P. 1
POSNER, Richard - Utilitarianism, Economics and Legal Theory

POSNER, Richard - Utilitarianism, Economics and Legal Theory

|Views: 747|Likes:

More info:

Published by: Vinícius De Marco Medina on Oct 29, 2011
Copyright:Attribution Non-commercial


Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less







~ONG the severest critics of the use of economic theory to explain and sometimes to justify the principles of torts, contracts, restitution, and other fields of Anglo-American judge-made law! are those who attack the economic underpinnings of the theory as a version of utilitarianism ,l Their procedure is first to equate economics with utilitarianism and then to attack utilitarianism. Whether they follow this procedure because they are more comfortable with the terminology of philosophy than with that of the social sciences or because they want to exploit the current tide of philosophical hostil ity to utilitarianism] is of no moment. The important question is whether utilitarianism and economics are really the same thing. I believe they are not and, further, that the economic norm I shall tall "wealth maximization" provides a firmer basis for a normative theory of law than does utilitarianism. This paper develops these propositions. Part I addresses several preliminary issues, including the distinction between positive and normative analysis (and, within the latter category, he.....Lee and Brena Freeman Professor of Law, University of Chi{";JF;O Law School, and member of the Senior Research Staff of the Center for the Study uf the Economy and the State at the U n~ve:r~~ty of Chif:;a~o_ I am indt~bted to Bruce Ackerman, Gary B~~(k er , (~erha.rd Casper. Rich ar d Epski n Charles Fried. Kent Greenawalt, !\mh'>ny Kronrnan, Frank Mkhdman, and Gemge Stigler for helpful COmments ,m previous drafts, and to Robert Bourgeois and Donna Patterson lor valuable research assistance.

I See, e.g .. Ri,nard A. Posner, Econ<)rni<; Analysis of Law \2d ed. 19i7) (hereinafter cited without cross-reference as Economic Analvsis of Law I, and references cited therein; and, for some recent additions to the literature, AnthollY T_ Kronman, Mistake, Disclosure, Inforrnanon, and the Law of Contracts, 7 J _ Legal Stud, I (! ~78); William M_ Landes & Ric hard A_ Posner, Salvors, Finders, Good Samaritans. and Other Rescuers: An Economic Study of Law a nd Al m, 7 1- Legal Stud: !l3 (l~ 78); and Ceorge L. Priest, BrM( hand Rc rnedy for the Tender of Nonconforming G()ods under ll'e Uniform Commercial Cod,,: An Etonomk Approach, 91 Harv. L_ Rev. 960 (1918). I use the term "judge- made" rather than cornmoe law to avoid lawyers' quibbles oyer the technical meaning of the latter term.


, For recent examples see Richard A_ Epstein, Book Review, The Next Generati(>11 of Le~al Scholarship? 30 Stan. L Rev. 635, 645 n_J5 {1978); and Nuisance Law: Corrective Justice and It>; Utilitarian Constraints, 8 J. Legal Stud. 49, 74·75 (1979)_
.1 For an see Robert Critique of Azainst 77,

example of Ihe tendency in modern philosophy 1(>treat utilitarianism dismi$sivdy Nezirk , Anarchy, Stale, and Utopia 62, 101 (1<}i4); and Bernard William" A U6Iitarian;5m, in ]. J. Smart & Bernard William" Utilitarianism For and 14"-,0 {1%7).



460 104

Law and ECOIWmi.cs II

461 105

tween types of normative claim) and the criteria for choosing one ethical theory over another. Part II, th e heart of the paper, examines th e differences between utilitarianism and wealth maximization as normative systems. The Kantian alternative is also examined, but very briefiy.4 I stress the difference between capacity for pleasure and production for others as the key to distinguishing utilitarianism and wealth maximization as ethical systems. An appendix takes up some recurrent normative issues in law from the perspective of an economic analysis carefully distinguished from utilitarianism.



of the Problem

The equation of utilitarianism and economics, although nowadays so far taken for gran ted that. it is more likely to be assumed than asserted, S is made explicit in a recent lecture by H. L. A. Hart. He stated that I acknowledge utilitarianism to be the inspiration of the economic analysis of law.'; ,\1.. though this was not, even when made, a totally accurate description of my position," Hart's mistake is understandable, for until recently I have in .. sufficiently distinguished between the two systems of thought. ~ They are, indeed, easily confused. Utilitarianism, as ordinarily under. stood and as I shall use the term in this paper: holds that the moral worth of an action (or of a practice, institution, law, etc.) is to be judged by its effect in promoting happiness-. .... "the surplus of pleasure over pain",Q-aggregated across all of the inhabitant'; (in some versions of utilitarianism, all of the sen. tient beings) of "society" (which might. be a single nation, or the whole wo rid) . No rmati ve eco no mics holds that a policy, law, etc. is to be judged by
.. I f ollow Bruce A. Acker man Private Propert y and the Consti tution 7!,,}"l. (1 (J? 7\ j n u:-;ihi! the term .~Kantian to refer tc a fam.i:ly of l""f.'bHedethical theories that. rejectin:g an".' form of consequeruialism, instead premise themselves on notions 01 human autonomy and ",Jf.respcn. Sud) theo n es n eed not rese m bJevery closely the thou g!>t of I mrna n ucl Kan t.
I 'T

its effect in promoting "welfare," and this term is often defined so broadly as to be practically synonymous with the utilitarian concept of happiness (except that the satisfactions of nonhuman beings are usually not included in the concept of welfare). The identification of economics with utilitarianism has been reinforced by the tendency in economics to use the term "utility" as a synonym for welfare, II as in the expression "utility maximizing," and by the fact that many prominent utilitarian theorists, such as Bentham and Edgeworth and John Stuart Mill, were also prominent economists. Furthermore, many practitioners of "welfare economics" (the commonest contemporary appellation for economics as a normative discipline) regard their activity as applied utilitarianism Y I shall be explicating the economic norm known as "wealth maximization, " I shall argue that it is distinguishable in ethically significant ways from the utilitarian ideal and from those forms of welfare economics that are derived from utilitarianism. Yet it is wen to bear in mind that, even viewed as applied utilitarianism, economics is a distinct field of intellectual activity from philosophical utilitarianism; it has a technical vocabulary, theorems, methodology, etc. of which a utilitarian philosopher might be unaware, just as a physicist might be ignorant of electrical engineering. The. history of utilitarianism and of economics in legal theory makes this dear. In describing economic analysis of law as inspired by utilitarianism, H. L. A. Hart was suggesti ng that utili tarianism preceded economics. Th is is the correct sequence if the topic is legal theory {as Hart's was), but not if one is speaking of economics more broadly. Adam Smith, the founder of modern economics, was not a util itarian U Although the origins of utilitarianism, Iike those of economics, are earlier than the Wealth of Nations··-they are found in the wri (i n gs of Priestley, Beccaria, Hume , and others-e-n ti Iitarianism did not reach a comparable state of development to Smith ian economics until the work of Bentham in the generation after Smith's. Legal theory, however, began to feel the impact of utilitarianism in Bentham's time, whereas ceo" A special use of (he term utility in economics must be d,~1l ngnished. Two outcomes are said to differ ill utihty but no! in value when they have the same actuarial value, that is, the same value to a risk-neutral person, but the person choosing between the outcomes is not risk neutral. Thus a certainty of $1 and a 10 per<:ent chance of winning $10 are said to have the same value. but a risk-averse iruiividual would prefer-» ..would derive greater utility from-the certain $1. This idea of u tility is consistent with a purely economic approach to questions of value in the b road sense; u til; ty as h appi ness, as we sh all see. is not ..

; See. e. g .. Epstein, supra note Z; also Ackerman, ,upra note 4 at 41, 64-6$, 114.15 (1977). commented On in James E. Krier & Gary T. Schwart», Book Review. Talk;n~ About Taking. Sl Yale LJ. 1295. ]299-1300 n. JJ. IJOI n.4J (1911\). In an interestina fOOl note , Aderman suggests thai one version 01 welfare economics can be equaled to Kantian ethics. See Ackerman, supra note 4. at 222 n.11 Noble

, H. 1-. .'I. Han, A men c an J uri 'prude nc e Thou gh Enli;l ish Eyes; The N;g h tm are a nd the
Dream. I! Ga L. Roy. 969. 987·88 Blacks!.o"" (1977). See Richard A. Posner. and Bentham, 19 J. Law & Econ, 569. $9] ".(>0 (]976). A. Posner, Economic Analysts of Law theory. So used it

• Compare 357 (1st ed. would

Economic 197.3).

A naiysis of Law I, with Richard

" On the utilitarian basis of welfare economic. see, e.g., 1. M. D. Little, Critique of Welfare Economics 42 (N ed. 1957); and A. G. Pigou, The Economics ot Welfare 20 (41h ed. 1961). See generally A merican Ec onomic Associ arion, Readin gs on W elfa re Eeon"mic s (1969).
" On Adam Smith's othical views see his The Theory of Moral Sentiments (E. G. West ed. 1969); R. H. C" ...se, Adam Smith's View of Man. ]9]. Law & Econ .519 (1976); Jam", M. Buchanan, The Justice of Natural Uberty. 5 J. Legal Stud. I (1976); Donald J. Devine, Adam Smith and the Problem of ]ustke in Capitalist Society, 6 J. Legal Stud. 399 (1977); and PI'. 122, 13$·36 infra.

• It is ,ometimc5
embrace ". Henry

used more broadly to refer to any consequentialist ethieaJ the normative economic theory elaborated in this paper. The Methods of Ethics 4 I.J (7th 00. ! 907).


heory in the period when utilitarianism t was dorninant... at 986_ 1:4 v. . expressed in his famous. Most such scholarship was until recently practitioner-oriented and hence preoccupied with technical questions of legal doctrine.. The critics both of economic analysis and of utilitarianism have tended to focus on the normative rather than positive aspects of ttlt.... Epstein. Because the scholar in this tradition didn't worry much about the conceptual foundations of the legal system (he didn't have to). Rev. Terrv.. Herbert L.. Hart & Alben Sacks. Rev . Nedig~". SJ Han'.l::':. Ho(m~'~'s re iection of an v· mora! ohh. Carroll Towing Co" 15'1 See references in note ~ ~upr«.. Affairs . L.. or at least that utilitarians and economic analysts fail to separate them _ The second is that a system of belief cannot yield normative implir ations II ntil i15 philosophical foundations have been validated... Legal Stud. 365 11940)_ The theory was that tort decision. . on Adjudication...t ~he nl)li~. Rev. 4f'''. r. then. Henry T.j)CT> \67. 1 s In constitutional adjudication. Jt. By this time utilitarianism bad achieved a strong hold over the legal imagi nation. " See.. Hart.. These fallacies. $ Ph. and perspicaciously than the legal scholar of an earlier generation would have done.. . Fried.. The position is now reversed. pra note l. he is likely to employ the concepts and methods of economics more systematically. An example is the "economic" theory of torts. Con.OC"»: Making and Applicauon of Law 111-:4 rtent. If the interest of an individual runs counter to the chief object of the law. Ri>:O! and Wrong (1978). his work tended unconsciouslv to reflect the utilitarian-pragmatic attitudes that dominated American thought. p re··1960s) reveals an intui tive grasp of economic theory. The Limits of the Criminal . the rejection of the concept of "absolute" rights in favor of a balancing test not only had a strongly utilitarian flavor!6 but reflected a pervasive emphasis on policy--on utilitarian considerations-e-as determinants of legal rules and outcomes. It exists for the realization of the reasonable needs of the community. statement tha.1 . it must be sacrificed..!" But some of the scholarship of the period (i.. effectively cri(ici.atiEjn to fulfill a..>' This startling pattern-s-utilitarianism waning.. and Harry It. Fulier .. IR. he will probably reflect the low esteem in which philosophers today hold uutitarianlsm. C Edwin 0915)_ Baker. Form and Substance in Private Law . '" James Sa" Ames. A.. 1 CS 494 (19511 Ba. Zll (1'173).. as it happens. a substantial literature has developed that applies the concepts of economics to law with an explicitness and sophistication unknown to legal .. supra note 6. pa""im. AND LEGAL THEORY 107 463 nornics bad no real impact on legal theory (save in a few fields like antitrust law where the legal norm was explicitly economic) until the 1960s. Rev _ 9.g. promise. such as Edwin Baker. ].2. 175 (lQ2Cl1. n At the same time.i 1'. L & Pub. some of the severest critics of the economic analvsis of law.. H Han.._sic character of the Anglo-American judge-made law _l6 Baker dots not think that Bar".:" The theory of criminal punishment was overtly utilitarian. For a good exarnplc i~ the free-speech area see United .pm note 17.. Indeed. . f_g. L. .Y'" Yet despite their belief in utilitarianism legal scholars rarely used economic concepts explicitly.2d Cir. Torts and contracts were also approached in utilitarian terms.. 83 Yale L. The occasional efforts at an "economic" approach to law are better described.1 Hart..... W as do many judicial decisions _II Until recently.1 201.:li'h nuisance case: '"L" utility del chose excusera le nobomeru~·~ del stink. to stale that . 212 11 See. Packer.'ntarjf'S contain si~nifi(ant references to utilityv See Posner. Law and Economlcs Il ECONOMICS. Re v. The philosophers tend accordingly to view economics as a species of utilitarianism and the economists to view utilitarianism as anoth e r name for econorni co.ati~m f. I I() i 1i)OH).not to rnenuon economic) flavor Sec ()lil. 10 utility <an he found in legal w'itin~s_ james Stephen... agree thai it gives a good account of the b'. 1941) uhe "Hand formula'"j. .-re.. The Id"olo1O' of the Economic "r La w. 799 ~194 t).'58). utilitarianism held sway in legal theory but overt economic analysis was rare. ra This is the tendency that led H_ L.·". B.. Wellinw"n.. Today legal theorists who discuss utilitarianism tend to reject it as a basis of normative legal theory.""tone~~Comm(. A General View "f the Criminal Law of England 106 (189())' quotes a medieval En.. ed . supra note 7. The legal scholar of today is more likely to view the legal system through the lens of one of the humanities or social sciences. esp Stutes v Dennis... " See Ewnamic Analysis <:>f Law.0 (l\) 1$).. Duncan Kennedy.. Ronald Dworkin. Analysis " See. were moti vatcd hy the personal economic interests of the judges deciding them.. IMS (1976).. Taking Ri~hl'" Seriously (1977). 1950) (L Hand. in hi' Collected Lee al P!l. L.. '_g" Lon 1.. See.. equ all y inf ect th e ph ilosoph ical cr iti cisrn of utili ta rian ism _ The fi rst is th at positive and normative analysis of social institutions cannot be separated.... Much earlier reference:. economic analysis waxing-may reflect simply the growing intellectuality of legal scholarship. The Lel(al p.. as pseudo-economic.!e~i bv contract i_"i to perform Or pav damages. Common Law Rub and Cunstituttunal Double Standards: Some Note.}. at S78_ .. 2 J.. utilitarianism is "currently on the defensive" so far as American legal theory is concerned.....> If he approaches it from an economic perspective. Rkhard A.g. e. See. The Economic Interpretation and the Law of Torts.).d in Roscoe Pound.. has a utilitarian ~. The Path of the Law... 41 Colum... Law and Moral" II H arv _ L.L. Henrv 14.'se systems of thought. 1S j (1973). in the main.. Positive V$_ Normativc Sanction II gMi.." Bla("k. 1'. Lon L Fuller. _- -------- 462 Law and Economics If 106 THE JOURNAL OF LEGAL STUDIES UT1LlTARIANISM.:cr \\·cnJdl Holme'.ic Problems in the rh i-l. Charle.g.!" Ames had stated: "The law is utilitarian. explicitly... judkatio".id.. and his A Theory 01 Strict Liability..·lI9 d " Sec note j supra. If he approaches the system from a philosophical perspective. eration and form. '.. States This and the next subpart seek to expose two fallacies in the philosophical criticism of the economic analysis of law. at 8j5~ United F_ld 169 (1d Gr. e.

