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LEGAL THEORY
JUDGE POSNER ON THE ECONOMICS OF THE CONSTITUTION
Richard A. Posner (1987). ‘The Constitution as an Economic Document,’ George
Washington Law Review, Vol. 56, No. 1, pp. 4-38.
INTRODUCTION
What does it mean to conceive of the constitution as an economic document?
That is the question which Judge Richard Posner of the U.S. Court of Appeals,
Seventh Circuit and a Senior Lecturer at the University of Chicago sets out to answer
in his paper of 1987. The significance of this question is related to the fact that we are
usually given to thinking of the constitution as mainly a political or as a legal
document. It would not be incorrect to say that the US constitution began life as a
political document when it was ratified at the Constitutional Convention by the
founding fathers of the United States in the 18th century.1 Subsequently, when the
US Supreme Court began to exercise its powers of ‘judicial review’ in cases like
Marbury v Madison (1803) in the 19th century, it became a legal document.2 A great
deal of constitutional theory by political scientists is based on the assumption that it
is a political document while most of the landmark cases in constitutional law are
based on the assumption that it is a legal document, and that any legislation at the
state or federal level must be in conformity with the basic doctrines and strictures of
the constitution. This paper by Judge Posner explores another dimension of the
constitution altogether. Judge Posner asks what it might mean to conceive of the
constitution by applying the basic techniques in the economic way of thinking.3 Not
1 See, for instance, the collection of papers edited by Ralph H. Gabriel (1966). On the
American Constitution: Selections from the Federalist Papers (New York: Forum Books).
2 G. Edward White (1988). ‘John Marshall and the Genesis of the Tradition,’ The American
Judicial Tradition (New York and Oxford: Oxford University press), pp. 7-34.
3 For an introduction to law and economics, see Richard A. Posner (1975). ‘The Economic
Approach to Law,’ Texas Law Review, Vol. 53, pp. 757-782 and Richard A. Posner (1993).

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only does such an attempt de-familiarize the received notion of the constitution, it also
makes it possible to integrate the constitution within the discourse of law and
economics. In other words, if a number of areas in the law school curriculum are
susceptible to an economic analysis, why not the constitution itself? If economics can
help to explain the constitution, that would provide an important impetus to the
economic analysis of the law. Even if economics were not able to explain all the
provisions of the constitution, it might still be possible to define the scope of the
economic analysis of the law with a higher level of accuracy. That then is the
significance of this paper. It can be read either as an important statement about what
is at stake in the economic analysis of the law or as a document that will make it
possible to situate the US constitution within the area of comparative constitutional
law. This paper should not be conflated with earlier attempts made to interpret the
constitution as an economic document (where the purpose was restricted to how
class conflicts mediated the adoption of the constitution by the framers).
ECONOMICS OF CONSTITUTIONALISM
The main problem is dealing with the US constitution is that it is not easy to amend;
it can only be amended with a supermajority. Furthermore, once the Constitutional
Convention decided to go for a written constitution, it was not possible for future
generations to get rid of it short of calling for another such convention. The main
problem then is whether the constitution is durable enough to last for several
generations. That is because like a statute or a contract, the framers cannot anticipate
every contingency that might emerge. What should the authorities do in instances
when they cannot find an answer within the constitution itself to a contingency?
That is when the role of the judiciary becomes important; the courts supplement
what is lacking through acts of judicial interpretation. The Supreme Court can then
be understood as an agency which has precisely this kind of responsibility given that
it is not possible to summon a constitutional convention every time a contingency
were to crop up in governance arrangements between the people and their
representatives. But, at the same time, courts do not have too much discretion in
interpreting the constitutional texts; they have to work with a model of ‘constrained
discretion.’ This is not only a problem in constitutional law but also in statutory law.
Neither the constitution nor the statutes that the judges interpret can be reduced to
rules (i.e. to ‘precise directives’). It is therefore necessary to work with standards in
which the courts can exercise their discretion. So while judges may have their own
‘Gary Becker’s Contributions to Law and Economics,’ The Journal of Legal Studies,Vol. 22, No.
2, pp. 211-215. For a discussion of the situation in law schools before the rise of
interdisciplinary approaches to the law including law and economics,see Richard A. Posner
(1987). ‘The Decline of Law as an Autonomous Discipline: 1962-1987,’ Harvard Law Review,
Vol. 100, pp. 761-780.

