If we do not live in a happy society, why not? Do markets, indeed, make happy societies? The thesis of this chapter is twofold: First, the one source of happiness that is within the power of markets to give, money, is losing its power to make people happy. And second, the principal sources of happiness and unhappiness are market externalities, things that markets may casually ignore, make better, or make worse without endogenous correction. If markets facilitate choices, why, within our means, do we not choose the things that make us happy? The reason is that markets control the very values that inform these choices; markets create a market culture that guides (I would say misguides) the pursuit of happiness. What made people happy in earlier periods of scarcity, no longer does so.

In this chapter I will first give a portrait of a decline in happiness, marital satisfaction, work satisfaction, financial satisfaction, and satisfaction with one's place of residence in the United States for a quarter or a half century. These infelicitous trends are supported by an account of the rising tide of clinical depression in the United States and in most other advanced and rapidly advancing economies. After giving a brief analysis of what it is that makes people depressed and happy or unhappy, I will turn to the first thesis: the waning power of income to yield utility.

In Part V the concepts of cognitive complexity, personal control, and self-esteem developed in Parts II and III serve as criteria for assessing the role of work in a market economy. On the one hand, that role may be said to be the scandal of the market. In the world of work, we find uncertainty, anxiety, authoritarianism, waste of talent, and many lost opportunities that could have made work more fruitful. On the other hand, even now work is the market's principal contributor to both happiness and human development.

It is in work, not in consumption and, as research reports show, not even in leisure, where most people engage in the activities that they find most satisfying, where they learn to cope with their human and natural environments, and where they learn about themselves. The economists' ideas that work is the sacrifice or disutility that earns for workers the benefits or utilities of consumption is, I believe, quite false. But the idea that market forces systematically degrade work to increase profits is also false. What is true is that market forces systematically undermine worker satisfactions and learning in order to advance the interest, not so much of owners but of consumers. Consumers may not represent a ruling class, but they are sovereign and those who work are their subjects.

In the name of “efficiency,” consumer benefits are purchased by the burdens laid on workers. It is a “purchase” without a purchaser. The implied tradeoff between consumer welfare and worker well-being is not chosen. One reason is that the market cannot weigh many of these sacrifices because they are unpriced.

As stated in the introductory chapter, there are two maximands in economic life as there are in other aspects of life: a sense of well-being (happiness and satisfaction with life-as-a-whole) and human development. Whereas Parts II and III dealt with the relation of the market to the three elements of human development we have identified (cognitive development, a sense of autonomy and personal control, and self-esteem), Part IV begins the analysis of market effects on the other desideratum, a sense of well-being, with references to ethical problems and human development along the way.

The substantive features of the market experience that are given attention here are human relations and work, these two features representing the subjects that (in addition to the ethics of distribution) have been most severely criticized by market critics. The criticisms of friendship and work have different validities. In Part IV we find that the criticism of market influences on human relations is largely unjustified, whereas in Part V we will discover that the criticism of work in a market economy is trenchant and well conceived. Partly for that reason we will spend much more time on work than on human relations.

Chapter 11 takes up the specific arguments about how an institution whose central feature is exchange influences our interpersonal relations. I point out that in many ways the choices people make in market transactions are no different from other choices made in the ordinary course of social life, but there is a set of specific differences between market and other choices that helps to account for the alarm over exchange as a way of life.

In this penultimate Part VII we explore the concepts of utility, satisfaction, and happiness. Our target is the relation of these moods and thoughts to market institutions and practices. Koopmans reports that economists study “the satisfaction of human wants in human society,” and “the best ways of satisfying human wants.” Mises claims that there are no boundaries to economics, for “economic action consists in the endeavor to remedy the state of dissatisfaction” wherever it is to be found. Pigou states: “In the deepest sense, economic reality comprises states of mind – the satisfactions and dissatisfactions of human beings – and nothing else.” To this may be added the catechism of an economics text: “What is the economic system supposed to do? The answer that it should contribute to human happiness is as good a start as any.”

Certainly the market makes a contribution to the satisfaction of human wants, but as pointed out in the introduction to this part, there are reasons to doubt the effectiveness of the market in maximizing happiness. In order to clarify both the contributions and the failures of the market in these respects, we must first examine the nature of happiness and utility, explore their relationships to each other and to the market, and only then can we assess the claims of the economists.

I start this chapter with an exploration of the conditions necessary for the development of a theory of happiness as a contribution to understanding the strange association between economics and what we may call hedonics. The second major theme in this discussion deals with skepticism about both the possibility of happiness and the possibility of our knowing anything about it.

