1.

WHAT IS WEALTH MAXIMIZATION AND WHERE DOES IT

COME FROM?
The text appears to be discussing the economic concept of wealth, its relationship with utility, and
its implications for economic analysis and decision-making. Let's break down the key points:

1. Economist's Definition of Wealth: Unlike the common notion that wealth refers solely to
money or possessions, economists define wealth as the overall value individuals place on the
things they want. This value can be measured by a person's willingness to pay for something
they don't own or their unwillingness to part with something they do own.

2. Examples of Wealth: The text presents examples to illustrate this concept. For instance, if
you own a house worth $100,000 and are unwilling to sell it for less than $100,000, while
the highest bidder is willing to pay only $90,000, the societal wealth would increase by
$10,000 if the house were not taken from you. Similarly, if you want to buy a car for $10,000
but the current owner is willing to sell it for $5,000, the societal wealth would increase if you
buy it for any price between those two values.

3. Market Values vs. Sentimental Value: The text points out that market values might not
capture the true worth of items like houses and cars if they hold sentimental value for
individuals. This means that the perceived value could be higher for you than for anyone else
due to personal attachments.

4. Utility as Wealth: The text introduces the concept of "utility" in economics, which essentially
refers to the satisfaction or benefit an individual derives from consuming goods and services.
The idea is that utility represents a person's wealth because it encompasses their
preferences and the value they place on various things.

5. Utility vs. Wealth vs. Money: The author explains that while utility and wealth in economics
are closely related, they are distinct from the utilitarian notion of happiness. Wealth
maximization considers the value people place on things, which can differ from their
happiness derived from those things. Money, in this context, serves as a means to acquire
the things that contribute to wealth.

6. Interpersonal Comparisons of Utility: Economists avoid directly comparing the happiness or

utility of different individuals (interpersonal utility comparisons). Instead, they use the
concept of wealth, which encompasses individual preferences and can be measured more
objectively.

7. Monopoly and Wealth Loss: The text highlights how the concept of wealth plays a role in
analyzing the effects of monopoly. Monopolies can lead to a reduction in wealth (or utility)
because they limit competition and drive prices higher, causing consumers to pay more than
they otherwise would in a competitive market. The difference between what consumers are
willing to pay and the price they actually pay is called consumer surplus, and monopolies
reduce this surplus, leading to a "wealth loss."

8. Normative Use of Wealth Maximization: The text suggests that wealth maximization is
often used as a normative standard for assessing economic outcomes. It asks whether
someone would agree that monopolies are bad because they reduce the value of output
(wealth). If they agree, they indirectly acknowledge that wealth has ethical and social value.
In summary, the text discusses how economists define wealth in terms of people's preferences and
willingness to pay, how utility and wealth are related, and how the concept of wealth can be used to
evaluate economic situations, like monopoly. It emphasizes the importance of considering individual
preferences and societal value when making economic decisions.

CRITICISMS
The text discusses the challenge of deriving ethical principles ("ought") from factual observations
("is"), highlighting the resulting uncertainty in ethical debates. Ethical arguments often rationalize
existing emotional beliefs rather than convince doubters. The passage mentions the significant role
of historical events and power dynamics in shaping prevailing ethical views. The author's goal is not
to convert but to persuade readers that wealth maximization is a reasonable, though not universally
proven, ethical stance. The text acknowledges that while it is a valid ethical perspective, it's not
claimed to be universally correct or applicable in all situations.

