Aristotle, Kahneman, & Easterlin Agree: It’s Not About The Money
Beginning with Aristotle and proceeding on to more recent thinkers such as Kahneman and Easterlin, great minds have warned us against the folly of focusing on money. Let’s dig into the history of the investigation of the concept of wealth and how it relates to happiness.
Aristotle’s Theory Of Wealth & The Natural Economy
The famous Greek philosopher Aristotle dedicated his life to a broad-ranging investigation of the world, from natural science to ethics. In the process, he developed some of humanity’s earliest self-conscious ideas about economics. He considered the evolution of society and the origin of money. First, people would grow or capture or make the things they needed for themselves, and then they would begin to trade. They would store needed things for future use. Eventually, they would realize that it was inconvenient to always have to move physical goods around, so they would invent a useful tool — money. Money would allow for easy exchange of value, which seems like a good thing.
Never one to settle for a superficial explanation, Aristotle pondered the nature of money. Is it good? Well, we can see clearly that it is useful to aid people in making exchanges and planning to store needed goods. Aristotle saw that it was quite useful and healthy for a community or a city to create and store more goods than were immediately needed, in order to have them available in future times of possible scarcity. Money facilitates this, and when money is used this way, it is good. This, Aristotle asserted, is “The Natural Economy.”
However, money also creates other possibilities. While arbitrage is possible even in a barter system, money facilitates the possibility of buying high and selling low. Not appreciating the valuable signals “free market price discovery” gives to economic actors, Aristotle roundly condemned this practice. Authentic economic activity, according to Aristotle, was producing and buying and selling of goods and services at a parity price, such that no profit arises from trade. Arbitrage was, in Aristotle’s view, unnatural and not good. Accumulation of money and lending for interest was, in Aristotle’s view, also unnatural and not good. The medieval Catholic Church embraced this perspective and, informed also by the story of Jesus and the money lenders in the temple, banned usury (money lending) for Catholics. Aristotle also believed that storing more wealth than a person or community could conceivably use or need was unnatural and unhealthy.
The Easterlin Paradox
If having more money is good, we might expect having more money to make people happier. In the 1970s, University of Southern California Economics professor Richard Easterlin investigated the correlation between happiness and money. According to his studies, comparing citizens of one country to each other, the higher their income, the happier they were, as one might expect. But then came the surprising result: when comparing citizens of one country with the citizens of another country as a group, larger average incomes were not a predictor of happiness. The happiest nations were those with income falling in the middle of the distribution, not at the top. This was dubbed “The Easterlin Paradox,” although it’s not really a paradox, just a strong signal that other determinants of happiness are more significant than money. Later, he took a look at US data over time. While income in the US grew between 1946 and 1970, happiness was mostly flat and declined between 1960 and 1970.
Daniel Kahneman & The Income Threshold
Psychologist Daniel Kahneman won a Nobel Prize for Economics for his inter-disciplinary work in the field of behavioral economics in 2002. Several years later, in 2010, his investigation of income and happiness showed that money could indeed by happiness, up to a point. Analyzing 450,000 responses to a daily survey by Gallup of 1,000 US residents, Kanheman discovered that increasing income correlated with increasing happiness, up to a point. That threshold point, at the time of the survey in the United States, was $75,000. Income above $75,000 did not create measurable increases in happiness, although respondents with higher income did report higher subjective “life satisfaction.” So from day to day, their large income did not make them happier; their high-income status only made them more satisfied when they paused to reflect on their circumstances.
Kahneman concluded that once you reach an income of $75,000, “health, care giving, loneliness, and smoking are relatively stronger predictors of daily emotions.” But this conclusion was based on observed behavior. Perhaps there is a way we can change our behavior so that increases in income over $75,000 can yield further increaseases in happiness. The research of Thomas Gilovich suggests there may be away to leap right over that income threshold.
Gilovich: Leaping Over The Kanheman Threshold?
Psychologist Thomas Gilovich has looked into the relationship between purchases and happiness. He offers a suggestion that has the potential to move that threshold. After examining reported happiness and purchasing patterns, Gilovich concluded: “Experiential purchases, such as vacations, concerts, and meals out, tend to bring consumers more enduring happiness than material purchases, such as high-end clothing, jewelry, and electronic gadgets.” So perhaps income above $75,000 can increase happiness, if you spend it right.
Explore The Good Life With Rascal
Please join us as we continue on our conceptual journey to the heart of the art of the good life. You can follow our articles here on Medium if you have an account, or simply bookmark our Medium page or follow us on Facebook.
You can read more about the concept of money and its relationship to happiness in our article on “The Consumer Treadmill.” We’ll tell you about the most popular course in the history of Yale, Psychology and the Good Life, and how you can take it for free and show you a glimpse of one of the largest studies of happiness and how to find it from their peers at Harvard. Find out how you can add years to your life in our article on the benefits of yoga and let us tell you about what meditation can do to make you more productive and less stressed. Consider our musings on the Midas myth and the common themes of behavioral economist Tibor Scitovsky and the myth of Eros and Psyche. Want to get inspired? We’ve got an article on defining your life project. For insight into the struggle between happiness and perfection, check out our article on satisficers vs maximizers and Bruce Lee’s theory of the top dog and the underdog. We also consider some more abstract topics, like John Maynard Keynes thoughts on the art of life, or non-being and its place at the root of luxury, or the conceptual art color the blackest black, Vantablack. If you are a gourmet, you might want to check out these fine dining restaurants in Bali that could be contenders for a Michelin star. Enjoy!
