THE ETIQUETTE of moral judgments has traditionally given a backseat to economists. Leaving them the technical questions of production and distribution, philosophers have looked beyond the transactions and haggling of everyday life for answers to the heavy problems of morality and ethics. Richard A. Posner, a former law professor at the University of Chicago recently appointed to the U.S. Court of Appeals, has written The Economics of Justice to steer economic moral reasoning into the straits that govern human behavior.

Divided into four long essays, the book searches for a new understanding of justice in modern society, especially in the context of economic life. Posner begins by discrediting the legacy of classical utilitarianism has bequethed philosophers. Posner believes that Bentham's call for the greatest happiness for the greatest number, a fashionably modern concept, actually opens the way for "moral monstrousness." Citing "the utilitarian's readiness to sacrifice the innocent individual on the altar of social need," Posner presents examples to illustrate the deficiency of any conception of happiness as the ultimate measure of right. Instead, the author suggests economic efficiency, pure and simple, the pursuit of wealth:

"The difference between utilitarian and economic morality, and the source, I believe, of the 'monstrousness' of the former, is that the utilitarian, despite his professed concern with social welfare, must logically ascribe the value to all sorts of asocial traits, such as envy and cruelty, because these are common sources of personal satisfaction and hence of utlity. In contrast, lawfully obtained wealth is created by doing things for other people--offering them advantageous trades. The individual may be completely selfish but he cannot, in a well-regulated market economy, promote his self-interest without benefitting others as well as himself."

This idea is the key to accepting Posner's definition of justice--a belief that the market economy is the best producer and distributor of wealth. The author buttresses this assertion with compelling, but confusing evidence; his textbook-style charts and statistical comparisons enhance the appeal of the reasoning he presents in clear hypothetical cases.

Posner moves from his re-definition of an ethical system, one based on economic prosperity, into an intriguing examination of justice, wealth, and government in primitive societies. Posner asserts that the common law evolved in Western societies in the way that it did because judges were trying in accordance with the ethic of efficiency, to maximize the wealth of society though their decisions. This is a natural impulse, Posner says, because economic theory can explain the legal institutions of pre-literate cultures. Beginning with an imaginative look at the social institutions found in Homeric epics, Posner incorporates modern anthropological studies to conclude that clan, and not government is the primary source of social order in primitive societies, and that gift-giving among such groups fulfilled many of the functions of modern trade.

None of this, of course, is original; startling and fresh is Posner's belief that the exchange of gifts also provided a way for one clan or person to ascertain the reliability as a trading partner of another. This concept is central to the author's argument that information and the need for knowledge of the dependability of a transaction partner explain both privacy laws and racial prejudice.

THE AUTHOR'S VIEW OF PRIVACY is easily the most innovative and controversial element of the book. Using economic efficiency as the ultimate justification of any measure, Posner decides that many of the recent legislative and judicial actions on privacy have been wrong-headed, since they allow individuals to conceal personal information that might be relevant to reliability as a transaction partner, while forbidding business enterprises from keeping secrets, even though the business might use its privacy to create products or processes that contribute greatly to the wealth of society.

The author would instead distinguish between seclusion and secrecy as different components of what we generally think of as privacy. Seclusion, as Posner sees it, is the traditional meaning of privacy, the right any thinking being has to solitude and the freedom of his own thoughts and ideas. This prerogative, essential for preserving a free society, becomes indefensible, however, when invoked to justify the sort of secrecy that society's efficient operation cannot warrant. Privacy statutes prohibiting, say, an employer's efforts to glean information about a job applicant, or a manufacturer's right to get his product to the preferable set of consumers, make little sense. Posner elaborates:

"We would think it wrong (and inefficient) if the law permitted a seller in hawking his wares to make false or incomplete representations of their quality. But people 'sell' themselves as well as their goods by professing high standards of behavior to induce others to engage in advantageous social or business dealings with them, while concealing facts that these acquaintances need in order to evaluate their character....shouldn't a person be allowed to protect himself from disadvantageous transactions by ferreting out concealed facts about individuals which are material to the implicit or explicit representations that those individuals make concerning their moral qualities?"

For all his appeals to this businessman-like instinct, Posner's economic argument falters upon this question of personal privacy. Suppose, for example, to make the sort of hypothetical case the author frequently finds fitting, that Mr. X is a master widget-maker who conceals the fact that he is a homosexual. He works for Mr. Y, the owner of a widget factory, who has a distinct aversion to homosexuals. X ends up out of a job, as the process of ferreting out facts about his employees leaves him with the knowledge of X's sexual preferences; and out of luck, because Y's competitors share his prejudice. Ultimately, X will be hired by a widget-maker who cares more about productivity than his workers' sexual preferences, but the interim leaves Mr. X out of an income. Once rehired, he will probably be paid less than he was before, since his services are no longer in as great a demand as before his homosexuality was known.

Posner's privacy rule thus dooms Mr. X to suffer because his sexual behavior, information the author considers legitimate for his employer to obtain, even though it could have no bearing on his reliability as an employee. Posner offers no remedy for such a flagrant injustice other than a grudging concession that "some presumably modest efforts to achieve a more equal distribution of income and wealth may be economically justifiable." It's not that callousness limits his ambition; only his faith in the decision-making capabilities of the owners of widget factories does it. Everyone is a rational maximizer in Posner's world. Mr. X will be hired by the first widget-maker he sees. He might never have lost his job in the first place.

COMMON SENSE and moral intuition, which confirm so much of what Posner says about economic science and its relation to ethics, reject his optimistic assessment of freedom of information and prejudice. Bigotry survives, economic cost regardless, and probably will continue for along, long time. As approximations go, rationality has served the world of economists well, but so have fairies and demons the world of storytellers. Certain remembrances of the real world might be only the tiniest grain of salt that readers need to take Posner's theories.

The book concludes with a critique of affirmative action. Posner is on a well-traveled road here, and Posner adds little new to this familiar debate. This last section displays his clearest and most readable prose, but fails to live up to the perspicuity in his earlier pages, his economic analysis of common law and discerning a moral code in wealth-maximizing.

The Economics of Justice has serious flaws, to be sure. The passages of turgid, eye-glazing prose that seem to prevail, require an economics or law background. Posner prefaces each of his four treatises in professorial, outline-on-the-board fashion ("In this chapter, I ask how...," "I hope to challenge...," "I will sketch a model...). With such broad scope, The Economics of Justice cannot avoid a certain disjointedness, and the author's faith in the wonder of human rationality poses a familiar problem for questioning readers. Yet the incisiveness of Posner's ideas shine brilliantly through the flaws. No one has to agree with everything Posner says, or even very much of it, to realize that it is a powerful, penetrating examination of how society scales its values.