. if initially vested in B.bl e. and in situations where the costs of market transactions are very high. liM. however. as pointed out by Kent Greenawalt. Law and Economics 1/ ECONOMICS. at this writing.... L Rev. -'-' Such stu die. In cases like this.. --~"-----------465 109 Law and Economics 1/ THE JO\J&"iAL OF LEGAL STUDIES UTILITARIANISM. Two important normative uses of economic analysis of law are totally unaffected by the philosophical questions with which this paper is mainly concerned. he may not be able to buy his freedom from B.e.. a stau nc h antico n sequ n tialist. where wealth effects are important."? Yet this result is hardly fatal to the positive economic theory of law.. it narrows the domai n of th e theory: it makes it a theory that the law seeks to optimize the use and exchange of whatever " See Dworkin. because the assignment will determine the outcome of the transacting process. so the right to A's labor. at 10."pnl note n. Norms and Norrnativity in the Economic Theory of Law. See Fried.tein. at 74"1's. Ronald Dworkin. believes that the normative infirmities of the economic analysis of law invalidate the descriptive or positi VI.om wealth-distribuuon of different ri~hts assignments.. and Judicial Decision... Utilitarian Constraints. 62 Minn. For example.. Rev 10! 5. L. has descri bed a"\ "fan atical" those moral that deny any role to cost considerations in the determination of obligations..made law..P Even though the economist may claim no competence to advise on the rightness or wrongness of capital punishment... As we shall see. Nuisance Law: Corrective and It. Rights. to simulate the market hy imposing legal sanctions that bring about the allocation of resources that free market transactions would have brought about had they been feasible..' claims of the theory. either a market system (if transaction costs are not prohibitive) or a legal system designed to simulate the outcomes of such a market (if transaction costs are prohibitive) will ensure the final assignment of the right to whoever derives greater value from having it. The initial assignment will again be the final assignment and again will be dfi(ientbut it will be a different assignment than if B had been granted the right initially. Besides helping people make correct normative judgments by pointing out xo See pp: 11$·16 itifm. 1010-15 {1(77).. it is necessary to know how the initial rights in those resources are assigned. the initial assignment may be the final one and there will be no unique efficient outcome. however. suor« note 2. teaches that the judge-made Jaw is designed to foster market transactions. If th e initial assign ment of some righ t-say. And in any cases where other values besides economic ones UTenot claimed to be involved the economist's eth ical role is decisive. also argues that the common law judges have really been guided by noneconomic rights concepts rather than Of in addition to implicit economic concepts in making rules and decisions. Frank L Michelman. So long as costs are deemed to have any ethical relevance at all. For a similar view see Epstein. will remain there and this solution will be efficient. is that the economic theory of Jaw is a theory of rights as well as of exchange. A more important point. (197$) " The empirical evidence (or a positive "rights theory" of law is. But if A is initially assigned the right to his own labor. . " Sec Ronald Dworkin. 10 Dworkin. according to Dworkin (and he is correct in part). Foran at 96·-97_ earl y state men{ see Li ule. II Ga. ~PTa note 12.'~ If. Dworkin argues that the economic theory of law is incomplete: in order to determine the resource allocation that a market (or its legal surrogates) would bring about.191. however. AND LEGAL THEORY efficiency is the right goal for society to pursue but he believes that it has strongly influenced th e judge. 21 His argu ment is that the positive economic theory of law is a disguised theory of rights.. . ar les Fried. to clean air-s-will not affect the wealth of any assignee appreciably. 34 the economist has a role to play in the formation of ethical judgments.f <! 464 108 . . Policy. 22. 1201 (1917). " 1 am abstracting her~ f. B may not be willing to pay the price necessary to induce A to part with that right. unlike that discussed above... poses a straightforward empirical question in the positive analysis of law_H C.. At worst. L. "'{fTil note 21.. <. then regardless to whom the initial assignment is made. they do not have to be postulated. f)wor ki n was not the Iirst to poi" t this 0"\. Suppose someone is arguing for the abolition of capital punishment on the ground that it is wrong for the state to kill. he must derive and defend the moral foundations of efficiency. rights can be derived from the theory itself. the right in question constitutes a large fraction of the possessor's wealth. considerations other than the wealth effects rights people start out with. Seven Critics. and an economist conducts a study which shows that the abolition of capital punishment would result in a significant increase in the murder rate.. II Ga. a higher murder rate) he contributes to the ethical debate by indicating a consequence which may (or may not) be deemed relev an t to the eth ical issues involved. This view is incorrect. economic analysis does not p redi ct a un iq ue allocation of resou rces un less th e ini tial assign merit of rights is specified. Dworkin's argument is about the wealth effects of righ ts assign men ts. ·Rev. Translated into economic terms. . at <i7-9~. The positive economic theory of law.. here joined by Epstein and Michelman. J I This argu merit. supra not.. if A is made B's slave. Ep. ne~li~. when he demonstrates a cost of its abolition (i. The first use is to indicate the costs of it proposed course of action.. have in [an been made_See note " Ch theories Charles Justice 9$ infra. Different Levels (If N ormativit y It is widely believed that before the economist can offer suggestions for legal reform designed to make the legal system more efficient.

A positive theory generates empirically testable hypotheses and is supported or refuted by the results of the tests. But I am unwilling to let the matter rest there.arian Ethic. is maximized when people (or creatures) are able to satisfy their preferences. is not a particular psychological state.AL Of LEGAL STUDIES UTILITARIANISM. THE REl. This procedure is unavailable in the case of a normative theorv.. The English UtiliUl. however. the economist can provide conclusive normative directions to anyone for whom efficiency. TWQ features of the theory. Consequently. that a society which adopted the theory would not survive in competition with societies following competing theories. See note 66 i nfra. Among the classical ex position> see in particular ]Nemy Bentham. D. Second. and " S"" p.l6 It is in the solution of moral di Iemmas that a systematic ethical theory. H'I"''' note 10. for it seems to me that economic analysis has some claim to being regarded as a coherent and attractive basis for ethical judgments. however. second. that the theo ry fails to meet certai n basic formal cri teria of adequacy. ". is to deduce an ethical theory from one or a few basic assumptions (e. The third is a very controversial criterion. But what is desired in an ethical theory. it is a theory both of personal morality and of social justice. is not a basis for abandoning those fundamental ethical precepts that all of us accept. And. as mentioned. Individual Conduct and Social Norms: A Utilitarian Account of Social Union and the Rule or Law (!975). til e economist has an important contribution to make to ethical debate even if he is unable to give any philosophically coherent account of economic norrnativity. While nowadays relatively few of the people in our society who think about these things consider wealth maximization or some other version of efficiency the paramount social value.li!. few judge it a trivial one.. e. the economic approach is less "rejectable" than utilitarianism or Kantianisrn. g. " For sorne good recent expositions or u li litarianism see John Plamenatz . at J. The English Utilitarians 0958). 1 decline to empty th" term (Jf mOM of irs meaning by defining it as the das. See note 9 . and Leslie Stephen. and Rolf E. J. As noted earlier. argue that judged either by the formal criteria or by conformity with our moral intuitions. defi niteness. that a just system is one that people would choose in the "original position"): The assumption cannot be validated save by reference to intuition-which means it cannot be validated-but whoever does accept the assumption will presumably also accept whatever ethical propositions can be derived from it by the principles of logic. Henry Sid~wick.ans 119(0). Law and Economics II l'. 1 shall discuss briefly the criteria for choosing between competing ethical systems. What is to take its place' One approach. bu t is rath er the broadest possi ble concept of sari sfaction. equivalently. a moral aversion to the sale of kidneys or corneas+t). I believe.~pra. economic welfare.ATlONSH!P BETWEEN UTILITARIANISM AND ECONOMICS A A Critique of Utilitarianism The procedure for choosing between competing positive theories is straightforward. happens to be the ruling value. I shall. supr« note J. utility.. An Outline of a System of U(. -I· . An act or practice is right or good or just in the utilitarian view insofar as it tends to maxirnize happiness. co mpleteness.g. that of Rawls for example. to the greatest . they must give up to attain another (or. th at the theory yields p recepts sharp ly con trary to widely shared eth ical in tui tions-cprecepts such as that murder is in general a good thing or that a sheep is normally entitled to as much consideration as a man. 139 infra.. usually defined as the surplus of pleasure over pain. Sartorius. I am less clear that utilitarianism has such a claim. consistent with but not limited to our basic ethical intuitions. II. of ethical doctrines in which the morality of a course of action is judged by its consequences.466 110 Law and Economics Jl THE ]OUR. Happiness. AND LEGAL THEORY 467 111 how much of one value. but rather a structu re which organizes our intuitions and provides guidance in dealing with ethical issues where our intuitions are uncertain. the maxirnand. if not al ways obey. whatever those preferences may be. We know it is wrong to kill a child in order to save a sheep but we are less sure whether it is better to "help one starving man we know than to relieve the acute need of a hundred men we do not know. I shall proceed on the basis that an ethical theory cannot realty be validated but that it. C. Smart. require clarification at the outset. or the particular concept of efficiency that the particular economist is advancing. such as logical consistency.. First. J. someti mes it is the only valu I. at least as most utilitarians now view it. A good man is one who strives to maximize the sum total of happiness (his own plus others') and the guod society is the society that seeks to maximize that sum total. and the like. or third. The intuitionist criterion for choosing between ethical theories may seem subjective and circular.' at stake in a question.!? Th is defi nition con ceals some important ambiguities in u tilitarian theory but these are best left to emerge from an analysis of the criticisrns of utilitarianism.i'.. Before examining the claims of the two systems. !ntroduction (tl the Principles of Morals and Legislation (! 789). can be useful. tan be rejected on one of three grounds: first.CONOMICS. in Smart & Williams. ecstasy or euphoria (1 r whatever. how much economic value they might obtain from sacrificing some other value. The Criteria for Evaluating Ethical Theories one that I shall not pursue in this paper as it does not afford a basis for drawing sharp distinctions between the economic and the utilitarian approach es.

