The constitutionalization of money.

• Author: Buchanan, James M.
• Position: Essay

The market will not work effectively with monetary anarchy. Politicization is not an effective 'alternative. We must commence meaningful dialogue with acceptance of these elementary verities. Far too much has been said and written in elaboration of the first statement, which too often is taken to be equivalent to the assertion that "capitalism" or "the market" has failed. Admittedly claims for market efficacy without qualifiers can be found. But economists should know that anarchy can only generate disorder rather than its opposite.

Within a regime of stability in property rights, contracts, and money, persons will interact, one with another, to generate an order that will produce and distribute value, as determined by their own choices, which they remain at liberty to make. This claim was made by Adam Smith in 1776, but his emphasis on the necessary "laws and institutions" is too often overlooked. Importantly, this precept also informed the thinking of the American Founders, who explicitly included money in their constitutional assignment of authority.

Acceptance of the two precepts noted, however, prompts the query: If anarchy in money fails along with politicization, how can the market economy ever be expected to function effectively? The Scylla and Charybdis metaphor seems 'all too appropriate, until we recognize that the limits here are behavioral rather than natural. Anarchy and politics both fail because persons do not act within constraints that are not beyond the physically possible.

The Hobbesian Covenant

How can we escape? Here I suggest that we look for initial inspiration from Thomas Hobbes, who placed security as the first desideratum to be sought in any anarchistic setting. We need to amend Hobbes by extending the umbrella to include money and to do so with the understanding that security is reckoned in the stability and/or predictability in value. But the first Hobbesian step, the very assignment of money to the sovereign's control, seems to politicize the structure, almost by definition, so that the second initial statement above applies.

Herein lies the location of intellectual-scientific failure on the part of political economists, political philosophers, political leaders, and members of the public. There has been near-universal breakdown in elementary understanding that the political-economic-legal order observed in Western democracies involves the exercise of sovereignty in two stages or levels--that which defines and enforces the constraints of a constitution and that which operates within the limits so defined. To Hayek, this created the distinction between "law" and "'legislation," between the "higher law" and the legislation that emerges from ordinary collective action. My own usage of terms here has been to distinguish between constitutional constraints and post-constitutional or within-constitutional action.

The leap from Hobbesian anarchy is accomplished when participants select the set of constraints that identify their separated rights and duties along with the enforcing institutions. Within any set of constraints, so established, the possible range and scope for collective action remains open within broad limits. Almost all analysis and discussion involves movements along this within-constitutional setting, with relatively little attention at all to the framework rules.

The anarchistic setting introduced here may suggest that my whole argument is open to the criticism that has been directed toward Hobbes over the three and one-half centuries since he wrote. The conceptualized contractual agreement between the people and the sovereign has been challenged as being ahistorical and adescriptive, as well as being justificatory for tyranny. Positivist critics point to the evolutionary origins of the institutions in being along with the...