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preferences on whether a rules based or a standards based system is better, the
American legal system is dependent on standards given the doctrine of separation of
powers that serves as an essential feature of its political system. An important
dimension in the economic analysis of the law approach is to apply agency theory
(including agency costs), transaction cost theory, and cost-benefit analyses to judicial
behaviour. If judges are construed as the agents of the founders, what are the
incentives in place to ensure that they will remain faithful to the founders? Why
should judges take care of minorities? What are the judicial mechanisms to ensure
that the judiciary can provide more stability than the ‘preferences’ of whoever
happens to be in power? These then are some of the representative questions in the
‘economics of constitutionalism.’ Judge Posner’s aim is not to answer all these
questions at once, but to ensure that they will receive a fair hearing amongst
economists, lawyers, judges, and political theorists.
COSTS OF GOVERNANCE
These questions are implicated in the ‘constitutive principles’ that attend to the
constitution. So, for instance, while we take the ‘separation of powers’ doctrine for
granted, what are its cost implications? Is it more or less ‘efficient’ to govern with
such a model? This is not an easy question to answer since the separation of powers
mechanism both increases and decreases the cost of governance. In the first instance
it increases coordination costs but it also makes possible specialization of
administrative functions. This protects the judiciary from ‘the vicissitudes of
legislative politics’ and provides greater stability to the legal system. The
implications of such mechanisms for federalism are also explored by Judge Posner.
He points out, for instance, that federalism encourages the use of states as ‘social
laboratories.’ This is an aspect of American governance that is not commonly found
in most countries which prefer a highly centralized model to prevent the huge
‘diseconomies of scale’ that is related to federalism. But, nonetheless, the costs of
governance are not as high as we might expect them to be given that ‘federalism’ is
not the same as a ‘federation.’ In a federation, the central government will have to
constantly seek the ‘concurrence’ of all the states; in federalism that is not required;
the centre can simply over-ride the states when required to do so. These economic
implications of federalism then are what are at stake in applying economic analysis
to the model of governance in place.
Judge Posner is not trying to have a final word on what is or is not efficient here. It is
more a case of listing and opening up for analysis the topics that might be relevant
from the point of view of the economic analysis of law, the constitution, and the
modalities of governance. That is however not to say that all constitutional doctrines
can be analysed from the point of view of ‘efficiency.’ Instances of such doctrines
include specifying a particular age for presidential candidates, the right against self-

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incrimination, the protections accorded against unreasonable search and seizures,
and exclusionary criteria in the law of evidence. That is however not to say that these
protections are irrelevant; it is more a case of whether they should be evaluated
under the criterion of ‘efficiency’ or some other value like ‘privacy’ that society
values.4 There are then clear limits to what the economic analysis of law in the
context of rights-based jurisprudence can accomplish. That is why Judge Posner
points out elsewhere that the economic analysis of law is not tantamount to saying
that efficiency is the only criterion that matters. It is more a question of if efficiency is
what we want; then, these are the specific legal doctrines that would have to be
rethought. But if ‘justice’ is what is at stake; then, we will have to think differently
about how basic rights are affected. Judge Posner is not forcing his preferences on
the reader; he is merely reminding us that all legal doctrines have costs that cannot
be wished away. Learning to think through the cost implications of any legal
doctrine is akin to the Holmesian model of maturity in the law. Judge Posner is
aware of the danger that he might be conflating means with ends in the context of
basic rights, but the point that he wants to make is that his critics are assuming that
rights are absolute. Every society will however finds itself according importance to
both the needs of individuals and society as a whole; it is more a question of when it
leans in the direction of individuals and when in the direction of society.
THE LIBERTARIANS & THE CONSTITUTION
Judge Posner also takes up the libertarian argument that the laissez-faire model of
economic arrangements in the United States should seek to find its foundations in
the Constitution. The libertarians want the Constitution to serve as a guarantor of
free-markets; in other words, they want the ‘marketplace of ideas’ to become an
economic reality rather than remain a figure of speech. That is why libertarians are
preoccupied with the problems of regulation and the ‘takings clause’ in the context
of the difference between public and private property.5 The libertarian critique of
4 For a more comprehensive analysis of conflicts between competing values in the economic
analysis of the law and in common law adjudication, see Richard A. Posner (1980). ‘The
Ethical and Political Basis of the Efficiency Norm in Common Law Adjudication,’ Hofstra
Law Review, Vol. 8, No. 3, pp. 487-507. A good background analysis of the role played by the
concept of efficiency in the law and economics movement is available in Russell Hardin
(1995-96). ‘Magic on the Frontier: The Norm of Efficiency,’ University of Pennsylvania Law
Review, Vol. 144, pp. 1987-2020.
5 Though Judge Posner only analyses the difference between public and private property in
this paper in the context of the takings clause and eminent domain, readers of this essay
might also want to look up Richard A. Posner (2005). ‘Intellectual Property: The Law and
Economics Approach,’ Journal of Economic Perspectives, Vol. 19, No. 2, pp. 57-73 for a
description of the costs and incentives to innovation in the marketplace of ideas as
evidenced in the laws pertaining to the protection of intellectual property.