Since this goal seems attainable only by making lots of people miserable (those of us who would have to make room for all the foreigners. in the average happiness of the country. etc ."!" Since utility in the broad sense used by contemporary utilitarians is possessed by (many) animals./'40 But this is just a version of the old utilitarian game. The best way both to elucidate and to evaluate utilitarian theory is to examine the principal criticisms that have been made of it. and other issues than if only the currently living count in the happiness census. the logic of utilitarianism seems to argue for pushing the boundary as far out as possible. for making the ethical goal the maximization of the total amount of happiness or satisfaction in the universe. is simply to say that we don't care about animal utilities save as they enter into human utility functions. that is. However. And although he finds it "hard to agree" to equating the contented sheep with the contented philosopher.. homosexuality. ui. with foreigners' happiness given a zero weight? Or is a more ecumenical perspective required? And how about the unborn? To include them in the population whose happiness is to be maximized may yield different policies on abortions. Frank Hyneman Knight. . A. of the added population. whicb leads nowhere. then a contented fish is as good as a contented sheep. and a contented beetle is as good as a contented fish. Another difficulty with utilitarianism is the lack of a method for calculat . see ah" . I believe. utilitarians are constantly seeking ways of contracting the boundary. and for all one knows their subjective happiness as well. l F. In utilitarian morality. the standard of living of the remaining half.J. This formulation does not exclude the possibility that A may know B's true preferences better than B does-the possibility. It is that the obvious solution-c-the inclusion of animal Ieeiings-sis unacceptable. would rise because of the higher ratio of people to land and other natural resources. of paternalism. Indeed if a contented idiot is as good as a contented philosopher. Should American policy be to maximize the happiness of Americans. since his action mav have increased the amount of happiness in the world. yet again it seems that if maximizing utility is to be taken seriously the broadest possible conception of the relevant population is indicated.top?Jij Smart never answers his last question. Smart has addressed the latter question as follows: Perhaps strictly in itself and at a particular moment. savings. The problem of foreigners and the unborn is related to the old dispute among utili tarians over wh eth er the utilitarian goal sh ould be to maximize average or total happiness. but this loss may be more than offset by the satisfactions. J. at 24-25. he can find no basis in utilitarian theory for distinguishing them and is left in the end to remark lamely: "the question of whether the general happiness would be increased by replacing most of the human population by a bigger population of contented sheep and pigs is not one which by any stretch of tile imagination could become a live issue. However. solve the boundary problem of utilitarianism with respect to foreigners.. THEORY 113 469 THE JOUR. Smart suggests as much.15). ing the effect of a decision or policy on the total happiness of the relevant population. The Ethics of Competition. a high birth rate may cause a reduction in the standard of living of a crowded country and.468 Law 112 (J!I(j Economics Il UTILITARIANISM. a contented sheep is as good as a contented philosopher. We could say with Frank Knight. however. However it is hard to agree to this. Law. " As Hayek has put it. AND LEGAl. and Liberty 17." rd. Law and Economics If ECONOMICS.:.AL OF LEGAL STUDIES possible extent. There is no clear basis in utilitarian theory for choosing between average and total happiness. One criticism is that the domain of utilitarianism is uncertain. A better answer. sheep. This resu It is con{rar~ to every ethical intuition we have. the total happiness might well be less. utilitarianism lauon. at Jl. If we did we should have to agree that the human population ought ideally to be reduced by contraceptive methods and the sheep population more than correspondingly increased.. Similarly. at 16. " Thus. the inclusion of sheep and pigs seems required by the theory. . Where shall we . and leave it at that. there is '0 '''pro note J 1. but more. Whose happiness is to count in designing policies to maximize the greatest happiness? Does the happiness of animals count? J.23 (l976). This Johnsonian answer will not."! Even if attention is confined to the human population. but the latter is more consistent with a simple insistence on utility as the maxirnand. of dividing up preferences into "higher" and "lower" on inevitably shifting and subjective grounds. Legis- .. adoptions. Whether to include foreigners or the unborn is not an issue that utilitarianism can resolve directly. and better " Smart. Hayek. there is something amiss in a philosophical system that cannot distinguish between people and sheep. omniscience. along with it. But to do so they must go outside of utilitarianism. and if a contented sheep is as good as a contented idiot. Perhaps just so many humans should be left as could keep innumerable millions of placid sheep in contented idleness and immunity from depredations by ferocious animals. c. In summary. it is not the fact that utilitarianism has a "boundary problem" that is troubling. We (Quid of course redefine the maxirnand to exclude animals. even if somewhat meager. If the poorer half of the population of Bangladesh were killed. that people don't want happiness or any other version of preference satisfaction that might embrace what animals want: "The chief thing which the common-sense individual actually wants is not satisfactions for the wants which he has. a driver who swerved to a void two sheep and deli berately killed a child could not be considered a bad man. want. presupposes and Other Essays 22 (19.

it is characteristic of ethical discussion generally.'~ but in the two centuries that have elapsed since Bentham announced the felicific calculus no progress toward the discoverv of such a metric has been made. Some utilitarians have faith in the eventual discovery of a psychological metric that will enable happiness to be measured and compared across persons (and animals?).. the possibilities for plausible public intervention become virtually unlimited. If the irnpracticality of the Ielicific calculus is taken to justify the utilitarian's use of guesswork. Ep~~{·jn "s position tila!." unless the costs of ach ievi ng and main taini ng such a distri bu lion equal or exceed the benefi ts in greater happi ness.. tIS well as for other policies Ihal the Left supports. . Th I" qualif cation is of cou rse critical.J. (1974). sntrm note J 7. Lerner. Sartorius. The example of income equality illustrates a broader point. Difficulty in deriving specific policies or guidelines from ethical premises is not. "'1'''' note lZ. See Chari". it is easily shown that an equal distribution of income and wealth will produce more happiness than any other distribution. 19511: Abba P.:. for example. more plausibly. e. One need not.46 The problem of indefiniteness blends insensibly into a related objection to utilitarian thought: what one might term the perils of instrumentalism .. ness of Interpersonal Utility Comparisons. tort liability should I". This approach does not. Frieo . AND LEGAL THEORY 471 115 no reliable technique for measuring a change in the level of satisfaction of one individual relative to a change in the level of satisfaction of another. Then we need only make one additional. r conclude that Paretian analysis does not solve the utilitarians' problem of measuring happiness. supr« note J1. Waldner. !J I:. it is but a few steps to advocating the prohibition of sport fishing.. Ways Not to Think About Plastic Trees: New Foundations for Environmental Law.1. properly understood. ransack pre·Chrislian anr! non .n sea rc h of a p hilo. Suppose.pri. The Empirical Meaningful- compare Fried and Epstein. Bowring ed. .0)· d:4 See text irnrnediately below . unique to utilitarianism. the fact that utilitarianism is no more indefinite than competing theories of moral obligation may not reconcile one to utilitarianism. g.hiem. assumptionthat of the diminishing marginal utility of money income-s-to obtain a utilitarian basis for a goal of seeking to equalize incomes. meet the utilitarian's need for a dependable metric even if we accept (as I am inclined to do. and B accepts. derive quite different policy implications. as we shall see. and his An A na!omy . at .·. strict liability. RJ Yale L...'fa. See.g.. n ( th at wou ld o ma.'·16 (W.t" the point is made even more dramatically.AL Of LEGAL STUDIES UTILITARIANISM.· . a series of like transactions) may affect nonpar tics: by increasing the demand for oranges it may cause the price of oranges to rise to other consu rners as well. that advertising or other features of a market economv lead people to buy things they don't really want) that a market transaction in. despite arguments.. and again B accepts A's offer-must make both parties better off..1. the analysis begs two critical questions: whether the goods exchanged were initially distributed so as to maximize happiness (were the people with money those who derive the most happiness from the things money can bu y?) and whether a system of free markets creates more happiness th an alternative systems of resource allocation do or could..( VaJ ues: !'". And among contemporary Kantian legal rights theorists. creases the happiness of the parties over what it was imrnediatelv before the transaction took place.f ' If Dworkin is a "genuine" Kantian. 1 Works of jeremy Bentham 367< 561... ng ani mats beyo nd the po. one has only to . and th e higher p rice may make those oth er consu rners quite miserable Moreover. However. 87 (lq72). The basic Paretian argument is that a voluntary market transactlon-c-e.. Law and Economics Jl ECONOMICS. contentment.. {Plant life presents a more difficult problem for the utilitarian. See Laurence H.(j. at 10. Principles of Penal Law. especially one who happens to favor limited government. Perhaps this definition is implicit in the usual formulation of the criterion: a transaction is Pareto optimal if it makes at least one person better off and no one worse off.\ t. But rigorously applied.l:"t'$tio~ to lawyers ~ Fried rejcc l. The Philosophv of Economic Science. 1l. or satisfaction arc rarely ascertainable.. with collc(tivi>t or interventionist sympathies. and not simply a utilitarian of the egalitarian school.... however. starting from seemingly identical premises regarding human respect and au tonorny. 81. for if both A and B were not made better off by the transaction at least one of them would refuse to consent to it.i. and as it happens plausible. $5 for B's bag of oranges. Phil. minor example hut one int(:. For. A offers. from the observation that animals are capable of suffering.. which I cannot hope to address here.. that Bentham and many other utilitarians are right that lacking any real knowledge of the responsiveness of different individuals' happiness to income we should assume that everyone is pretty much alike in that respect. who. The Economics of Contro] 30·36 (J <)44). nf Personal and Social Ch()il'~ IS J ·8<1 \ I ''. Uma. d. and so increase the level (Ofwelfare or happiness in the society.. Utilnanamsm fumisnes such a basis. or A proposes marriage. Tribe.><imize human welfare. a pt~rhap:=. at 13 I •• See jeremy Bentham.. strikingly illustrates this point.:H A:. of course. with Laurence Tribe. and Sartorius.. bu t it places the burden of proof on (he opponent of income equalization in an area where proof is notoriously difficult to come by. The transaction (or. Stark ed. on these assumptions. this test is unworkable because the total effects of a transaction on human happiness. in I jeremy Bentham's Economic Writing. The Paretian criterion could of course be deli ned in such a wav that no transaction was deemed Pareto optimal unless it raised the level of happiness in the society. 1843).oph ic al basis for p ro!en.470 114 Law and Economics II THE JOUR. n The hostility to utilitarianism by many "li heral" or left·w'ng ie~aI scholars is thus somewhat perplexing in that.. utilitarianism offers powerful theoretical support for a socialist or welfare state ttrat works (an important qualjfication). Paretian welfare economics is advanced by some as the solution to the problem of measuring satisfactions. See J ererny Bentham. 4 ]..' A philosophy that docs n<>{ distinguish sharply between people and sheep should he rongenial to . As a trivial example. Rawls's work.Western 111 ugh t ..

