War and Reconstruction. The tensions between institutions and social capital are examined in the context of racist lynching.

Deliberation,learning, and institutional change: the evolution of institutions in judicial settings

Institutional change entails institutional design, assessment, and modification, which necessarily take place within the constraints and opportunities afforded by existing institutional arrangements. Viktor Vanberg has made major contributions to our understanding of how institutions evolve. We wish to contribute to this symposium in honor of Vanberg by analyzing how institutions for the management of water institutions in Southern California evolved primarily through the use of the courts as settings for deliberation, learning and institutional change.

Can labour market institutions explain high unemployment rates in the new EU member states?

This article studies the question whether labour market institutions can explain the large differences in unemployment rates in the new member states. It investigates several labour market institutions and concludes that they are on average no more rigid in the new member states than in the old ones. However, there is a lot of heterogeneity both in terms of institutions and unemployment rates. The impact of labour market institutions on performance is empirically examined for a panel of European countries. These results are used to assess to what extent labour market institutions are responsible for the diverse unemployment experiences in the new member states. Labour market institutions can explain only a small part of these differences. Other causes of unemployment seem to be more important.

Constitutions and economic reforms in transition: an empirical study

Experiences of countries undergoing post-socialist transition in Central and Eastern Europe, as well as Central and Southwestern Asia, during the last 17 years, reveal great variety in economic reform paths and their successful implementation. At different moments of transition varying constitutional rules have also emerged in these countries. In our empirical study we find a significant relationship between constitutional rules and the economic reform process in post-socialist countries of Europe and Asia after 1989. In principle, the results confirm the arguments of the so-called negative constitutionalists, according to which the main function of the constitution for economic reforms in transition is its functioning as a commitment mechanism. The conclusions constitute an important step towards verification of different and often conflicting theories proposed by constitutional economists and allow to formulate practical recommendations for constitutional legislators and other actors capable of influencing constitutional change in countries encompassed by the study.

Separation of powers and the erosion of the ‘right to property’ in India

There has been a substantial erosion of the ‘right to property’ with respect to state takings in India, reflected in a progression of amendments to the Indian Constitution. Among other things, these amendments signify a violation of the doctrine of separation of powers. To study the implications of this on governance in relation to state takings, this paper juxtaposes a narration of events that describe the progressive erosion of the ‘right to property’ against a heuristic analytical structure that seeks to capture the costs of violating the doctrine of separation of powers. This analysis is then utilized to point to the social costs that characterize the state acquisitions (takings) regime in India.

Constitutional moments in Eastern Europe and subjectivist political economy

This article provides epistemic foundations for traditional rational-choice political science, to explain when and how ideas matter. Operational codes, epistemic communities and the structural patterns of ideas demonstrates the constitutional moments that occur during crises, and how ideas can underpin and direct the formation of interest groups. The implications for policy reform are discussed, along with an application to the Constitutional Moments during the transition of Central and Eastern Europe.

Do authoritarian institutions mobilize economic cooperation?

This paper explores the effect of dictatorial institutions on revenue composition. The higher the degree of institutionalization of the regime, the higher the perceived levels of legitimacy, efficiency and credibility, so taxes that require cooperation and compliance can be more effectively collected from the population. Institutionalized regimes thus make sense if non-tax revenue sources are scarce so limited representation must be granted in exchange of economic support. Our selection-corrected results show that more institutionalized regimes are able to collect more taxes on income, profits and capital gains, taxes on goods and services, taxes on property and payroll taxes.

Transaction tax and stock market behavior: evidence from an emerging market

This study examines the impact of a stamp tax rate increase on market behavior, using data from two stock exchanges in China. We find that when the tax rate increases from 0.3 to 0.5% (which implies that the transaction cost increases by about 1/3) trading volume decreases by 1/3. This implies an elasticity of turnover with respect to a stamp tax of −50% and an elasticity of turnover with respect to transaction cost of −100%. The markets’ volatility significantly increases after the increase in the tax rate. Furthermore, the change in the volatility structure indicates that the markets become less efficient in the sense that shocks are less quickly assimilated in the markets.

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Taxonomy: racism versus fiscal conservatism in voting on segregationist provisions in Alabama’s constitution

On Election Day 2004, a razor-thin majority of Alabama’s voters rejected a proposed amendment to remove overtly segregationist language from the state constitution. Opponents had contended that approval would have opened the legislative door to significantly higher taxes. We employ the results from two earlier special elections to analyze the outcome. In 2000, voters supported repealing a constitutional provision prohibiting interracial marriages. Three years later, Alabamians were asked to reveal their preferences with respect to additional taxation. The evidence suggests that opposition to higher taxes rather than bigotry was decisive in the rejection of Amendment 2 in 2004.

Buchanan’s constitutional political economy: exchange vs. choice in economics and in politics

This article discusses the methodological foundations of Buchanan’s constitutional political economy. We argue that Buchanan is a constitutional economist because he is an economist or a political economist. In other words, Buchanan is a constitutional economist—he insists on the necessity of focusing on constitutions and to analyze the “rules of the social game”—because he defines economics as a science of exchange. Buchanan’s definition of economics is not only specific, it is also opposed to the definition of economics that other economists retain and, above all, opposed to the definition of economics that many public choice theorists use. The latter have, in effect, adopted the Robbins 1932 definition of economics as a science of choice that Buchanan criticizes and rejects. Buchanan’s constitutional economics can be a branch of public choice only under certain conditions.

Constitutional tariffs, incidental protection, and the Laffer relationship in the early United States

This article explores an early attempt to establish a constitutional constraint on tariffs utilizing the Laffer Curve relationship. In 1842 John Calhoun suggested that the curve’s revenue maximization apex could be used to differentiate between “Revenue” and “Protective” tariffs independently from the non-judiciable question of legislative motive. When admitted that a tax must actually be collected to remain constitutionally valid, the apex functions as a de facto upper tariff rate constraint. Despite subsequently falling in disfavor, Calhoun’s argument illustrates the importance of political economy on the constitutional level by recognizing conditions that induce policymakers to rationally raise tax rates at the expense.

Legal positivism and property rights: a critique of Hayek and Peczenik

Scholars such as Friedrich Hayek and Aleksander Peczenik have criticized legal positivism for undermining constitutionalism and the rule of law, an implication of which is weakened private property rights. This conclusion is far from evident. First, I contend that legal positivism is compatible with a strong support for property rights. Second, the causal relationship between legal positivism and the degree to which property rights are applied and protected is analyzed. The main arguments for a negative relationship—that legal positivism centralizes and politicizes legislation and that it makes the legal culture servile in relation to the political sphere—are considered unconvincing.