Walter Block and I exchanged thoughts on this and neither of us was persuaded by the other’s argument. Walter’s argument is standard and widely held. My argument is non-standard and unconventional. This blog simplifies its expression. If it’s correct, it should be easier to see why or under what assumptions it’s correct. If it’s incorrect, it should be easier to see why it’s incorrect.

We are seeing a lot of crimes being committed these days within our society and a lot are so far going unpunished. The argument I’m about to go through is pertinent to this situation as it suggests that society is the loser. We are the losers even though we are not the direct victims of the crimes.

Suppose that a society has adopted the rule or law “Thou shalt not steal”. Why did it do this? I assume because it’s morally right and because it creates higher social welfare, if followed. The latter assumption, the higher social welfare, is critical; its validity is supported by society’s own choice, its demonstrated preference.

Economists call social welfare social utility. Thomas Jefferson called it happiness. Restating the basic assumption: Society’s happiness depends on the existence and enforcement of this prohibition. Society here means a body of people; it’s a term that takes in everyone identified by certain criteria. The details are not germane.

Now what happens to social utility if a judge deviates from the rule and lets a thief get away with a theft? The judge fails to enforce the law. The thief gains, his victim loses. What happens to social utility? The economist, who ignores the utility of the rule itself to society, answers that we can’t say, because we can’t compare the utility gains and losses of the thief and the victim. This is correct as far as it goes, but it doesn’t go far enough. Its failing is that it ignores social utility of the society and reduces it to an interpersonal comparison of just two people. That limitation acts as if everyone else’s utility is unaffected by the law not being enforced.

Bringing everyone into the picture, we know that society has already decided that theft lowers social utility. It has prejudged the case. It did this when it made the law against theft. Therefore, society, because it has this law against theft, is telling us that this or any particular theft lowers its utility, even when an interpersonal transfer occurs within the society. By adopting a rule against theft, society has already compared the utility gain of the thief to the utility loss of the victim and decided that no matter what they may be, its own, society’s own, utility is lower by that judge not enforcing the prohibition.

This theorem doesn’t say that if B robs A, then social utility falls, which is how I think Walter understood it. The theorem says something more subtle. It says that if society has a law against theft, presumably as a measure to raise its social utility, and if B robs A, violating the law, then social utility falls.

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