e. and so hated that their extermination wou ld increase the total happiness of the society. utilitarians are frequently interventionist See. Even within the general framework of the liberal state. One stems from the utilitarian's refusal to make moral distinctions among types of pleasure." That hunch cannot be verified by any tools we have or are likely to acquire-e-though some people will find one bit of evidence Of another (e. that a consistent utilitarian would have to reckon the murderer a good man..om utilitarian premises. Bernard Williams poses the case of "Jim. Nobody seriously doubts that a position with such a consequence is mono his children than from Donagan is correct. utilitarianism can lead occasionally to monstrous results.g. either in gen era! 0< ill parucul ar IIi. It is one thing to pick an innocent person at random and kill him to achieve some social end and another to establish an institutional structure-criminal punishment. A C r iti q ue of U 1. Putting aside the unhappiness of the fly-which." the guest of an officer in a back ward country who is about to have a group of political prisoners shot. would be rejoiced by their inheritances and would no longer suffer from his mischief. The other type of moral monstrousness associated with utilitarianism arises from the utilitarian's readiness to sacrifice the innocent individual on the al tar of social need. Iitarianism. properly understood..15 absence there would I". but if they were. 011 ]. moral squeamishness. Utilitarianism thus seems to base rights of great importance on no firmer ground than an empirical hunch that they promote "happiness. The only final good is the happiness of the group as a whole. Yet even at the level of social choice.. to I". The utilitarian could. the consistent utilitarian would have to support totalitarianism. Stephen. Suppose that A spends his leisure time pulling wings off flies. I. at 10). 188 (Michael a C redi hi e form or D. Suppose there were a group of people who were at once so few relative to the rest of the society. No punishment system could be devised that reduced the probability of erroneous conviction to zero. The consistent utilitarian would find it hard to denounce extermination in these circumstances although he would be entitled to note the anxiety costs that might be imposed on people who feared they would be exterminated next. It should I". i" C onte m porary . tarian. An example is Bentham's proposal for eliminating begging by enslaving beggars. Nonetheless. mentioned in [aim."'" note 3. . sure. Monstrousness is a less serious problem of utilitarianism at the level of social than of personal choice.98·99. utilitarians who are not shy about making bold empirical guesses concerning the distribution of happiness can produce rather monstrous policy recommendations. and the uti litarian basis of income eq uaJi~ ation has al marly been noted.i nati"" rule can be justified on utilitarian principles. then rights to these things wi!! be given to them. supra note J 7. Hence ~ coesistent utilitarian. yet in the long run probably not benefit heirs because the practice would deter people from accumulating estates. See Posner. to lhe utilitarians that Bentham is one's principal.9 It is not an adequate response that the hal)piness principle. fathers have no force at the level of personal morality once it is stipulated that the murder will go undetected. (an advocate rules. People do not seem to be happier in totalitarian than in democratic states.. for exarnple-i-which makes it inevitable that some innocent people will suffer. AND LEGAL THEORY 117 473 Rights in a utilitarian system are strictly instrumental goods. If it is maximized by allowing people to own property and marry as they choose and change jobs and so on. Mill's interventionist proposals.lOri tal seni ngs sue h as that of pre· N az i German y. I believe. But whether an a "t. of course.r' " "Moral monstrousness" is in fact a major problem of utilitarianism Two types of monstrousness may be distinguished. the Berlin Wall) persuasive in buttressing it. while B spends his feeding pigeons.. and that because A has a greater capacity for pleasure he derives more happiness from his leisure time than B does from his. great anxiety among the members of minority groups Rules do. Dworkin is argllably a left-wing u~ili. '''f'1'fJ note 7. so miserable. have benefits th~l might ill particular circumstances outweigh the costs in reduced tlexihilily of being rigidly bound by the rule when circumstances changed. if inexhaustible.• See Bernard . Williams. ". the initial and relatively mild anti-Semitic measures taken by Hitler's government against German Jews conceivably increased the total happiness of the German (and woridj') population even though some nonJews may have feared a precedent for other identifiable minority groups to which they belonged. UTIUTARlANlSM. . at 592. S.s anotber of those questions Ihat the utilitarian can answer only with a guess. Knowledge of the practice would make grandfathers very unhappy. 49 If monstrousness is a peri! of utilitarianism.g . in S mart & W. would probably be found trivial-the consistent utilitarian would have to judge A a better man than B. if we could measure happiness.472 116 Law and Economics Il THE JOURNAL OF LEGAL STUDIES I.77. ]968) U tiJi tari an ism ? . Law and ECOfWmics II ECONOMICS. Conceivably. without falling into that "rule worship" for whieh pure rule "tilitarians have been justly criucized (see Smart. from vou r grandf~ther your forbearing to do so: he would he freed from his wretched existence. su pra note J 1. . Yet to call the murderer in Donagan's example a "good man" does unacceptable violence to conventional moral notions. Alan Donagan gi ves the followi ng examp le: it migh painlessly I well and be the case lh at more good and less evi 1 wou 1<1 result old and u nh appy u ndetectedly mu rdering your malicious. Bayles ed. these initial anti-Semitic measures were morally desirable from a utili tarian standpoi nt.0 Tb e officer tells Jim that if Ji m will shoot . or fanaticism. •• A Ian Douagan. source or bizarre p<:>lkydeductions f. is a peril of Kantian theorists. point out that a practice of murdering obnoxious grandfathers would probably reduce happiness.. requires a rule against discrimmation because in . lliams. but if happiness could be increased by treating people more like sheep. because A's activity adds more to the sum of happiness than B's. at strousr'" . then rights are out the window. But any utilitarian objections to creating an exception to the law of murder for killers of obnoxious grand. at 228"29.diu"'. There Utilitarianism 181. and you might anticipate th(~ reward promised to those who do good in secret. As another example..".

torture is wrong even if it could be shown to be (as Bentham believed) on balance happiness maximizing but then admit that if torturing one person were necessary to save the human race it would not be wrong to torture him. But for my normative purposes I want to define the maxirnand more narrowly. Utility in Welfare Economics and in the Theory of 61 J. the best working assumption is that they are uncorrelated with income. so with Rawlsisrn. $1 They will say that. alJ but one will be saved. ot J". No one will be better off if Jim declines the invitation. The market.ion. 56 That is why the welfare economist is often just an applied utilitarian. the usual alternative that is offered to utilitarianism. more dearly I thi nk. !. need not ~4 See Lerner I supra note 45_ Rixk. defmitiOM. Kantianism. It is measured by what people are willing to pay for something or. if they already own it. approach see Fried. 104·05 and note 12 supra. of their individual characteristics. at I J in_II. when speaking normatively. This is Williams's position. as "value" in the economic sense of the te rm or. &23 (1977). one of these is its frequent similarity in result to utilitarianism. 10. has its own serious defects. The extreme Kantian would say that Jim has no obligation to shoot a prisoner because there is a crucial difference between doing evil and failing to prevent evil. Wealth is the value in dollars or doJlar equivalents (an important qualification. Its Utilitarian A Theory C onstraints. AND LEGAL THEORY 475 119 one of the prisoners. I regard the asserted distinction as precious in the example. SUp"" note n. a sophisticated exponent of utilitarianism. <. th ere is no logical stopping poin t. EL<"n. As with Bentharnism. they choose a principle whereby much of the individual's economic liberty is traded away for social insurance. however. There is no trade-off.l Although Rawls's premises are avowedly Kantian and he rejects utilitarianism because it "does not take seriously the distinction between persons. or three? (If he refuses to draw lines.Pol. Once this much is conceded. Even Rawls's concept of the "veil of ignorance" resembles {as Gary Becker points out) the method by which the economist Abba Lerner deduced income equality from the happiness principle. as we are about to see) of everything in society.Taking. Joh n Harsanyi. See note 53. all but one will be worse off. The tendency of Kantianisrn to merge into utilitarianism is illustrated bv the moral philosophy of John Rawl~. 44 Soc: Reo. anticipated the core of Rawls's principle of justice (rational choke by people in the original position) by many years. See Epstein. is meant to be limited to the sense of enhancing wealth. S~~ pp. I said earlier that the economist. Economic Analysis !. 1032-34. what they demand in money to give it up.tice supra (! <)71).v' It is not su rprising that another welfare economist. I &2 II. Rawls acknowledges Harsanyi's contribu [jon. he will release the others. stri pped of al J e.up'a note 31.. Rawls's principle of social justice resembles Bentham's principle of maximizing income equality subject to the constraint of preserving the individual's incentive to engage in productive activity. See his Morality and the Theorv of Rational Behavior. note 2. but also that. It is in this context that we have now to consider economic analysis as an alternative moral system to both utilitarianism and Kantianisrn.ng thought <>f my colkague Epstein. what help is he in providing concrete moral guidancez) Depending on where he does dra w the line. " For an example 01 thi. Law and Economics II ECONOMICS."\) he defines justice as the outcome of co llecti ve choice by j nd ividuais in . as "wealth. .." when used normatively. however. Harsaayi remain. B. Rawls.S> I conclude that utilitarianism has serious shortcomings whether viewed as a system of personal morality or as a guide to social decision making. tends to define the good. the degree of equality to be sought depends on empirical hunches regarding (1) the shape of the marginal utility of income curve (or degree of risk aversion) and (2) the disincentive effects of egalitarian policies. the Kan tian either shades into the utilitarian (if he gives a lot of weight to costs) or remains a fanatic (if he doesn't).11. Wraith Maximization as an Ethical Concept." i _ . if he accepts it.000 residents of Hyde Park-Kenwood? Is the difference between the Kantian and the utilitarian that the Kantian would not allow an innocent person to be sacrificed unless there were at least 100 lives on the oth er side wh i!e two wou ld be enough for the uti litarian? But on what principled basis does the Kantian draw the line at lOO? Why not 50. "57 I n the rernai nder of this paper the term "economic. The only kind of preference that counts in a system of wealth maximization is thus one that is backed up by money-s-in other words. " Sec John C. Cardinal i: " See Michelman . that is registered in a market. 4J4 (195J). What if two innocen ts must be killed to save 200 million A mericans-s-I 0 to save th ree million Chicagoans--20 to save 60.l !. Harsanyi. These shades are assumed to choose principles of justice that will maximize their utility. Lerner said that given our ignorance of the height of people's marginalutility functions.th e orizi nal posi . all the prisoners will die. or the just as the maximization of "welfare" in a sense indistinguishable from the utilitarian's concept of utility or happiness. for a useful taxonomy of welfare . supra Law: Correc- tive Iustice and Joh" Rawls. And by the ~volv. the right. at 10. ll. If Jim declines the officer's invitation.474 118 Law and Economics II THE JOURNAL Of' LEGAL STUDIES UTILITARIANISM. Nuisance The need to make such hunches imparts to Rawlsism the same indefiniteness that plagues Bentharnism. and because they are also assumed to be highly risk averse. at 1019. Most Kantians try to avoid fanaticism by carving exceptions to the categorical duties they impose.

) is.000 fine to a thief who could pay it. To answer the question the court would have to make a judgment as to how much those oranges were worth to you. "" S". These services have value which could be monetized by reference to substitute services sold in explicit markets or in other ways. that is.head and commits the theft the total happiness of society will rise. and to deal with the problem of the indigent thief a term of imprisonment has been set-s-say. it still would not result in an award of the necklace to the thief since it is not worth more to him than to the owner in a willingness-to-pay sense. the costs of operating the criminal justice system. We (an be confident that the wealth of the society has been increased.on of resources that. etc." child rearing.000.althlCr because of a shift of women from household production into prostitution.000. $25. In contrast. such as the typical accident case. she would be willing to sell it for any price above $10.pra. And resort to hypothetical-market analysis is unwarranted since there is no problem of high market transaction costs that would justify allowing the thief to circumvent the market. AND LEGAL THEORY 121 477 be an explicit one. however.clifference between wealth maximization on the one hand and happiness. we can be reasonably confident that if our poor man goes a. and so on. on the other. the determmation of value (that is. of willingness to pay) made by a court is less accurate than that made by a market. p. The optimum fine for this theft (based on the value of the necklace. for it is not the outcome either of a voluntary or of a hypothetical market transaction.. '" But see note II supra. Now reverse the numbers and assume that the property owners are wealthy people and that if the factory has to dose down its workers will suffer heavy relocation costs and many small local merchants will be pushed into bankruptcy. that the relevant values are unknowable since they have not been revealed in an actual market transaction. I offer you $5 for a hag of oranges. the "marriage market. the same cannot be said of a hypothetical market transaction. Even if the hypothetical-market approach were used. is also important. to the thief than to the owner. b~ an actual market transaction may be good evidence of an increase m happiness. the insecurity generated by crime. three years-which equals or exceeds the disutility of a $25. which is also. let us say. the hypothetical-market approach would be applicable if someone of monetary means broke into an unoccupied cabin and stole food in order to avert starvation. 114 .-. In one. $~ Wh ile. even though he cannot pay the fine. A society IS no~ we. The thief must obtain greater utility than the disutility he imposes on society (in the cost to the victim. you accept.000. but I assume that (in many ~a5es anyway) a court can make a reasonably accurate guess as to the allocao. By "actual market" I mean one based on voluntary exchange.. Compare two situations. Th. which may be called the "hypothetical" market. suppose that instead of buying the oranges from you I accidentally smash them. the theft does not increase wealth. each with only a small stake in the enterprise) at avoiding a $2 million judgment..e discussion of the hypothetical-market approach may help to indicate th~ . As another example of why wealth maximization cannot be considered just a proxy for welfare maximization in a strict utilitarian sense. We are both richer.. Even today. However. let us assume. Before the transaction you h~d a bag of oranges worth less than $5 to you and I had $5. However. Th e necklace has a market value of $10. and a friendly game of bndge are some examples. in the strict economic sense. the probability of apprehending and convicting the thief. Suppose a polluting factory causes " See not" .) since that disutility is brought to bear on him in the form of an expected disutility of imprisonment yet he commits the theft anyway... whether or not money is used in the exchange. The unhappiness of the property owners may exceed the happiness of the owners of the factory (who might consist of thousands of shareholders.0 sura {Ca. after the transaction you have $5 and I have a hag of oranges worth more than $5 to me. A court applying the Hand fon_nula of negligence liability'S would ask whether the expected cost of the accident to you was greater or less than the expected gain to me of whatever activity produced the accident as a by-product. which by definition is involuntary. or welfare rnaximiz atio n . much of economic life is organized on barter p~nciples. . consider a poor man who decides to steal a diamond necklace for his beautiful wife. The purist would insist. utility.11 TOWing). They illustrate the important point that wealth cannot be ~quated to G~P or any other actual pecuniary measure of welfare. and how much walking very fast was worth to me. would maximize wealth.. and the exchange is consummated.. Another type of nonexplicit market. the costs of the criminal justice system.476 120 Law and Economics II THE JOURNAL OF LEGAL STUDIES UTIUTARlANISM. etc. Transaction costs would be prohibitive. residential property values to drop by $2 million. subject to important q ualifi cations noted ~arlier. where market-transaction (05L~ preclude use of an actual market to allocate reo sources efficiently. and there would be reason to believe that the food was worth more. the hypothetical-market approach should be reserved for cases. but it would cost the factory $3 million to relocate (the only way to eliminate the pollution) and on this basis the factory prevails in the property owners' nuisance action. In these circumstances. Since. A judgment that forces the factory to close will be efficient but it will probably not maximize happiness.. its subjective value to the owner. Law ami Economics II ECONOMICS. as conceived by utilitarians and utili tarian economists. In actual-market terms the thief's unwillingness (based on inability) to pay for the necklace shows that the necklace is worth less to him than to the owner. as measured by the money value we attach to the goods in question.

