On the Foundations of Happiness in Economics

Maurizio Pugno

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317560838
• Edition: 1
• Topic: Betriebswirtschaft
• Subtopic: Business allgemein

Economic growth has extraordinarily increased the availability of market goods to satisfy people's need for comfort, but at the same time it has also raised great challenges to their working and family life. Will people learn the skill necessary to cope with these challenges and draw full enjoyment from economic growth? On the Foundations of Happiness in Economics explores this question by examining the work of Tibor Scitovsky, author of The Joyless Economy.

Given the recent rise of behavioural economics and happiness economics, this book aims to show how far ahead of his time Scitovsky was in his work on individual welfare (or wellbeing). It traces the evolution of Scitovsky's original thought, arguing that he has been frequently misunderstood, before undertaking formal analysis in order to demonstrate how far his work anticipated or even went beyond the recent advances in economics. This volume also explores Scitovsky's work in the context of Keynes' work on wellbeing, offering a new perspective on welfare in the history of economic thought. Other issues discussed in this text regard creativity and social skills, hedonism and eudaimonia, parenting and education, addiction, work/leisure balance, policies for happiness, paternalism, and the quality of economic growth.

This book addresses a variety of readers, such as those interested in the history of economics, as well as students and researchers concerned with the economic theory of well-being.

1 Happiness in economics

The roots and perspectives of a research programme

Understanding of human nature must be the basis of any real improvement in human life. Science has done wonders in mastering the laws of the physical world, but our own nature is much less understood, as yet, than the nature of stars and electrons. When science learns to understand human nature, it will be able to bring a happiness into our lives which machines and the physical sciences have failed to create.

(B. Russell, Sceptical Essays, 1928)

1.1 Economics and people’s demands for happy lives

People have conceived happiness in very different ways throughout history. In many languages, the word ‘happiness’ was born with the meaning of ‘good fortune’, with the variants of luck due to chance or to benevolent gods. But in the contemporary age, happiness has been increasingly understood as a state to which people normally aspire in their lives.

This change of perspective began in the age of the Enlightenment, which marked a turning point in the overall progress of human thought, and hence in control over the course of events.¹ But the aspiration to lead a happy life has often been reduced to a rather material goal: the achievement of better economic conditions.

Economists then entered the scene, because the issue turned into the question: is the economy able to ensure happy lives for people? This is a hard question to answer, and it will be at the core of the investigation conducted in this book.

This question entails three interrelated problems: how to define and measure happiness; how economic conditions are related to happiness; and whether economic and other policies can help people in pursuing happiness.

Economists have not always seen these three problems clearly. But, since the birth of their discipline, they have been obliged to take a position with respect to the original question. Two typical and opposite positions have been the following: on the one hand, framing the link between the economy and happiness in a broader and interdisciplinary research programme on human progress; on the other, restricting the focus on economic conditions as a prerequisite for the study of happiness to be left to other disciplines. Underlying the two positions are two different ideas about human beings: either they can learn the art of living an interesting and social life, and thus achieve happiness, or they are efficient and well-informed from the outset, so that they can systematically choose the options which are best for them.

One or the other position has prevailed in the history of economics, so that economic research on happiness has either been at the centre of debates or it has disappeared altogether, even for decades. Intermediate positions focusing on special aspects related to happiness have also arisen, thus maintaining interest in the debate.

At the end of eighteen century, when the classical economists took as their subject matter ‘the causes of the wealth of nations’, they normally referred to people’s ‘necessaries and conveniences of life’ (e.g. Smith 1976 [1776]: 10). The word ‘happiness’ was used rather rarely;² and when it was used, it described the mental state of poor people when they are able to exit from miserable conditions and enjoy a healthier life (e.g. Malthus 1998 [1798]: 96). The meaning of ‘happiness’ thus remained rather limited, and the link between economic conditions and happiness was considered to be strict, if not automatic.

By contrast, ‘happiness’ occupied a central place in the analysis of the utilitarian economists who adopted Jeremy Bentham’s ‘principle of utility’ (Bentham 1780), also known as the principle of the ‘greatest happiness for the greatest number’. John Stuart Mill, who gave a personal interpretation to utilitarianism, understood ‘utility’ as a concept complementary to ‘happiness’, so that he used the former in his economic analysis (Mill 1848) and the latter in his moral and political analysis (Mill 1859, 1863). Specifically, he furnished original insights into the social dimension of happiness, and into the individual ability to cultivate ‘higher capacities’ (Mill 2001 [1859]: 13). In so doing, he provided an extended research programme in which happiness and the related problems of measurement, analysis, and policy found a place. Mill was so insightful that this programme appears relevant still today for its comprehensiveness and originality.

The main turning point came with the so-called marginalist economists in the second half of the eighteenth century; and it was then elaborated further by the ordinalist economists from the 1930s until modern times. Indeed, they provided the foundations for current economic textbooks. These economists attempted to remove non-observable and non-measurable variables from the analysis, so that ‘happiness’, and then ‘utility’, were treated with scepticism. Our core question remained unanswered because the focus changed: from the problem of the pursuit of a happy life to the individual’s choice problem of maximising her expected utility from given economic resources at a given point of time. At best, the choice problem might be interpreted as preliminary if the economic conditions were seen as a constraint on people’s happiness.

