The objectively measured performance of different types of capitalism tells only part of the story. Let's turn now to a more subjective measure: happiness. How happy are the people living in these economic systems? And is one type of capitalism more likely to create happiness than another?

Various studies on the determinants of happiness (or subjective well-being, as it is sometimes called) in different nations have focused on the impact of particular demographic variables and also of certain economic performance outcomes, such as unemployment and inflation. Others have also investigated the impact on happiness of political performance measures, such as the efficiency of government services, the degree of civil liberties, or recently, the presence of a particular political system. If political systems have an impact on happiness, why should we not suppose that economic systems have a similar impact and, therefore, look for the key economic institutions that bring about such results?

Scholars have made little attempt to find such links between happiness and economic systems, and I suspect that most of them are dubious about such a relationship. By contrast, the issue of happiness and the type of capitalism is often raised in the popular media, and we find two main lines of speculation:

1. Ideological. Many left-wing commentators assert that happiness is greatest in “gentle welfare states,” such as those with a Nordic economic system, and is lowest in countries with a mostly Anglo-Saxon economic system with their alleged “dog-eat-dog” style of capitalism. Right-wing commentators assert the opposite, that the economic system of the Nordic nations stifles initiative and frustrates those who wish to improve their lives, while lasses-faire capitalism allows them to reach their greatest potential and thus become happier. The empirical analysis below provides little support for either view.

2. […]