E(onom. for. lecili. Win!"r 1973. But this is not necessarily so.bounds on governmental intervention in people's lives. See Altru. AND LEGAL THEORY 123 479 As these examples suggest. ~ Abramovitz 89 {Paul A. We 'till esteem doing ~ood only if it is done to bendit specific known need. He may never have done a productive act in his life. 2.478 122 lAw and Economics II THE JOUR. th e impartial spectaror rese m bles man . '''{ira not" 1..p"a note J 7. the wealth principle can more easily be made to yield the forma I elerne n ts 0 fan eth ical theory~".. ow than to rel ieve the . 14741. His "claim" to the necklace.-gui de . allocation by price may actually confer greater net benefits on the rest of society than allocation by "need" or "desert. I shall develop the first two points here. but it is not the sum total of those preferences. I' tc. David & Melvin W_ Reder cds. That is why positive economic theory assumes that people are utility maximizers in a broad. . the pursuit of wealth is more consistent with our intuitions concerning ethical behavior than the pursuit of happiness. to be sure. uon: the he stress in both conceptions ls on disinterest as Jundamental to th~ conn.10. an empirical judgment. "'p.~~ fegarded a. [ lines for conduct and policy but in setting... view. though he had no doubt that this belief was prevalent and was an essen tial sti mulan t to human progress. For." not "weifare" Of "happiness. and Does Econ()mic (Irowth lrnprovc the Human Lo() ::.' See note 80 infr«.n ! Ra w lsian on gina! pos. Less obviously. the relationship between wealth and happiness is an uncertain one.m.'IS put (hi.\'Il:ioJ!. Money Buy Hal'i'in~"'.000 for a necklace with the man who has no money hut is willing to incur a nonpecuniary disutility equivalent to that of giving up otl('h . Hence not only does the buyer in our example confer a net benefit on the owner of the necklace (who wouldn't accept $10.6' Not only can wealth not be equated to happiness. Adherence to these virtues facilitates transactions (and so promotes trade and hence wealth) by reducing the costs of policing mar kets th rough self-protection. .c Theory (Edmund S_ Phil" ed. and 1114. "I n-lJ n. Now it might seem that an ethical theory premised on one preference-the desire for wealth-s-must be inferior 10 an ethical theory which takes account of th(~ whole set of preferences. provides no benefit to the owner of the necklace or to anyone else. Economic liberty is an obvious example. whether to his emp loyer . most of the conventional pieues-s-keepmg promises.'. well.The position of the first man i.-86.811. and wealth maximization can. .f" it follows that the productive individual puts into society more than he takes out of it. the "aggre~ate man" nf the utilians. i. 1111' thief... al though within cou ntries the wealthy seem to be happie r than the poor.-\dam Smith wrote o("wealth. ncl udi ng notions i of rights and of corrective justice-than utilitarianism can be made to do. " S"" Richard A_ Eastertin. or to customers.. given the almost universal opinion of economists (including Marxist economists: that Iree markets. namely th c own er.i.u a. Th is is im porta nt not on 1)-' in 1-((' nerat j Ilg _." thought people were deluded in believing that they would be happier if they were richer. Compare the mall who is willhg to p ay S 10.n "Me B. I Qi 5). and is another reason for the frequent confusion of economics and utilitarianism as ethical systems.. hence activity beneficial to other people besides himself. in Nations and Households in Econnrni-c Grow~h: Essavs in HHn~~f If Mu_~t':_. being punished very severely.. in contrast."!. -1.1 su m of money . morally superior because he seeks to increase his welfare by conferri n g. money through productive activity net benefits were conferred on other people besides the producer. If anyth in g. who was not a utilitarian or a "welfare economist.~ is ~mndim{. which the utilitarian would honor. at 95_ -e Hayek h. and the Iike-s-can also be derived from the wealthmaximization principle.'n note 12. whatever objections can be made to them on grounds of equity. Morality. N<J. utilitarian sense. at 111 Rawls. Be .000 was in all likelihood accumulated through productive activi ty. utilitarian because tile "impartial spectator" of Smithian ethics resembles.a benefi t on anoth 1'1'.. and Eco- Iran. but it rests on much firmer ground than the claim that free markets minimize happiness. at 79 n. Law ami Economics Jl ECONOMICS. is based on a faculty-the capacity to experience pleasure-s-worth nothing to anyone else. detailed con tracts. First. at p.. describes the Smith of the 1'he. It is therefore tan " For" concrete example of this see Landes & Posner. <. A third and related point is that the wealth principle is more definite than the happ iness pri nciple. ". Pu blie I nlnt'st. The fact that the term "thief" is used pejoratively even in societies where theft. This is further suggested by the fact that the inhabitants of wealthy countries appear to be no happier than those of poor countries. cause of the costs of determining need other than through willingness to pay. Raw]. "'/... Liule ..:Jlthof . but at every stage in the accumulation of that.~l Yet it is worth noting that the perfect altruist might decide to sen his services to the highest bidder rather than donate them to the neediest supplicant. M Even altruism (benevolence) can be interpreted as an economizing principle. Other ethical values can also be grounded more firmly on wealth maximization than on utilitarianism. and regard i( as really better \0 help one starving min We k .000 for it unless it was worth less to her). . maximize a society's wealth _ This is. is unlikely to be resorted to except in cases where the utility to the thief exceeds the victim's disutility is a datum about our ethical beliefs that utilitarianism cannot account.. but (the same point in the terminology of economics) people are not purely wealth maximizers. rrwsufying rhat the U.~_. as we shall see. Wealth is an important element in most people's preferences (and wealth maximization thus resembles utilitarianism in assigning substantial weight to preferences)."M The former method of alloca . of known people.nm" Fconomi( Eddcn(e. the buyer's $10."_" <1 Muml Sentimo. notes (without developing the poi ntl that ." 1't2 f). Moreover. telling the truth. and nomic Analysis or Law 18.p( 01 justice. if we assume that a person's income is less than the total value of his production.'. ~I Adam Smith.s a utilitarian as by Plarnenatz ."l"AL OF LEGAL STUDIES UTILITARlANlSM. Iiligation. etc. or to his father's customers. Second.

the commitment of the economic approach to the principle of exclusive rights is much stronger than that of utilitarians. the improvident. Frank Knight quotes the following passage from Ruskin: In a community regulated by laws of demand and supply. Perhaps Ruskin thinks such a person wou ld not desire wealth. Sometimes. AND LEGAL THEORY 481 125 tion will also result in a greater accumulation of wealth. but some of them are certainly implausible. many Kantians. both distributive and corrective. bur in fact we Kenerally are doing most good by pursuing gain. copyright. It is a considerable busi ness asset to be imaginative (for example. the dull. If transaction costs are positive. at 66. proud. and in an tid pati n g shifts in consu mer demand). these rights have to be qualified because of the costs of protection-that is why the patent. prompt. For a broad. which can be given away in whole or in part. '''I''a note n. Analysis at 91-91'. the humble. But again the perfect altruist will not want to spend so much time screening applicants for charity that his productive work. and pt. thoughtful. just.. Another respect in which wealth maximization seems a more defensible moral principle than utilitarianism is that it provides a firmer foundation for a theory of justice. and related laws protect only a subset of valuable ideas-and because of the problems of conflicting use (should I have the right to burn trash on my property or should my neighbor have the right to be free from smokej'). Once the unrealistic assumption of zero transaction costs is abandoned.480 124 Law and Economics II TUE ]OVR. and suppliers. To summarize. sensible. however. selfindulgence.. ideally. supra note 41. someone who in fact values it so highly that he might not resell it to the "natural" owner. and entirely wise person should fail to become wealthy in a acute need of a hundred men we do not know. "'Ii ell note 40. unless these qualities (especially the last) are taken to imply an aversion to producing for the market. which the utilitarian values only because they tend to increase wealth and hence might increase happiness. maximization principle requires the initial vesting of rights in those who are likelv to value them the most. the legal prohi- .. .ranging and . the open thief. for that matter. Nor need a merciful. industrious. the well-informed. Kennedy. The process of voluntary exchange would costlessly reallocate the right to whoever valued it the most. It may be doubted whether the same constellation of virtues and capacities is also implied by the happiness principle. the assignment of rights becomes deterrninate-s-a point overlooked by Dworkin and Kennedy. generally speaking. If assigned randomly to strangers these rights would generally (not invariably) be repurchased by the worker and woman respectively. methodical. 2 Hayek. sensitive (in handling partners. the thoughtful. and g()dlv person. hut protected from open violence. Nor does the economist merely decree that exclusive rights be created and then fall silent as to where they should be vested. employees. Nor is there any mechanism for initially identifying. is greatly reduced. production processes. honesty. at least within a narrow sphere. Nonetheless. in devising new products. Law ilIId Economics II ECONOMICS. to be sure. or godly man be at a competitive disadvantage in a market economy. the idle. resolute. from avo idable di iii c u lties sue h as the bankru ptty vel u n ta ry i nde ntu red se rvit ude: la W$ and . and ig .. custorne rs. Not everyone. by reducing market transaction costs. .s" The principle itself ordains the creation of a system of exclusive rights. the reckless. the wealth-maximization principle encourages and rewards the traditional virtues ("Calvinist" or "Protestant") and capacities associated with economic progress. at 1763-04 . Dworkin and Kennedy are incorrect that the source of the rights exchanged in a market economy is itself external to the wealth-maximization principle. the sensitive. the entirely wise. the clumsy knave.. the wealth . do the same. the persons who become rich are. etc. supra note ll." Utilitarians would have to give capacity for enjoyment. The person. just. market economy because he has these qualities is obscure. • ' Kni ght. and knowledgeable. norant. or. But quite apart from (he question of what he warns to do with hi. it would be a matter of indifference to the economist where an exclusive right was initially vested. Why a well-informed. use his r>rot1ls may well be to provide a hospital or all art gallery for his home town. The aim for which the successful entrepreneur wants 1(. profits after he has earned them. of course. It is true that if market transactions were costless. . 1977)."JAL O~' LEGAL STUDmS -·U UTILITARIANISM. the entirely merciful. who remain poor are the entirely foolish.1. not only real and personal property but the human body and even ideas. and methods of distribution). l. if so. the irregularly and impulsively wicked. and the benefits it confers on other people. He is led by the invisible hand or the market lu bring the succour or modern conveniences to the poorest homes he does not even know. agrees that the market brings out the best in man. and other hedonistic and epicurean values at least equal emphasis with diligence. 6~ This is the economic reason for giving a worker the right to sell his labor and a woman the right to determine her sexual partners. & Peter G. will extend to all valued things that are scarce. at 14. the imaginative . unimaginative. insensitive."? I know of no systematic evidence bearing on Ruskin's assertions. The capacities (such as intelligence) promote the efficiency with which resources can be employed. it would presumably be so however the economy were organized. covetous. S"" Economic 70 I abstract bi ti ons against of Law Brown eds. the virtues (such as honesty. especially given the degree of self-denial implicit in adherence to the "Protestant virtues. one that. Gordon Bermant. No doubt the inherent difficulties of borrowing against human capital"} would defeat some efforts by the natural owner to buy back •• Sec Dworkin. and altruism in its proper place). he is led to be""fit more people by aiming at the largest gain 1han he could if be concentrated Oil (he satisfaction or the needs of known persons. and vesting the right in. But. nconclusi ve debate 0 n the eth ics or the market system see Markets and Morals (Gerald Dworkin.

