Markets, Productivity, and Happiness in a Historical Perspective

Toward a classical-Keynesian approach to happiness and wellbeing

Knell Mark, NIFU Nordic Institute for Studies Innovation, Research and Education

In a paper on "Paradoxes of Happiness in Economics," Luigi Pasinetti alluded to a Classical-Keynesian view of the common good and public happiness. He suggested the Keynesian principle of effective demand and classical theory of value and distribution might provide a better approach to happiness and wellbeing. The goal of this essay is to examine two issues related within classical and Keynesian theory as interpreted by Adolph Löwe: the use of utilitarianism in classic theory and the reversal of the economic problem in Keynes and Löwe. We then apply these issues to happiness and wellbeing. Lowe (1965) reversed the economic problem between economic means and social ends so that the desired macro-goal or policy objective becomes the basis of analysis, and the objective is to identify the economic means most suitable for achieving the desired macro-goal. To generate goal-adequate behavioral and motivational patterns, he first establishes macro-goals or objectives and then determines appropriate economic environments. The application of this method to Keynes’ principle of effective demand provides a simple example. Rather than using the level or change in autonomous expenditures and the multiplier to determine the level or change in output, Lowe starts with the macro-goal of full employment as the starting point, and then searches for ways to achieve this goal given the principle of effective demand and the variability of economic motivations and behaviors. A 'logic of economic goal-seeking' replaces the 'logic of social choice' for explaining how the market economy works. Economic goal-seeking reverses the traditional role of micro-economics in macroeconomics, allowing a diversity of ‘micro’ institutions and behaviors to explain the motions of the economy. In this paper we focus on the classical theory of growth and Adam Smith´s critique of Bentham and utilitarianism. Following Pasinetti, the paper will then suggest a ´Cambridge´ approach to happiness and wellbeing that differs from traditional neoclassical approach and offers an alternative measure of wealth and GDP.


Keywords: Classical theory; Keynesian; Adam Smith; wellness; happiness

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