Do We Need a Distinct Monetary Constitution?

Abstract

The Chicago-Virginia tradition of political economy has rejected both competitive money production and money’s politicization via post-constitutional bargaining, opting instead for constitutionalization. This paper provides a constitutional political economy of the costs of inflation and argues that competitive money production is not subject to the pro-cyclicality that concerns constitutional political economy. It also meets the standard of predictability that motivates constitutional perspectives, although at the level of individual prices rather than the price level. An effective monetary constitution is implicit in any constitution that protects rights to property, contract, and exchange and sets limits on the democratic process.

Keywords: Constitutional Political Economy, Monetary Regimes, Free Banking, Inflation

JEL Classification: E58, N2