WEjuid "hri be" the mUJlopo!i~t to expand h is output to the competiti and the traditional rl""dw"i~h lin". Libertarianisrn. t. Robert Nozick's Derivation of the Minimal Slate. I shall now inquire how far the criticisms that are made of utilitarianism apply also to economic " F". 7. that they not apply ex post facto.\' B<>. ~tc. it is not inequaliry of results that concerns those theorists who argue that the economic theory of law is a theory of righ ts rnasquerad. 411-411 Cdnsum_('~s. AND LEGAL THEORY 483 127 iliW- the right of his labor or body even from someone who did not really value it more highly than he did. or a private enforcer different from the victim. and th I' fou rth of procedu ral and remedial (including crimi nal) law. at 143 n. the second of contract la w. etc. ! meant that it was a detail from the limited th. Thus.. it svstern of personal morality (the "Protestant virtues") that serves to reduce the' costs of market transactions. mi nd. "f melho!. Ru(hest"' n.'S Other Kantian rights theorists such as Rawls have found it possible to justify extensive public interference in the property-rights system in the name of protecting absolute rights. more than anyone else presupposes some notion of the individual as an entity already possessing life. depending on the distri bution of productive qualities among the popula . Rev. the division of estates among heirs.ck\ hi.482 126 Law and Economics !I THE JOURNAL OF LEGM. criticisms of N". n I do not thin k it involved any contradiction or absur. 12 Ga. J99-4GJ. would IJ~ dimina!~d. 1. L 3(H6 (l97S)_ The Private " See Economic Analysis "f Law 111'1-~:_ . Although Fried thinks it especially ridiculous that a person's teeth should be up for grabs as it were. 9 n. and John D. It is the alleged inconsistency between wealth or happiness maximization and the protection of rights.. 61 N Foldin!. n The court in effect assigned the righ t to a brilliant smile awav from its "natural" owner. mind. 12t SUP"" '''He v.?" To recapitulate. in a system based on wealth maximization. Hodson. a system of legal remedies for deterring and redressi ng invasions of rights: and fifth. fourth. and the best of the pictures is then published without rnv consent in an advertisement for Colgate toothpaste: The New York Court ~f Appeals once though t there was no invasion of one's lega! rights in ouch a case. Law and Economics II ECONOM!CS. " See Fried.. \Ioi'erethe traditional common law fields to be reorganized along more functional lines. etc"l But possession is not ownership. Legal Stud. lion. is the domain of the tort law. because that would result in monopolization of a part of th e labor supply and therefore in a reduction in the wealth of the societv. i q Ati" L. " Roberson r r See Richard 7. YH. body. consider the following hypothetical case. However. Robert Paul W<>lff. which argue..* The rights derived from economic theory are not.». the first of these areas would be the domain of property la w. Nozick . bestowed by God or otherwise transcendental... the thi rd of tort law.z . V(" Economic Analysls of Law )43. some public wealth redistribution may be implied by the wealth-maximization pri nciple but it is of a much more limited sort than that derivable from the Kantian principles deployed by Rawls and Noxick. HI\. legal rules that simulate the operations of the market when the costs of market transactions are prohibitive. Corrective justice. 171 N Y. because a decision that th I' indi vidu al values his life. Despite these considerutions . Tbe Hight of Pn vacy. free markets to enable those rights to be reassigned from time to rime to other uses. I'osner . third. But a theory of rights is in fact an important corollary of the wealth-maximization principle. Having elsewhere incautiously described the payment of damages to the tort victim (rather than to the state. Rev. an initial distri bution of individual rights (to life. been generally rejected.~J_ _. {1<)78). Nozick's historical conception of justice undermines all rights by making their validity depend on the justice of the initial vesting and of all subsequent transfers of the right: a flawless pedigree must be shown for each right. the purely formal characteristics of a iust legal system~that the laws be published. then again it might not. 2 _ The Criticisms of Utilitarianism Revisited. As we shall sec. and labor) to their natural owners: second. A fu rth er consideration relevan t to the initial distri bu tion of righ ts is th e inefficiency of monopolies fa factor that would also disappear in a world of zero transaction costs 74). or to others) as a "detail. .I). While its view was economically incorrect and -ha.ighl costs on the torU. first. The teeth in my head being brilliantly lustrous and pearly. That law provides compensation to anyone injured by an infringement of the rights that he holds by virtue of the distributivejustice principles of the system.g_. Charles Fried objects that it is improper to assign individual rights in this manner. they are "mere" instruments of wealth maxirmzation. . the Colgate company hires a photographer to follow me about and photograph me whenever I smile. 442 (1'10. and Rights. liberty.. ing U5 a species of utilitarianism.... and William M_ Landes ~:nforc"ment of Law. for parcelling out rights in small units to many different people in order to make the costs of assembling the rights Into it sjngle bloc larae enough to confer monopoly power prohibitive.-but that is simply a further reason for initially ._ & Richard A_ Posner. 9 (19771. to be sure. 4 ]. 1q id. But it is not clear that this puts them on weaker ground than the rights advocated hy Kantian rights theorists.'. an initial distribution of righ ts that was consistent with a goal of wealth maxi miz ation miah t be extremely unequal And while the operation of th e free market."?" let me ernphasize that this "detail" is firmly embedded in the system of legal remedies implied by the wealth-maximization principle. at IGJ. migh t over time bring about greater equality.(14. STUDIES UTILITARIANISM. Co" r:_ 7. standpoint of plating h:"\."? Fmallv. vesting the right in the natura! owner. etc.. as I have shown elsewhere. at ll2..i:.--can also be derived from the wealth-maximization principle. 77 See "1/. it would be inefficient to vest in one person the right to the labor of all electrical or found ry or restaurant workers.wrial conception <>1 rights see.". body.. the wealth-maximization principle implies..

~ See rex t at note 53 . the output of their labor will be carried to the l)(>int. supra note 12. Even a patent owner <an appropriate only the first 17 years of the value produced by his . that producers in a competitive economy are unable to appropriate all of the value of their output.$ j ust equ al to the su pply price (5). a policy coupling free immigration with no public support of the immigrant will ensure that only wealth-maximizing immigration occurs. were however. The measurernen t problem that so plagues utilitarianism is easily solved ii the domain of the wealth-maximization criterion is restricted to actual mar•• See Figu re I below. he will contribute to the rest of the population more than he takes from them in the way of goods and services. responsible lor the workers' productivity. Thus there is no real conflict between average and total in a system of wealth maximization.80 Hence so long as the additional population is productive. of inputs !. A less welcome implication of the wealth-maximization approach is that people who are very poor-not those who merely lack ready cash. To treat the inventor and the idiot equally so far as their moral claim to command over valuable resources is concerned does not take the differences between persons seriously.1:>a1. If he happens to be born feeble-minded and his net social product IS negative. This inquiry will incidentally proach further. n ven (ion. It is generally assumed. The Rehabilitation of Consumer Surplus. there is (with limited exceptions discussed later) no public duty to support the indigent. D. in Readings in Welfare Economics. where the marginal product of their labor-what demanders will pay at the competi tive margi n. It is possible to calculate.). he would have no right to the means of support though there was nothing blameworthy in his inability to support himself.. .n sens~bilities yet I see no escape from it that. In a rigorous application of the wealth-maximization criterion. The optimal population of sheep is determined not by speculation on their capacity for contentment relative to that of people but by the intersection of the marginal product and marginal cost of keeping sheep. As for foreigners. Additional population might reduce the wealth of a very crowded society but greatly increase that of a sparsely settled country that had good natural resources. the existing population will benefit. the critical question from the standpoint of wealth maximization is how far one is willing to push the notion of hypothetical markets. the demand for (some IYI>< of) labor. The difference is a form of "consumer ~urplu~.uppli~r. AND LEGAL THF:ORY 129 485 analysis. This conclusion may seem to ascribe excessive significance to an individual's particular endowment of ~apadti:s. he could noI appropriate all the con su m~r SU rplus of the invention unless he were able to price discriminate I>""'~clly-and that is never 0 possible . But these formulations are actually equivalent." on which see John R.~ competition among the workers. etc .484 128 Law and Economics If THE JOURNAL OF LEGAL STUDIES UTILITARIANISM. I may seem implicitly to be resolving the bou~dary question in favor of including the additional population in the population whose wealth we are interested in maximizing. Thus the rectangle pq represents the total inc" me of the Iabo r fOIL e. though only in the roughest way. because most trade restrictions hurt both parties to them. And even d uri ng that period. Hicks. q in Figure 1. wb j Ie the Iarger area A B qO rep resen IS th" to tal soci al produ ct of their work. And conflicts between maximizing the wealth of a nation and that of the world will also be rare. This result grates on moder. help to elucidate the economic ap- The boundary problem is less serious once wealth replaces happiness as the maximand. By suggesting that the proper inquiry is whether the social product of the additional population exceeds its social cost. S 5 B D Q q FIGURE I The diagram exaggerates the size of the surplus since some of it might represent a return to . at JlS. Animals count-but only insofar as they enhance wealth.'-. represents the schedule of pekes that ~orkers (or other producers) could command for various quantities or their labor. rep resen ti I\g the opportu ni ty c 05 ts of workers' ti me and other inputs (edueation."? A related point is that any policy of redistribution impairs the autonomy of those from whom the redistribution is made. The average wealth of the existing population is bound to increase as a result of immigration so long as any potential negative externalities of immigration are fully internalized to the immigrants. Productive people put more into society than . whether additional population would be economically selfsupporting. is consistent with any of the major ethical systems. they take out of It. With regard to the status of the unborn. Since (putting aside mistake) his income will therefore be smaller than his total social product. Law and Economics II ECONOMICS. If there . The view Rawls and others have promoted that the individual's genetic endowment is a kind of accident devoid of moral significance is inconsistent with the Kantian notions of individuality from which the view is purportedly deduced. No one will immigrate who anticipates an income lower that the costs of maintaining him. but those who have insufficient earning power to be able to cover the expenses of a minimum decent standard of Iiving--count only if they are part of the utility function of someone who has wealth.u/'Ta. rather than whether the rest of the population will be made wealthier.

. at 41. who is very suspicious of attempts by the law to simulate market solutions.e.486 130 Law and Economics II THE JOURNAL OF LEGAL STUDIES UTILITARIANISM. The perils of instrumentalism also are less acute in a system of wealth maximization than in a utilitari an system. and if not. on its more severe or certain • . the conclusion that any coerced transfer payment is unproductive must be qualified in two respects. Epstei n is incorrect in suggesti ng th at the wealth-maximization principle would entail forcing a surgeon to travel across India if he were the only ph ysician who could sa ve some indi vidual. efforts to ach ieve a more equal distri bu tion of income and wealth may be economically justifiable because such a distribution may reduce the incidence and hence costs of crime. S~p¥{< note I. the fact that A has a greater capacity for enjoying a given amount of money than B affords no basis for taking money away from B and giving it to A. . would allow the physician his fee in such a case. The "utility monster"85 has no place in a system of ethics founded on wealth maximization. at 2OJ. I wou ld have to bu y my victi ms' consen t. The sole basis for interference with economic and personal liberty in the wealth-maximization approach is a failure of the market to operate that is so serious that the wealth of society can be increased by public coercion.c. at least as economists concerned wi III wealth maximization. too restrictive a condition to impose on the wealth-maximization criterion. In a system of wealt. a z This is not a case of high transaction costs If the individual can meet the surgeon's price. !ktk"r & Wiltiam M. The transfer might increase the happiness of society but it would not increase its wealth. Law and Economics II ECONOMICS.. itself costly. As this example suggests. see Lande. The fact that I might derive so much gusto from torturing people a. ' n.. and these pu rchases would soon deplete the wealth of all but the wealthiest sadists. Th is proposition is not the Pareto pri nciple in the sense discussed earlier. AND I. Of (Control depend.o wealth). Dep '( "f Econ. Critics of the market system tend to think of the opportunities created by wealth rather than of the " The economic model or (Crime thai generales these implications Ehrlich. in~ sofar as people are altruistic and hence willing to transfer some of their income to those worse off than they. the surgeon will maximize Ow social wealth by staying home. deri ve an income-equalization goa! from a combination of the principle of diminish- ing marginal utility of money income and the hunch that people's utilitv functions are pretty much alike (or at least not positively related t. See Arnold Harberger. the right of the physician who treats an unconscious accident victim later to claim his regular fee from the victim is founded on the reasonable assumption that if Ole victim could have negotiated with the physician for such service at such price he would have done so. which is a principle of utility. and Landes & Posner. his forgone income from legitimate activity) and. by decreasing the potential revenues from crime. Wh lie economists differ wi th respect to such questions as when mar.) .. the public-good aspects of charitable giving (i. Basic Needs Versus Distributional Weights in Soda! Cost-Benefit Analysis (unpublished paper. at least these are empirical rather than value questions. 5~pra note 22.J !Q'J-j O. For example. supra note I at 84 n. but is an essentially tautologous principle of wealth maximization. kets fail to operate effectively and how costly it is to rectify those failures. Voluntariness is..EGAL THEORY l3l 487 kets that are free from serious problems of monopoly or externality: any voluntary transaction that occurs in such a market must increase the wealth of the society. and once its domain is expanded to include hypothetical markets a problem of measurement arises.27. & Posner . to exceed their misery in a Ielicific weighing would not make me a good man or give me the right to torture people. like the u tilitari an. J. 5upra nOI•. But it is a less serious problem than that of measuring happiness. the economic approach is less hospitable (nan the utilitarian to redistribu tion. Th e wealth maxi mizer confi nes lawful coercion to a much more restricted domain than the utilitarian. Many utili tarians. "om. eds. is developed in Isaac in ESi>ays in the EroLande!. 1974). See Epstein. But. but. First. to repeat. Some libertarians worry IIIat the economist will exploit the measurement problems inherent in the use of a hypothetical market criterion to impose all sorts of duties on people in the name of efficiency. yields results violen tly inconsisten t with ou r com mon rno ral i ntuitions. Most economists accept the principle of diminishing marginal utility of income as a theoretically plausible and empirically supported description of the individual's preference function. some. 31 It is much easier to guess people's market preferences in areas where a free market can't be made to work than to guess what policies will maximize subjective happiness. the surgeon will travel to treat him. however. I believe not. they have nothing to say about the relative height of people's utility functions. at 126. less probably. the fact that the alleviation of poverty will confer a benefit on a nongiver who is distressed by poverty) may justify public intervention. Even Epstein. A term from N ozick. Even this ground for redistribution is clearly more limited than the grounds available to the utilitarian: few people are so altruistic that they wish to be leveled down to the point where none are poorer than they. U niv. the imposition of duties is appropriate in the economic view only in the exceptional case where market transaction costs are prohi bi ti ve . it will be recalled.s ' Second. Participauon in lJ!egitima\e Activities: An Economic Analysis. of Chi .g· I tum now to the question whether the economic approach.. Epstein. supra note at 199.. though presumably modest.h maximization. . However. .cs of Crime and Punishment tiS (Gary S. course whether lnrnme redistribution is an efficient method of (rime ("'t~and benef II relative to) those or alternative methods such as punishment. both by increasing the opportunity costs of the criminal (i.

