Home   Editorial   About   
A constitutional economic policy - Part 1

Hector McNeill1

In the article, "Is this RIO business socialism or capitalism" I stated at the end that,

"The most appropriate fit for classifying RIO is as a new front for constitutional economics in its ability to permit greater freedom for individuals and companies to make their own choices in how to pursue their objectives in a way that benefits the real incomes of all."

In that sentence three critical concepts are integrated:
  • Constitutinal economics
  • Freedom of individual action
  • Individual real income distribution
This article aims to specify the sense of each component in order to define the meaning of a constitutional economic policy.

Constitutional order

Constitutional order is where a society adheres to the principle of equality of all persons before the law and therefore in the process of establishment of laws, regulations and policies, account is taken of individual expectations under this principle.

Constitutional economics

Constitutional economics concerns the analysis of how constitutional rules arise and the considerations by individuals leading to those rules. It examines how final rules consist of a traded-off between group and individual preferences. It is concerned with adjusting rules to ensure economic feasibility and efficiency as well as measuring the economic impacts of changes to rules.

The rules referred to are covered by normative constitutional economics which analyses rules of behaviour within political systems that maximize efficiency while maintaining values such as fairness and effciency. Within those values an attempt is made for no single individual's goals or values can supersede the value of another's. The effort to secure agreement on rules is in support of efficiency and social traquility.

The general process of establishing rules of behaviour to be applied to all is the taken up by processes of public choice. Pubic choice would be best achieved on the basis of constituents having laid before them options for deliberation and analysis so as to jointly select options considered to be acceptable. A considerable part of constitutional economics is concerned with the issues of public choice based on the work of James Buchanan and Gordon Tullock2. To a large degree constitutional economics is highly theoretical because no so-called economic theories and practice has adopted these principles. However, the real incomes approach to economics or RIO-Real Incomes Objective does integrate many of its priciples in theory and in policy propositions.

Freedom of action

As can the appreciated from the very short review of constitutional economics the underlying principles promote the notion of freedom of individuals to participate in the formulation of the rules, laws, regulation and policies based on preferences related to the expectations of what people consider to be an acceptable existence. In agreeing to rules that are transformed into laws or policies, the expectation is that the process of public choice would prevent any single individual's preferences or values superseding those of others. Therefore the resulting rules will uphold the same basis for interpersonal conduct. In this instance what were expections become individual rights under a generally acepted law or economic policy. With such laws and policies having been formulated and agreed by the people the law does not become the possession of the state or a government but it becomes a right or a public good to which all have agreed to adhere and observe.

Real income distribution

In 1986 while at the Information Technology and Telecommunications Task Force (ITTTF) in Brussels I initiated work on what became Locational State Theory. This basically tags all objects with a continuum of time-space coordinates linked to geographic location (longitude, latitude, altitude) and time (age of object and absolute chronological time). This work was initiated to develop effective ways to specify information data set requirements for decision analysis.

During some part of this year (2020) I have been exploring its relevance to the real incomes approach and it does in fact bring some very interesting analytical benefits. Our exercise of freedom is expressed within a series of time segments of 24 hours (days). Robert Owen (17711858), a Welsh textile manufacturer, philanthropist and social reformer, is credited with coming up with the slogan, "8 hours labour, 8 hours recreation, 8 hours rest" in 1817, as an objective for worker conditions. The important issue here is the tag of time linked to different aspects of a person's daily life. It is within the hours of the day when a wage earner is not at work when their freedom of action can be exercised into an expression of their preferred activities be these dedication to study, perfecting some practical skill, playing a musical instrument or participaning in a range of family, social and sports activities. A substantial part of these activities do not involve economic transactions whereas many do such as eating requires the purchase of food so the mix of purchased and free components make up the daily expression of freedom. The higher a persons real income the most extensive can the expression of freedom be on the part of individuals. The longer people work and the less they are paid it is self-evident that the range of their freedom of expression through different types of activity is reduced. Since we are talking about individuals, how people express themselves in their own time will vary between people who spend a lot of time advancing their intellectual state through learning and the acqusition of knowledge and those who spend most of their disposable income to save up for visits to exotic locations. A constitutional economy does not dictate how people whould exercise their freedom but it is understood that higher real incomes can enhance freedoms.

It was stated earler in this article that in the formulation of policies attempts are made to prevent single individuals' goals or values from superseding another's values. Policies should not provide options that permit one individual and group to benefit from a policy while the same policy prejudices others. Equality before the economic policy framework as in law makes no reference to the economic status of individuals; the only consideration is that they are citizen and constituent.

Whereas during the last 30 years at least, the real incomes and enhanced freedoms of a tiny minority has been directly supported by economic policies and the majority have seen their real incomes and freedoms curtailed. Clealy such a policy lacks constitutional rigor and represents a state of constitutional anarchy because such policies have been designed to support political party benefactors such as the tiny group of individuals who own and manage financial services companies and banks.

From both the constitutional and the economic standpoint, therefore, real incomes are not just a statistic as a coefficient estimated by dividing goods and services purchased by their prices but it is a direct measure of the relative "space" for the exercise of freedom of each individual's expression and pursuit of objectives. We have therefore in the notion of disparity of real incomes an expression of the degree to which economic policies are enhancing or suppressing freedom. It is only by reducing real income disparities as an imperative, that the economy can become more constitutional by ensuring that no single individual's goals or values can supersede the value of another's in the effort to secure agreement on rules in support of efficiency and social traquility.

1 Hector McNeill is the Director of SEEL-Systems Engineering Economics Lab.

2 James Buchanan & Gordon Tullock, "The Calculus of Consent", Ann Arbor: Univesity of Michigan Press, 1962.

All content on this site is subject to Copyright
All copyright is held by © Hector Wetherell McNeill (1975-2020) unless otherwise indicated