Money as meta-rule: Buchanan’s constitutional economics as a foundation for monetary stability

PETER J. BOETTKE, ALEXANDER W. SALTER, DANIEL J. SMITH

PUBLIC CHOICE

Abstract: This paper explores James Buchanan’s contributions to monetary economics and argues these contributions form the foundation of a robust monetary economics paradigm. While often not recognized for his contributions to monetary economics, Buchanan’s scholarship offers important insights for current debates, especially the renewed interest in narrow banking in the wake of the financial crisis. We argue that the post-2007 crisis milieu creates a unique opportunity to recognize, as Buchanan did, the vital role that money plays in the market as the ‘grammar of commerce.’ That recognition makes the need for more fundamental reform of our monetary regimes at the constitutional level more apparent, making Buchanan’s work on monetary constitutions more relevant than ever before. We then discuss how adopting Buchanan’s monetary framework can improve both monetary scholarship and institutions.

Escape from Europe: a calculus of consent model of the origins of liberal institutions in the North American colonies

VLAD TARKO, KYLE O’DONNELL

CONSTITUTIONAL POLITICAL ECONOMY

Abstract: The migration out of Europe and the establishment of North American colonies presents us with a great puzzle: why did the colonists establish democratic forms of governance? Considering that early democratic colonies appeared even before philosophical works such as those of Locke and Montesquieu were written, it is difficult to make the case that ideology was the driving factor. We show that the calculus of consent model proposed by Buchanan and Tullock (The calculus of consent, Liberty Fund, Indianapolis, 1962) offers a simple but subtle solution this puzzle. Because migrants formed much more homogeneous communities, and because, thanks to the large geographical expanse, the inter-jurisdictional externalities were small, the efficient level of consensus within each colony was much greater than in Europe, and the scope of efficient centralized decision-making was much smaller. Hence, a structure of decentralized democratic communities emerged as the efficient outcome.

A culture of rent seeking

SEUNG GINNY CHOI, VIRGIL HENRY STORR

PUBLIC CHOICE

Abstract: Tullock [J Dev Econ 67(2):455–470, 1967] introduced the concept of rent seeking and highlighted the social costs associated with collecting and lobbying for or against tariffs, investing in human and physical capital to facilitate or protect against theft, and expending resources to establish a monopoly. A large portion of the rent-seeking literature suggests how formal and informal institutions impact for rent-seeking activities. Culture also affects rent seeking. Communities can have a culture of rent seeking (CoRS), i.e., a perception shared by members of a society that having influence over political allocations is an important and potentially preferable source of private benefit than other avenues of pursuing economic gain. In this paper, we explore how culture affects the nature and level of rent seeking that a society pursues, and whether institutional shifts can strengthen or break down a CoRS.

Reapplying behavioral symmetry: public choice and choice architecture

MICHAEL DAVID THOMAS

PUBLIC CHOICE

Abstract: New justifications for government intervention based on behavioral psychology rely on a behavioral asymmetry between expert policymakers and market participants. Public choice theory applied the behavioral symmetry assumption to policy making in order to illustrate how special interests corrupt the suppositions of benevolence on the part of policy makers. Cognitive problems associated with market choices have been used to argue for even more intervention. If behavioral symmetry is applied to the experts and not just to market participants, problems with this approach to public policy formation become clear. Manipulation, cognitive capture, and expert bias are among the problems associated with a behavioral theory of market failure. The application of behavioral symmetry to the expanding role of choice architecture will help to limit the bias in behavioral policy. Since experts are also subject to cognitive failures, policy must include an evaluation of expert error. Like the rent-seeking literature before it, a theory of cognitive capture points out the systematic problems with a theory of asymmetry between policy experts and citizens when it comes to policy making.

A short history of constitutional liberalism in America

CONSTITUTIONAL POLITICAL ECONOMY

ROGER D. CONGLETON

Abstract: American liberalism emerged before the most famous European liberal intellectuals put their pens to paper. It was grounded partly on liberal ideas that were in the air before those works were written, but mostly on the attractive communities generated by liberal institutions and policies. American liberalism is empirically, rather than theoretically, grounded. This paper uses excerpts from colonial and constitutional documents to demonstrate the long history of liberal institutions in the territories that became the United States. American liberalism is an evolutionary rather than an intellectual phenomenon.

Democracy before, in, and after Schumpeter

PHILIP PETTIT

CRITICAL REVIEW

Abstract: The classical model of democracy that Schumpeter criticizes is manufactured out of a variety of earlier ideas, not those of any one thinker or even one school of thought. His critique of the central ideals by which he defines the model—those of the common will and the common good—remains persuasive. People’s preferences are too messy and too manipulable to allow us to think that mass democracy can promote those ideals, as he defines them. Should we endorse his purely electoral model of democracy, then, and accept that people do not exercise any control over government? Not necessarily. We can expand democracy to include the constitutional and contestatory constraints that people impose on their rulers. We may hope that people can rely on such democratic controls to ensure that government operates by community standards.

How do federal regulations affect consumer prices? An analysis of the regressive effects of regulation

DUSTIN CHAMBERS, COURTNEY A. COLLINS, ALAN KRAUSE

PUBLIC CHOICE

Abstract: This study is the first to measure the impact of federal regulations on consumer prices. By combining consumer expenditure and pricing data from the Bureau of Labor Statistics, industry supply-chain data from the Bureau of Economic Analysis, and industry-specific regulation information from the Mercatus Center’s RegData database, we determine that regulations promote higher consumer prices, and that these price increases have a disproportionately negative effect on low-income households. Specifically, we find that the poorest households spend larger proportions of their incomes on heavily regulated goods and services prone to sharp price increases. While the literature explores other specific costs of regulation, noting that higher consumer prices are a probable consequence of heavy regulation, this study is the first to provide a thorough empirical analysis of that relationship across industries. Irrespective of the reasons for imposing new regulations, these results demonstrate that in the aggregate, the negative consequences are significant, especially for the most vulnerable households.