such an individual cannot help creating more weal th th an he tak es ou t of society. " See text at note 38 supra. These seemingly opposed tendencies in the thought of the period are united by a preoccupation with the pursuit of happiness.311. In a thoroughgoing utilitarian system no budget constraint exists to cramp the style of the utility monster. Rev. In contrast. envy provides no ground for public intervention. as by the judge applying the negligence rule and the economist explicating it. The man who leads a contemplative withdrawn rural life may be happier than the captain of industry but he will also produce a smaller surplus for the rest of society to enjoy. 323 a disfavored trait j n our society. that deriving from the sacrifice of individual to aggregate interests.. gg Carelessness means creating ncn-cost-justified=-wastefu! or wealthreducing-accident risks. from the "unavoidable accident" which could not have been prevented at a cost less than the expected accident cost. in its literary aspect celebrated an ideal of idleness---of escaping from "trade" to the genteel pottering of the country squire's life. as elucidated by John Brown and others. As further evidence that a moral system founded on economic principle is congruent with (and can give structure to) our everyday moral intuitions. But this is surely a tepid example of coerced redistribution. is a potential problem in the economic as in the utilitarian approach. when he decides to sacrifice the child? My answer is yes-s-and the same answer is given all the time in our (and every other) society. for there is no basis for arguing that redistribution of wealth from the envied t. The great difference between utilitarian and economic morality. Legal Stud. or w hateve r}--will rarely. provide grounds for public intervention in a system of wealth maximization. lAw and Economics 1I ECONOMICS. . such as envy and sadism. and George P. But in a system of wealth maximization his activities are circumscribed by the limitations of his wealth. 275·77. If Nazi Germany wanted to get rid of the Jews.. if ever. There would be no more economic basis .cher. An example would be a successful nuisance suit against the owner of a brick plant because unforeseen changes in the character of the neighborhood occurring after the plant was built have made it a suboptimal land use.wh'£h work. and his victims are protected by a right'S system which forces the monster to pay his victims the level of compensation that they themselves determine. The careless accident is sharply distinguished by the ordinary man.. although the difficulty of valuing lives is a legitimate reason for weighing them heavily in the balance when only property values are in the other pan. or at least not a bad man. Fle!. In a society where envy is widespread and intense. Fairness and Utility in Tort Theory. Only the fanatic refuses to trade off lives for property. poll ution. who think the prima facie liability for carelessly and unavoidably inflicting injury should be the same. what Dworkin has called "external preferences"90-an aversion to a group not based on some palpable intrusion (noise.S9 The other form of moral monstrousness. must logically ascribe value to all sorts of asocial behavior. consider the close correspondence among (1) the ordinary person's concept of carelessness. <"P'« note 22. See John {l97J1. promote his self-interest without benefiting others as well as himself. L.. . This important moral distinction is obscured in the jurisprudence of Kantians like Richard Epstein and George Fletcher. In particular. (2) the tort law's definition of negligence. But in a society devoted to wealth maximization. The question of envy further illustrates the moral differences between utilitarianism and wealth maximization. It is a pursuit in which productive activity need not figure. The Kantian may not be convinced that the pursuit of wealth can never lead to monstrousness. and (3) the economist's concept of negligence. Toward an Economic Theory of Liability. 115 Prather Brown. despite his professed concern with social welfare. AND LEGAL THEORY 489 133 constraints which a market system places on the fulfillment of individual desire. . ~6 There is no such constraint on the pursuit of selfishness in a utilitarian society. which does. 537 (1912").o the envious might be necessary to rectify a market failure. and the source J believe of the "monstrousness" of the former. at 232.. Since (to repeat once again a central point in this paper) the social product of the productive individual in a market economy will exceed his earnings. in a system of wealth maximization it would have had to buy them out.488 13Z Law and Economics lJ THE JOURNAL Of LEGAL STUDIES UTIUTARlANlSM. The individual may be completely selfish but he cannot. It is interesting to note in this connection that nineteenth-century English though t. 1 ]. which in its ph ilosoph ic al aspect was domi nated by uti litari anism . He may want to amend Smart's sheep examples" as Ioi•• This may explain why I""i tutes leisur"".. Harv. The laz y person substifor the rest of society to ~nj<>y-for does not produce any C{)n5Umer surplus •• See Epstein. must not the economist regard the driver as a good man.upa note 12. nL'S.~ is lows: let there be 100.000 sheep worth in the aggregate more than any money value that can reasonably be ascribed to the child. is that the utilitarian. in a well-regulated market economy. lawfully obtained wealth is created only by doing things for other people-soffering them advantageous trades. Dangerous activities are regularly permitted on the basis of a judgment that the costs of avoiding the danger exceed the costs to the victims. Dworkin. the achievement of maximum happiness might require that government adopt drastic policies of income equalization even though they reduced the total wealth of the society. and the probability of requiring a truly monstrous sacrifice of individual to group interests is much smaller in a system of wealth maximization than in a utilitarian system.. because these are common sources of personal satisfaction and hence of utility.

one (an imagine cases where the optimal tax would be prohibitive for many people. relentless insistenn.hat merely limiting the birth rate to the replacement level would not be sufficient to maximize the society's wealth.<i--but would in any even! insist on compensation. that is itself derived from the wealth maximization principle. Nor would the economist think the promise in each case so irrational as to create an irrebuttable presumption that it was procured by fraud or duress or vitiated by insanity or other incapacity. In generaL the more wealth a person produces. Nor is the justice of this reward system undermined when some people live off in heri ted weal th and make no personal con tri bu lion to augm en ti ng the wealth of society. As shown earlier. Because people do not recei ve their fuJI social product. the distribution of wealth that results from paying people in (rough) proportion to their contribution to that. (1) From a wealth-maximization standpoint. labor. e. low transaction cost) eminent-domain context. In a system whose very goal is to maximize the society's wealth. if heirs work as well as spend their inheritance. Phelps. likewise the presence of Jews or blacks in a neighborhood might so upset their neighbors as to depress land values by an amount greater than the members of the minority would be willing to pay to remain in the neighborhood. however. there is no basis in economic theory for criticizing h is conduct. Posner eds. because he does not. of Law 40-44 rOF why the economist considers the erninent-dcmain power unjustifiable in most of the instances in which i! is used and would confine it mainly right-of-way taking. or segregation of a productive group will maximize the wealth of a society. If a funeral parlor can depress land values because people living near it are upset to be reminded of death. . wh ether because they work harder. This would be especially likely if the optimum population were smaller than rhe existing population. produce a surplus for the rest of us to enjoy. a case could be made for forcibly limiting the birth rate-depending. or other sources of market fai Iure and (2) his in diff ere n ce Iq u a economist) to egal itari an values. sells himself into slavery to B.~ from fraud. Other areas in which the use of wealth maximization as an ethical criterion is likely to yield results at variance with common moral intuitions involve (1) the economist'. The crucial point. Thus. terms). Rev. it is wealth maximizing. Another troubling case is that of negative population externalities. AND LEGAL THEORY 49J 135 for coercion here than there is in the usual (that is. society will be richer. expulsion.. C ON'CL U SION' The morality r have deduced from wealth maximization resembles what Adam Smith called the system of "natura! liberty" and what a student of (0 & 0' This The is the so-called "statistical th"ory of dlscnnunauon. Of if C borrows money from D with a penalty clause that provides that in the event of def'au It D can break C's knees.g. is that the specific distribution of u-coltl: is a mere by-product of a distribution of right. monopoly. In a society where the ratio of people to resources was so high that the expected social cost of additional population exceeded the expected product. the higher the "tax" he pays (in absolute. on strictly economic grounds. " See Etonomic Aoalysi. however. It is however rare that the ostracism. or for whatever reason. on the costs of i mplernenting such a policy by the inh eren tly imperfect instru men ts of govern ment. The last point suggests an important if perhaps unexpected redistri buuve aspect of wealth maxirnizauon. or bartered to yield income to their owners. taxing births to prohibiting additional births beyond some fixed quota per family. 6J Am. because the efficient allocation of resources is a function in part of what people have-s-change their entitlements and you change th e op tirnal allocation. and ethnic minorities. they will be sold. Sec. . Law and Economics II ECONOMICS. Bu t this way of pu tti ng the relationship between allocation and distribution is misleading. not relative. Edmund S. we dislike the idle heir like the lazy man not because he is a parasite-s-he isn't-s-but. if A. To be sure. Once these rights {to one's body. in effect some (often much) of the wealth they produce is "taxed away" by consumers. on freedom of contract in contexts fn'. Kronrnan if some white person categorically refuses to associate with blacks. good is not arbitrary. incapacity. of course. 91 I am troubled. A just distribution of wealth need not be posited. in The Econ"mic' Richard A. rented. 9) (2) It is often said that questions of efficiency or wealth cannot be separated from distributive questions. 659 \i<l71). mentioned earlier.490 134 Law and Economics lJ THE JOURNAL OF LEGAL STUDIES UTILITARIANISM. or are smarter or luckier. there is no economic basis for refusing to enforce either contract unless some element of fraud or duress is present. by the possibility of extending the logic of the funeral-parlor nuisance cases to Jews or blacks or other racial. Econ. In these circumstances some form of segregation would be wealth maximizing. The expenditure of inherited wealth represents simply the deferral of part of the accu mula tor's consumption beyond his lifetime. In general. so I. 1978). religious.. See NNe on Paternalism. nOr. Although the economist prefers. and so forth) are established. a system of rights or entitlements can be deduced from the goal of wealth maximization itself." Statistical Theory of Racism and Sexism. the wealthier people will be those who have the higher marginal products. because prior experience with some blacks has caused him to form an unfavorable impression of black people in general and the cost to him of individualized consideration of blacks exceeds the expected benefits. perhaps to provide money for his family (but the reason is uni mportant). of Contract Law 15J (Anthony T. externality.