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government and the preoccupation with limited forms of government is related to
using the efficiency criterion rather than the redistributive criterion as an approach
to governance and economic arrangements. That is why libertarians would like the
courts to push for a laissez-faire model which Judge Posner feels is not likely to
happen. While he is not against free-market ideas, he is not convinced that the courts
are in a position to either decisively limit the powers of government or ‘oversee the
return of the nation to laissez-faire.’ The libertarian critique of government is related
to another observation that Judge Posner makes. This is related to the fact there has
been an increase in ‘contemporary dualism’ in matters pertaining to constitutional
interpretation. While in the past the Supreme Court was more interested in economic
rights, the contemporary focus is more on civil rights rather than economic rights.
Which of these rights is more worthy of constitutional protection? Judge Posner also
considers the ‘macroeconomic effects’ of the constitution in this context. So, for
instance, economists have mooted the idea that constitutional interpretation should
seek wealth maximization in society. While it is not known for certain why some
nations are rich and why others are poor; the legal system, like the economic system,
should ask this question seriously in the attempt to decide if the principles of laissez-
faire are worthy of constitutional protection. Furthermore, the role played by interest
groups in pushing for rights and in the legislative process is interesting to study
from a libertarian point of view since that is an important reason that propels their
critique of government.6 In other words, what is required is an economic analysis of
all the rights listed in the constitution in the attempt to differentiate between which
of these rights is affordable and which of them are not.7 This type of exercise in
costing can also be done on a comparative basis between the American and English
models to ascertain the over-all macroeconomic effects of constitutional government.
CONCLUSION
And, finally, Judge Posner points out that a constitutional interpretation is not a
matter of choosing between policy options; it is actually an exercise in epistemology.
What the economic analysis of law makes possible is a costing and analysis of the
6 See, for instance, Richard A. Posner (1983). ‘Statutory Interpretation in the Classroom and
in the Courtroom,’ University of Chicago Law Review, Vol. 50, pp. 800-822 and Richard A.
Posner (1989). ‘Legislation and its Interpretation: A Primer,’ Nebraska Law Review, Vol. 68,
No. 2, pp. 431-453.
7 A good instance of this is Richard A. Posner (1986). ‘Free Speech in an Economic
Perspective,’ Suffolk University Law Review, Vol. 20, No. 1, pp. 1-54.

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consequences of the interpretation, but it is not reducible to policy as such.8 If that
were necessarily the case - as critics of law and economics fear - then the courts will
lose their symbolic legitimacy. So the legal materials of the case will continue to
constitute the basic stuff of legal interpretation.9 We must however differentiate
between a legal interpretation and its policy implications rather than reduce the
former to the latter. The doctrine of precedents and the stability that the courts must
ensure in the legal system are related to the assumption that this is possible on a
case-by-case basis.
While it is not Judge Posner’s intention to reduce the law to only the criteria of
efficiency and stability, these values will nonetheless play an important role in
adjudication in the conceivable future. That is why it is neither desirable nor feasible
to reduce legal interpretations to a form of policy analysis. The law must therefore
keep up appearances, Judge Posner concludes, under the aegis of ‘constrained
constitutional law-making.’ The economic analysis of the law then is the attempt to
‘apply’ economics to the law; it is not an attempt to do economics instead of the law.10
SHIVA KUMAR SRINIVASAN
8 Judges Posner analyses the ‘consequences’ of judicial decision making and legal
interpretation from a pragmatist point of view in Richard A. Posner (1990). ‘What Has
Pragmatism to Offer Law?’ Southern California Law Review, Vol. 63, pp. 1653-1670, and
Richard A. Posner (1996). ‘Pragmatic Adjudication,’ Cardozo Law Review, Vol. 18, pp. 1-20.
9 A detailed treatment of this problem is available in Richard A. Posner (1986). ‘Legal
Formalism, Legal Realism, and the Interpretation of the Statutes and the Constitution,’ Case
Western Reserve Law Review, Vol. 37, pp. 179-217.
10 For this and related themes, see George J. Stigler (1992). ‘Law or Economics,’ Journal of Law
and Economics, Vol. 35, No. 2, pp. 455-468.