A. Asking versus Offer Prices, and the Derivation of

Property Rights
1. Wealth Maximization and Property Rights: The passage begins by addressing a criticism
related to whether wealth maximization is about asking or offering prices in economic
transactions. The author rejects this argument, stating that the concept of wealth
maximization guides whether to use asking or offering prices, provided property rights are
clearly defined.
2. Role of Transaction Costs: The text discusses the role of transaction costs in determining
whether to use asking or offer prices. If transaction costs are low, equilibrium prices (asking
prices) are used. However, if transaction costs are prohibitive, offer prices might be more
relevant, especially when an involuntary transaction is possible at a cost lower than the
difference between offer and asking prices.
3. Addressing Transaction Costs: The passage explains that a well-defined system is needed to
compare offer and asking prices and to accept offers that exceed asking prices. It suggests
that legal institutions can serve this purpose when transaction costs are high.
4. Assignment of Property Rights: The passage delves into the importance of assigning property
rights in a way that maximizes wealth. It argues that wealth maximization doesn't mean
assigning rights based solely on who derives the most pleasure from a property. Such an
approach could lead to a lack of incentives to work and invest.
5. Property Rights and Labor: The text suggests that assigning property rights to individuals'
own labor is essential for wealth maximization. It rejects slavery as an inefficient institution,
as monitoring slaves' output is costlier than monitoring free individuals' output through
contracts.
6. Natural Resources: The initial assignment of property rights for natural resources might not
be critical, as rights holders would likely sell or rent them to those who can extract the most
value. However, potential sources of friction, such as borrowing against uncertain prospects,
should be considered.
7. Education and Wealth Maximization: Wealth maximization suggests subsidizing education,
especially for the poor, to enable people with productive potential to develop their skills.
Education subsidies align with wealth maximization principles by supporting the
development of human capital.
8. Market Reallocation and Regulation: Once property rights are assigned, the free market can
reallocate them based on individuals' willingness to pay. However, the text acknowledges
the need for some government intervention to address issues like monopoly, public finance,
 external benefits, external costs, and social concerns. The author argues that a lightly
regulated capitalist system, starting from a condition of equality, would maximize societal
wealth.
9. Benefits of Light Regulation: The passage concludes by discussing the benefits of lightly
regulated capitalism in terms of maximizing wealth. It references historical examples and the
differences between capitalist and noncapitalist societies, suggesting that regulated
capitalism can lead to wealth maximization.
10. In summary, the passage discusses the relationship between wealth maximization and
property rights, the role of transaction costs, the assignment of property rights, education
subsidies, market reallocation, and the benefits of a lightly regulated capitalist system. The
author emphasizes the importance of defining property rights and considering factors that
contribute to maximizing societal wealth.

B. The Instrumental Character of Wealth Maximization

1. Wealth and Happiness:

The author begins by acknowledging a potential conflict between wealth maximization and
utilitarianism, which seeks to maximize overall happiness. They illustrate this with a scenario
where a medical treatment is auctioned, and a wealthy individual outbids a needy family. The
utilitarian perspective might seem to favor giving the treatment to the family to alleviate
suffering.

However, the author suggests that this conflict isn't as straightforward as it seems. They propose
that considering long-term consequences can provide a resolution. For instance, if resources are
allocated to those who derive the greatest happiness in the short term, it might hinder the
development of more resources and technologies in the long run. The wealth maximization
approach, where resources are efficiently allocated and productive activity is encouraged, could
lead to a situation where more resources are available to alleviate suffering in the future.

Additionally, the author points out that societies might implement programs that address cases
where individuals cannot afford necessary resources. These programs, which could be funded by
wealth redistribution, align with utilitarian goals of minimizing suffering and promoting overall
well-being.

2. Utilitarianism's Challenges:

The text delves deeper into the challenges posed by utilitarianism. It introduces examples where
utilitarianism might lead to morally counterintuitive conclusions. For instance, utilitarianism
could imply transferring money to a sadist because their pleasure from hurting others might
outweigh the victims' pain.

The author argues that wealth maximization provides a more practical and effective means of
achieving utilitarian goals. They suggest that a society focused on wealth maximization, where
productive efforts are rewarded, can generate economic growth and resources. This growth can
contribute to overall well-being and happiness. In contrast, a society driven by pure utilitarian
principles, without the emphasis on productive activities, might not be as successful in creating
the resources needed for happiness.
3. Wealth and Individual Rights:

The text shifts its focus to the relationship between wealth maximization and individualist
political philosophy, which emphasizes safeguarding individual rights. The author notes that
wealth maximization aligns with the protection of voluntary exchange and individual rights, as
economic transactions are driven by voluntary agreements.

However, potential conflicts arise, such as in cases of tort liability. The author introduces the
concept of strict liability versus negligence liability. Strict liability holds individuals responsible
even if an accident is beyond their control, while negligence liability requires demonstrating
negligence on the part of the individual. The author suggests that negligence liability might be
more cost-effective and align better with wealth maximization if it leads to lower insurance costs
for society as a whole.

The author introduces a key argument: if a change, like switching from strict to negligence
liability, benefits everyone and is likely to be adopted with near unanimity, then it might align
with individualist principles. Such a change wouldn't trample on anyone's individual rights and
could even be seen as enhancing the efficiency of voluntary exchange and resource allocation.

In conclusion, this section of the text delves into the complexities of wealth maximization in
relation to ethical frameworks like utilitarianism and individualism. The author navigates the
potential conflicts and offers insights into how wealth maximization can be reconciled with these
ethical perspectives, especially by considering long-term consequences, economic growth, and
practical approaches to safeguarding individual rights.

C. The Problem of Inalienable Rights

Implications of Individualism and Wealth Maximization:

The author acknowledges that while wealth maximization shares some common ground with
individualist philosophy, there are certain conflicts and limitations that need to be addressed.

1. Moral Considerations and Individual Autonomy:

The author begins by noting that individualist philosophy, while emphasizing individual
autonomy and freedom, still draws moral lines when it comes to certain practices. For instance,
even within a voluntary transaction framework, most individualists would find practices like
slavery, torture, and lynching morally reprehensible due to the violation of essential personhood
and human rights.