we do not have to calculate the value of each life involved. the happiness of most people depends. A_ Hayek (sec especially his Law. These examples obviously do not exhaust th e domain of in teresting eth ical issues in the la w. Rev. Studies by Isaac Ehrlich have found that capital punishment has a significant deterrent effect. The economic question with respect 10 capital punishment is whether it brings society closer to the optimal level and cost of crimina! activity. The Right of Privacy This appendix explores the economic approach to ethical issues a bit further by means of some concrete examples drawn from contemporary jurisprudential issues. Legislauon. execution is a cheaper sanction than imprisonment). Secrecy. The Right <>f Pri vacy . (2) tile right to pri vary.. 91 (1931). Because the individual cannot prosper in a market economy without understanding and appealing to the needs and wants of others. ment in reducing the costs of crime exceed the costs of its imposition. ApPENDIX con victed of a capi tal c: ri me. and so forth. no simple matter.nt Effect 01 Capita! Punishment: A Question of Life and Death. the competing impulses of our mora! nature. 397 (! <)75). Fear of Deterrence: A C ri tkal E val uatio 0 of the "Repo rt of lhe Panel on Researc h on Deterre nt and In capacitati ve I':ff ects. and (4) the nature of liberty. Legal Stud. 293 (1917) ."94 It has. as by creating a tort right of privacy? In Melvin v.~' and while these studies are controversial. and (4) th e costs of ad minister. su note 1J. and those of the people who are executed). Rev. It is not the morality of utilitarianism. 85 1· Pol. The most prominent contemporary expenents 0){ the "capitalist conception of justice" are F. and bis Capital Punishment and Deterrence: Some Further Thoughts am! Additional Evidence. the market economy regulated in accordance with the wealthmaximization principle also fosters empathy and benevolence. The second problem can be nicely elided by limiting capital punishment to murder. The second is that of placing a value on lives (both those of the victims of crimes that might be deterred by capital punishment. which has. 1'41 (1917).492 136 Law and Economics II THE JOURNAL OF LEGAL STUDIES UTILITARIANISM. Yet the lack of paternalistic and redistributive elements does not make wealth maximization a monstrous ethical doctrine. Measuring these costs is. ng th e pen al ty (wh ich may he higher or lower than those of alternative penalties: while more resources will be invested in trials where a more severe punishment is possible. THEORY 137 493 Smith has referred to as the "capitalist conception of justice. and lived an exemplary life. as mentioned. But we have still to compare those benefits with both the additional administrative costs (ii any) of capital punish rnent and the expected costs to innocent people arising from the (very low) probability of being executed by mistake. punishment is a method of establishing prices for engaging in non market activity it! order to reduce th e level of the activity to what it would be if it were provided in a reasonably efficient market. of course. The first is a difficult but not insoluble problem in empirical measurement. married. 2 •• These views are e labo rated in my article." 6 J. . 97 p. Law and Ecorwmics II ECONOMICS. for Nozick and Epstein have shown that Kantianism need not entail redistributive or paternalistic policies either. Th e first is thai of es ti mati n g th e deterr en t eff ec t of cap ital pu n ish" ment.n Isaac Eh tlich & Randall Mar k. a newspaper published an article exposing her. The wealth-maximization principle accommodates. For then. See also my Pri vacy. a strongly redistributive flavor and sometimes a paternalistic one as well. The economist assumes that an individual's concealing information about himself is motivated by a desire to induce others to engage in personal or social transactions advantageous 10 him. Cat! a right of privacy of this nature be derived from the principle of wealth maximization? I believe nOLO. 11:15. Econ. AND LEGAl. The examples arc (l) capital punish rnent. (l) the costs of capita! punishment to the criminal. Two problems in particular must be solved. if capital punishment is a more effective deterrent than some milder punishment. The system I have sketched of property rights. (3) th e costs of capital punish ment (again relative to the costs of some milder alternative) to the occasional innocent individual who is •• Devine. changed her name. The answer depends on whether the benefi ts of capi tal punish. Reid.~' a woman who had been a prostitute and had been tried for murder (and acquitted) moved to a different town. Just as fraud in explicit economic markets is a sou rce of high transaction costs and an impedirnen t to the efficient functioning of . It is thus analogous to the concealment of material information by a seller of goods and services.l. and we have only to deem victims' lives on average as valuable as murderers' in order to conclude that capital pu nishment yields su bstantial benefits. been sharply challenged by redistributive and paternalistic theories. B. there are lives on both sides of the ledger. with elegant simplicity. Seven years after her acquittal. in the modern world. and hypothetical markets provides foundation and accommodation both of individual rights and of the material prosperity upon which. People often want to conceal discreditable or embarrassing facts about themselves-a criminal record. She sued and obtained damages. See Isaac Ehrllcb. forthWming in BurIal" L. eccentricities. Eton..2». "'<I . at 408. of course. and Uberty (976) and Milton Friedman (see his Capitalism and Freedom (!9(. nor shall I attempt to discuss them exhaustively (all have been discussed extensively elsewhere). a history of mental illness. yet without destroying individuality. relative to til e costs of milder punish rnent. ~6 eventually some consensus should emerge. 1>5 Am. •• See ref erences . To the economist. (3) the ex tension of the market to babies and body parts. and because the cultivation of altruism promotes the effective operation of markets. 111 CaL App. To what extent should the law assist them in doing so. and Reputation. The relevant costs are (1) the costs of the crimes that capital punish men t would deter compared 10 a milder pun ish ment . actual markets. The Detem. SUPYD note 1.

esp: j 1q n. He can find no immorality in the idea of a baby market. are so embedded in conventional morality til at to qu estion th em is to invite rid icule. The avail. babies were permitted to operate. the supply of babies would expand. It does not follow. when morality is derived from economic principle itself. I". however. and externalitv Consequently h(. h€ rejects o\ht't limitation' on (ret'dom ()f contract that.. I shall ill ustr ate with two contractual proh ibi tions th at are in consisten t with wealth rnaxirniz ation. fraud. economic ()bjections can be raised based on f raud.I~p'~ nolo 1. th e economist responds that people will on average give appropriate weight to discreditable information. price would faU below the black-market. i 1.000 reported recently. :. rnonopolv. bu t these objections pale beside the benefi ts to be antic: pafCd from sud) a market. duress.". ability of kidney transplants is. too. relating to fraud. Lande. and see Note. and the societv would be wealthier. is not compelling. ill 338". then.494 138 Law and Economics lJ THE JOURNAL OF LEGAL STUDIES UTILITARIANISM. such as kidneys. they would not occur otherwise. Landes & Richard A_ Posner. rejects usurv laws. There is in tll e United Stales today an acute shortage of babies for adoption The classical symptoms of shortage are presen t. if an individu al's cornmu nications were in the pu blic domai n . There is also an acu te shortage of body parts. Stud. lOO For the economist committed to wealth maximization as his normative principle. and other (not always explicit) economic markets. the possession of two kidneys yield. An especially important consideration is that.. Opponents of legali~ing the sale of babies have made a series of economic arguments. 1216-10 tl'l74).g. and the prohibition of contract penalty clauses. and externalities (e . Needleman has found that the refusal rate even of parents to donate kidneys is qO percent or Krealor _ SuflTa note 101. . the expansive contemporary conception of unconscionability. Probably most sellers would be relatively poor people. severely curtailed by the fae t that a free market in kidneys is forbidden.h con ternpor arv morality is Iiberty of (on tr act. '0' Allowing a market in kidneys would therefore be wealth maximizing and a good thing. with cou pies ha vin g to wait as long as seven years for a baby. but th ev would. 6. of privacy desire (0 see established. duress. Rev. level (though it would be higher than the controlled price). and pain. C . the su pply of kidneys for transp Ian t would be SU bstan tially augmented over thf cu rren t level. It is less expansive than th~ most ardent defender. . and a thriving black market. Valuing Other People's Live" 44 Manchester School Econ _ & Soc. mi stake. to . resulting in potentially enormous social costs and in little useful information to the eavesdropper. A subtler objection would note (he possible adverse eff'ect on charitable or altruistic donation of kidneys: "" but since such donation is rare outside of close family contexts which would probably be unaffected by the existence of a k idnev market. which generally do no! exceed $1. Now for a healthy person. Intrusive su rveillance is generally wasteful in that it induces people to invest in costly self-protective measures. The Economics of the Baby Shortage. and the p rice high: nonetheIN_'. 1182. unreliable. To the objection that. (In essence. Kidnev sales wou Id he w ealth rnaximizmg since. but its existence attests to the capacity of economic analysis to provide a grotlnd for eh erished personal righ ts as well as for freedom of occupational choice and other "economic" right. in the case of the reformed pros ti tu te. discounting it where it is stale. price is limited 10 the cost of the natural mother's maintenance and medical expenses for th e pregnancy. which are exceedingly costly in time. but these arguments are thin and unconvincing. to this knowledge. little is learned about the individual but resources are wasted in trying to find out about him and in his efforts to thwart tbe surveillance. etc . Law and Economics II ECONOMICS. Equally. L. in partiru Iar of kidneys. AND LEGAL THEORY 139 495 these markets.. Aesopian.: long queues. the Sale of Human Body Parts.' Further. relating respectively to adoptions and to th e sale of body parts. that the economist approves of wiretapping and other methods of intrusive surveillance-Land this apart. their children & Posner. IOL The facts on which this discussion is based arc drawn [rorn Lionel Needleman. with the result. this objection. would encourage eugenic breeding th at cou Id transform the character of the human race. and would increase racial hostility (there is no shortage of black babies for adoption as there is of while ones. that ends the analysis: a reasonably efficient baby market is feasible and is much to be preferred to tile present system which combines nonrnarket with black-market allocation. communications would become stilted. at 114. The economist recognizes no limitations on that liberty other than those of inranacitv. only a minor bencfit-s-insu runce against a disease that would destroy one kidney but not both-s-because a single kidney ran dn the work of both just as well: A nd the removal of a kidney is a low-risk operation Hence one can predict that if a free market in kidnevs were permitted to operate. however. bein ~ volu n tar". These points have no weight to one who embraces the wealth-maximization principle. marriage. There is. To people suffering from serious kidney disease a kidney transplant is a superior alternative to kidney machines. with the babv market. an economic right to privacy.) If a market in " My discussion of the baby black market is based on Economic Analysis (>( Law Il J-16~ and ~n Elisa~th M. so fraud in personal relations (including employment and other business relations in which people engage) reduces the efficiency of employment. Cf. roc See ref ere" ces in not" 99 su pra . with prices as high as $40.?" The classic cause of a shortage is also present: price constrained to a level far below that necessary to equili brate supply and demand. . and sparse.0 black babies would command a lower price).g.000. of cou rse. money. th e psychological effect on the babies of having been bough t). narrowly understood . or irrelevant and balancing it against favorable information about the individual.Expansio» of the Market {O Babies and Body Parts I noted earlier that (me of the most important areas wlH're economics fails to generate moral notions consisten t wi t. by Iiving persons. 0<: rich er after ih e sale. 72 Mich. people who discover the truth about her past will react excessively.123 (1 q7i\). from the political objections (which have themselves an economic foundation) to such surveillance when done by govern ment.Legal Stud _ . A. in the end. that. irrationally. 3M i 19161. some healthy people would sell on e of their kidneys _ The f raction of the popul ation willing to engage in such a transaction at the market pri ce wou Id p roba Illy be small. There are those who believe that allowing baby sales would have profoundly undesirable effects.

191 . and Possibly Li betty. Wealth maximization. I shall try to explain each of these terms. G""rg~ 1- Stigler. M Am.1 J I : 978) N this essay I consider and reject a political theory about law often called the economic analysis of law. as critics have. Now it may (or may not) be empirically demonstrable that some political liberties are more valuable. An individual maximizes his own wealth when he increases the value of the resources he owns. and that they ought to decide such cases in that way. (That name is the title of an extended book by Professor Richard Posner. as 1 have tried to argue. "Wealth maxi rnization" is a term of art within the theory. in a certain way. rests on the analogy of the "market place in ideas" 10 markets in (other) goods. with argu me n ts that PO$ner has h imse!f presented. It is. 10. and someone values a good more only if he is both willing and able to pay more in money (or in the equivalent of money) to have it. Professor Stigler. unless these descriptive claims can be embedded within a very different normative theory. for what he would pay I I * Professor Copyright of jurisprudence. 1. liberty is more than a form of wealth. whenever he is able. and is not intended to describe the same thing as "Pareto efficiency. But the wealth-maximization principle affords no basis for a refusal to trade off liberty against prosperi ty. by its critics. The concept of wealth maxi m ization is at the center of both the desc ripti ve and normative aspects of the theory.1. May 1974). are greater. University. Wealth. have on the whole decided hard cases to maximize social wealth. as defined. in his analysis. maximization principle. a cornprehensi ve and unitary criterion of rights and duties. which. A separate question is whether. both evaluated in strictly economic terms. but because his income is higher and this gives him a bigger opportunity set than his ancestors had. Economic of Law and ed. Ectln(lmic Analysis of Law 541-.496 140 Law and Economics II THE JOURNAL D. if he is able to pay. 384 (Papers & Proceedings. 1 1- Legal Stud. there is no distinction between the liberty of a man who is legally free to travel abroad but lacks the wherewithal to do so and a man who has the wherewithal but is forbidden by the state to travel. in the strict economic sense. Its value to him is measured by the money he would pay if necessary. It argues that common law judges.. the average present-day Russian has more liberty than his nineteenth-century ancestors. OF LEGAL STUDIES <l$ Liberty Weallh I said earher that cherished personalli~rties could be deduced from the wealth. 1977) . Liberty in Stigler's analysis is simply the size of the individual's opportunity set. Analysis 19S0 hy Ronald Oxford Dworkin. See R. as utilitarians such as John Stuart Mill have thought. . althou gh at th e end of the essay I shall argue that the normative failures of the theory are so great that they cast doubt on its descriptive claims. 1 and I shall be concerned largely. It does not put political rights ahead of economic rights. to purchase something he values for any sum less than the most he would be willing to pay for it. Toe Market." In this introductory section. [14] IS WEALTH A VALUE? RONALD M_ DWORKIN' w. But it is a concept that is easily misunderstood. for example. not because his civil Iiberties."'"' and I think he is correct from the wealth-maximization standpoint.) The economic analysis of law has a descriptive and a normative limb. To Stigler. I shall discuss the normative li m b of the theory mainly. thou gh not entirely. Econ. the costs of the minimum wage might be tolerable from the wealth standpoint if it were necessary to ward off a dictatorship that would reduce the nation's wealth even more. for Goods and the Market fnr Ideas. is achieved when goods and other resources are in the hands of those who value them most. in economic analysis. in an interesting recent paper. than some or all economic liberties. and it has been misunderstood. So also. R Coase. Although I used the example of privacy I could equally have used freedom of speech. Rev. answers "no.. say $4. that the lawyer's definition of the former is a botched attempt to capture the meaning of the latter. at least. to show why it misunderstands the economic analysis of law to suppose. or even h is economic liberties.

You're Reading a Free Preview

/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->