However, a group of British economists, mainly Cambridge economists, took a special position at the turn of the nineteenth and twentieth century. They revived the classical subject of the ‘wealth of nations’ and emphasised the policy aspects as welfare economics, which mainly referred to the community. They recognised that economic welfare was only a part of total welfare, because human needs are not only primary but also of higher level. In this way, the concept of ‘happiness’ entered the picture, but was little discussed because the main focus was on economic welfare. The question of the link between the economy and happiness thus remained loosely answered, because economic welfare and total welfare were only presumed to be positively related.

It was not until the 1970s with the studies of Richard Easterlin and Tibor Scitovsky that the focus returned to happiness as a state to pursue by people in the course of their lives, and to whether the economy can ensure the success of such pursuit. And it was not until the end of the 1990s that a thorough investigation of all three problems was conducted by the new line of inquiry called the ‘Economics of Happiness’.

The results of this new branch of economics have greatly advanced our knowledge on how to measure happiness, its economic correlates, and the opportuneness of policies for happiness. The main, though controversial, result is that improvements in the economic conditions of people and countries are less straightforwardly linked to greater happiness than is usually believed. The Economics of Happiness, however, considers itself more a method of investigation than a research programme on human progress. It thus takes a special position because it uses a restricted definition of happiness; because it is mainly empirical; and because it has not yet extended the investigation to the development of individual ‘higher capacities’, including the social and moral ones.

Complementary to the Economics of Happiness is Amartya Sen’s Capability Approach. This is mainly a theoretical account of human progress as the expansion of freedoms, so that also happiness is enhanced. Among these freedoms, Sen includes ‘agency freedom’, as people’s ability to set and pursue desired goals. Another complementary position is taken by James Heckman, who has given strong impetus to research on the formation of the skills necessary for successful outcomes in people’s lives. The positions of Sen and Heckman thus make evident the importance of ‘agency’, and, together with the Economics of Happiness, the necessity to draw heavily on psychology.

Therefore, the study of happiness in economics is becoming highly complex because of its deep historical roots, the number of questions and controversies that it involves, and the proliferation of the related fields, including extraeconomic ones. A book can hardly cover all these issues with the details necessary to furnish a complete picture. However, there is an author who can help us take up the research programme on human progress, address the relevant questions, link the thought of different economists, and refer to different fields for both theoretical insights and empirical evidence. The name of this author is Tibor Scitovsky.

Indeed, in the mid-1970s Scitovsky resumed old issues and developed them in original terms, anticipating current issues and proposing ones to be explored. His overall aim was to gain a better understanding of how people can achieve a happy life by developing human life skills on the basis of improved economic conditions, and with the possible effect of improving them further. His ideas were so original, and his horizon of research so wide, that he is difficult to classify in any stream of thought, and his ideas cannot be easily dismissed as out-of-date.

Scitovsky’s life testifies to his exploratory and wilful character. He was born and spent his childhood in the Austro-Hungarian Empire, he studied in Cambridge (UK) and London, and then worked at the Universities of Stanford, Berkeley and Yale. At the end of his career, in 1976, he published the book, with the telling title The Joyless Economy, for which he is best known.

While the next chapters will be devoted to understanding and reinterpreting Scitovsky’s analysis and research programme on happiness, or ‘human welfare’ as he called it, the present one briefly provides the background against which Scitovsky’s thought can be placed and hence better appreciated. Specifically, Section 1.2 adopts a perspective of the history of economic thought, in that it briefly identifies in the works of early authors the central aspects of content and method that Scitovsky took up and developed. Section 1.3 is devoted to the Economics of Happiness, recalling its main results on the link between the economy and happiness, and pointing out some unresolved questions that Scitovsky would be able to deal with. Section 1.4 concludes by showing how a research programme on human progress can emerge.

1.2 Happiness in the history of economic thought

1.2.1 The birth of the research programme on happiness as human progress

[W]ill men approach a condition in which everyone will have the knowledge necessary to conduct himself in the ordinary affairs of life, according to the light of his own reason […]; in which everyone will become able, through the development of his faculties, to find the means of providing for his needs; and in which at last misery and folly will be the exception, and no longer the habitual lot of a section of society?

(Condorcet 1955 [1794]: 1)

This rhetorical question well describes the ambitions of the French Enlightenment. The Encyclopaedists, who belong among the founders of Western culture, had no doubts that human progress meant the development of ‘man’s moral and intellectual faculties’ (Condorcet 1955 [1794]: 8), and, at the same time, the development of economic conditions adequate for the entire population and their happiness. This was not a dream, but an expectation, because it was based not only on the revolutionary experience of the time but also on logical arguments.

When Nicolas de Condorcet wrote the Historical View of the Progress of the Human Mind in 1794, he argued that human progress would take place because three components – that is, individual faculties, economic conditions, and happiness – positively affect one another in a dynamic way once people have been properly educated and free trade has been guaranteed.

More precisely, Condorcet first considered the potential of human knowledge by observing the acceleration of sciences and their applications in his time. He then deduced the possibility of human progress in several directions. One direction was the spread of basic knowledge: ‘by a suitable choice of syllabus and of methods of education, we can teach the citizen everything that he needs to know in order to be able to manage his household’ (Condorcet 1955 [1794]: 5). Thus people’s natural talent would be better revealed and could be cu...