2. The Ethic of Wealth Maximization:

The author points out that the ethic of wealth maximization, while not inherently advocating for
practices like slavery, also doesn't necessarily dictate societal duties to help the needy. It
suggests that society has a duty not to hurt them and to leave them alone, but it doesn't
establish a duty to provide assistance. This is because wealth maximization focuses on efficiency
and the free interaction of productive individuals, rather than a direct responsibility for the well-
being of the unproductive.

3. Charity and Political Duty:

 The author discusses the role of charity within wealth maximization and individualist
philosophies. They acknowledge that while charity is an important aspect of personal ethics,
political duty of charity can't be directly deduced from the premises of wealth maximization. This
might be because wealth maximization is focused on preventing harm rather than actively
providing assistance. They also highlight that charity can be impeded by free-rider problems,
where individuals benefit from charity without contributing themselves.

4. Wealth Maximization and Redistribution:

The author recognizes that wealth maximization doesn't entirely exclude the possibility of
government redistributions of wealth, particularly if they align with the altruistic feelings of
productive members of society. However, this redistribution is limited and is justified by the
presence of altruistic individuals who face challenges due to free-rider problems. The author
suggests that if altruism were absent, there might be no basis for public wealth redistribution
within the framework of wealth maximization.

5. Balancing Utilitarianism and Individualism:

The author argues that wealth maximization can serve as a bridge between utilitarianism and
individualism, capturing the emphasis on individual preferences and the aversion to coercion
from both perspectives. They propose that while individual autonomy is essential, extreme
individualism might lead to societal inefficiencies that compromise overall well-being.
Conversely, excessive utilitarianism might threaten individual rights and autonomy.

Conclusion:

In conclusion, the author recognizes the complexities and limitations of wealth maximization as
a guide to social decision-making. They acknowledge that while wealth maximization aligns with
certain aspects of individualism and utilitarianism, it might fall short of fully satisfying the ethical
implications of either perspective. It doesn't inherently advocate for practices like slavery or
direct public assistance to the needy, but it can accommodate limited government redistribution
based on societal altruism. Ultimately, the author presents wealth maximization as a political
philosophy that finds a balance between individual autonomy and societal welfare,
acknowledging the complexities of contemporary moral and ethical debates.

III. APPLICATION TO LAW

Wealth Maximization as a Guide to Judicial Decision-Making:

1. Consensus Political Philosophy: The author asserts that wealth maximization, as a concept
combining elements of utilitarianism and individualism, could be considered a more
acceptable consensus political philosophy in our pluralistic society than other overarching
principles. They suggest that the idea of wealth maximization underlies many principles and
methods of judicial decision-making, even if the term itself is not commonly used.

2. Implicit Redistribution and Proxies for Wealth Maximization: While some may criticize
wealth maximization for lacking a strong redistributive component, the author argues that
various concepts like fairness, justice, balancing, and due process, which are frequently
invoked in legal discourse, often serve as proxies for wealth maximization. This implies that
judges may already be indirectly considering wealth maximization when deciding cases.
 3. Limitations of Judicial Redistribution: The author acknowledges that courts might not be
the best institutions for implementing substantial redistributive measures due to several
reasons. First, the lack of a clear consensus on the ideal wealth distribution makes it difficult
for courts to adopt a redistributive ethic. Second, courts lack the flexible tools for
redistribution compared to legislative bodies that have the power to tax, spend, and
regulate.

4. Division of Labor Between Courts and Legislatures: The author suggests a division of labor
between courts and legislatures. Courts should primarily focus on wealth maximization,
which involves making decisions that expand economic opportunities and create wealth,
effectively making the "pie" bigger. On the other hand, the role of legislatures could involve
redistributing some of this wealth to address social and economic inequalities.

5. Wealth Maximization and Common Law: The author's interest in wealth maximization
centers on its role in guiding judicial decision-making, particularly in "common law" areas
where judge-made law plays a crucial role. They argue that wealth maximization can be a
valuable guiding principle for judges in these areas, influencing decisions that involve judicial
discretion and the interpretation of laws.

6. Alignment with Constitutional Prohibitions: The author highlights that some ethical clashes
between wealth maximization and strong moral intuitions, such as issues like lynching and
torture, have already been addressed by constitutional provisions that explicitly prohibit
such practices. This allows the courts to focus on wealth maximization in areas where it is
consistent with the fundamental values of the political culture.

In essence, the author argues that wealth maximization, when understood correctly and not
conflated with narrow interpretations of monetary gain, can serve as a useful guiding principle for
judicial decision-making within the domain of common law. It combines elements of utilitarianism
and individualism and provides a framework that reflects broader societal values while recognizing
the limitations of judicial redistribution.