In the previous chapter we found that markets contribute to cognitive complexity largely through their influence on the kinds of work people do and their relief of poverty. On the other hand, firms often did not systematically reward complex cognition (often they could not afford to train for it) and they have not, until recently, banded together to give political support for a level of public education appropriate to its influence on the economy. In this chapter I continue the examination of market effects on cognitive complexity by turning to the influence of environmental stimulation and stress on cognition.

The market, as a source of both challenge and stress, by its very nature demands difficult cognitive responses. As a self-regulating system the market is not equipped to regulate or inhibit over stimulation. It has no terminal facilities for stimuli. There is no systemic brake or inhibition (except for individual choice) that might tailor demands to the variety of capacities among market participants. The thesis of this chapter is that market effects on cognition follow a curvilinear pattern whereby they first increase cognitive complexity by their challenges, innovations, and propensities for rapid change, and then often overload the capacities of their participants by their demands for complex cognitions. I first present evidence of curvilinearity in laboratory, field, and historical studies, then turn to evidence of market complexities leading to overload. After exploring some social consequences of this pattern, we will examine models where environmental complexities occur either simultaneously or in sequence, concluding with an examination of adaptive responses in these different circumstances.

The concept of market rationality discussed in the previous chapter assumes a kind of emotional neutrality (except for the anemic schedule of preferences) that is totally unrealistic. In the following discussion we turn first to the central role of emotions in the market economy and then to certain ways in which affect (emotions) and cognition influence each other, as when cognitive processes are called upon to define arousal or when, in reverse, a positivity bias changes perception. Research on emotions greatly alters our understanding of market satisfactions or utility. We then turn to the effects on emotions of market success and failure, followed by a discussion of the effects of good mood on market work and thought. The chapter concludes with a discussion of the relation between happiness and cognition, including speculation on whether rationality is really compatible with happiness, which is the ultimate maximization of utility.

Markets as theaters of emotion

If it be agreed that the theory of market rationality as an approximation to economic behavior is a mischievous fiction, what is to take its place? Some combination of emotion and cognition, no doubt, but the relation between these two is complex. We turn here to a few of the market relevant aspects of this relationship.

Affect and arousal are the most encompassing of the terms dealing with this general area; emotions refer to something more specific, like fear, or pity; mood refers to an affect without specific target. The market stimulates arousal and is saturated with emotion: pride and shame and guilt (the three emotions that are identity related); anger and aggression; self-love, the foundation emotion, as Adam Smith pointed out.

The wants whose satisfaction we discussed in the previous chapter are often a source of pain before they are satisfied. Should one then say that the market is primarily a pain-relieving mechanism or is it primarily a ministry of pleasure? Our analysis of satisfaction and dissatisfaction pointed out the benefits and healthy associations of dissatisfaction. But if dissatisfaction is painful, does this not suggest an asceticism (or martyrdom) that Bentham “took pains” to excoriate and that violates the basic utilitarian basis of the market? The unfinished business of the previous chapter leads to a further analysis of how the market deals separately and jointly with the pains and pleasures that fall within its reach.

To complete the discussion in Chapter 23 of the pains and pleasures that do and do not pass through the market we will start with the classic formulations of Jeremy Bentham, as these are supplemented by his modern empirical successors, showing again the limits of the market's reach. Since these formulations deal with the effects of circumstances on thought and behavior, they have to be supplemented by a further analysis of the internal properties that modify the hedonic effect of what the market presents. We are then ready for the main business of the chapter: How do individuals achieve a balance among these positive and negative stimuli and their internal representations? Toward the end of this discussion we find reasons for assigning the relief of pain to government and the provision of pleasure to the market – and reasons to modify that assignment.

In this chapter and the next I will focus on money. There are sound economic and psychological reasons for this focus. The economic reason for this attention to money, which Schumpeter said was “exalted” by the capitalist system, is that money is the medium for executing the market's central function: coordinating economic activity. The very concept of a self-regulating market requires monetary feedback, and the market's network of transactions depends upon the information that money prices provide. The coordinating function of the market would not work without it. But it is the cognitive function that is of concern here.

Whereas the concept of cognitive development employed in the previous chapters means the growing capacities of the mind to cope with increasingly complex events, cognitive facilitation means the removal of concepts or circumstances that inhibit such development and the use of conceptual technology that permits people to think more clearly about their problems. Money may contribute to cognitive development; I think it does, but it is primarily an instrument of cognitive facilitation, a tool for thinking, and, as we shall see, money may also be a fetter that constrains clear thinking.