The concept of the intrinsic

In this chapter we depart from the market's central, some say defining, characteristic, exchange, and deal with a cluster of concepts of a different order: intrinsic motivation, process benefits, internal rewards, satisfaction with procedures, and the enjoyment of activities that happen also to be means in any standard endsmeans relation. What these have in common is their focus on activities that are not undertaken for the usual categories of observable rewards but rather because they are rewarding in themselves. The particular focus of our attention is the enjoyment of working per se and the effect of payment on this enjoyment. Counterintuitively, it seems that payment for doing something one enjoys does not add to its utility or pleasure, but detracts from it. This undermining of economic utility has been called The Hidden Cost of Rewards, and we shall adopt this term.

By definition, activities that are satisfying in themselves do not depend for their full worth upon exchange value (how much the activity is worth in the market), nor from their “use value” in the conventional sense of the usefulness of the activities. Rather they derive their value in use by the actor. The satisfaction derived from intrinsically satisfying activities is yielded by an act of consumption, not production. Acts of consumption are not acts of exchange; rather they are normally the ultimate purpose of exchange and follow from exchange or from prior labor. But consumption of enjoyable work activities is different. Employees sell their labor and talent in the labor market and incidentally acquire the opportunity to consume the pleasure of working.

Why is it that summing utilities does not produce a total that is equivalent to happiness? Indeed, given their diversity, is it possible to sum utilities at all? And if they may be summed, can we avoid mixing the sources of utility, like income and commodities, with the consumption process that yields the final pleasure, that is, utility? In concluding Part VII on happiness, I cannot avoid these questions. In seeking to answer them, I am also adding to earlier discussions on how we may best understand the idea of happiness (Chapter 22), on the nature of wants and their satisfaction (Chapter 23), on the relation between pleasure and pain (Chapter 24), and especially on the various structures of happiness (Chapter 25). Indeed, the problem of summing utilities is a facet of the structure of happiness neglected by economists, but fortunately treated by utilitarian philosophers, some of whom, however, confound the idea of a happy life with the idea of a valuable life. In this chapter we seek to find reasonable answers to the questions raised by those discussions.

Summing market utilities

The summing of utilities is an analytic device, not a description of a cognitive process. People may “count their blessings,” but they do not count their utilities or their satisfactions. They do have two mental states that serve as substitutes, however: (1) summary views of their happiness or overall satisfactions with their lives that provide a strategic criterion of how a life plan is progressing, and (2) preferences that people treat in ordinal fashion to provide tactical criteria on smaller matters.

In the labor force of the mid-1980s almost everyone, except the roughly one-ninth who were either self-employed or in the agricultural sector, was an industrial or commercial employee working or seeking to work for pay. Here we examine the hypothesis that working people seek to maximize their pay. It is well known that, having other values and other considerations in mind, people who work rarely do adopt such a maximizing strategy, but it will be useful to explore the implications and limits of the pay maximization hypothesis, a hypothesis common among critics and defenders of the market alike. The hypothesis is not merely an economist's device employed for analytical purposes, for it is also a managerial belief actively guiding the government of firms. As part of the partially unconscious market ideology, the pay maximization hypothesis also affects a variety of behaviors and attitudes of which market participations are often unaware.

The main reason why the pay maximization hypothesis fails is that it does not take into account the relation between an external incentive such as pay and internal rewards based on the desire for personal control and self-esteem, desires whose objects are not always served by increased pay. The desire for pay is a proxy for these other motives.

About this book

The premise of this book is that the market should be judged by the satisfactions people receive as a consequence of their market experiences and by what they learn from them. I would substitute these criteria for the current criterion: efficiency in producing and distributing goods and services. That is, goods and services – and the income that purchases them – are only intermediate goods, whereas satisfaction or happiness and human development are final goods. I believe that the argument and evidence in the book are a challenge not only to market institutions but also to market economics and to the humanist and socialist critiques of markets.

The challenge is a fundamental one, for if the analysis is accurate it changes the very axis of debate that has dominated most of the twentieth century. That debate has dealt substantially with the relative merits of capitalist and socialist economies, the relative merits of markets and states in governing economies, and the best ways to achieve economic welfare. Although it may be that the capitalist–socialist argument is now moot, the arguments over the relative merits of markets and states and over the best ways to achieve economic welfare continue unabated. In this debate human development has hardly been seriously considered as a market purpose (in spite of brief acknowledgments by Marshall, Pigou, and others – to be discussed) and and has not been seriously investigated at all.

In contrast, I propose a wholly different debate, one that has a dual focus.

As I approach the end of my long exposition I address the promise of reforming economic institutions along the lines suggested in this book. What are the elements of culture and society that promote and retard these economic reforms? Selectively, I turn to underlying economic and ethical ideas, to values, practices, resources, and to the inherent features of the market that may favor the producer economy (Part V) and, beyond that, the broader goals of well-being and human development.

Ultimately (or penultimately, for materialists) it is ideas expressed in institutions that shape the market experience. Like many other institutions, the market can perform only as well as the intellectual disciplines that guide and criticize it. When medical practice followed the “doctrine of signatures,” ringworm was treated with fowl feces because the patterns of these feces resembled the pattern of the ringworm. Later, when medicine identified ringworm as a viral infection, the treatment changed accordingly. Similarly, without an adequate economic theory of market behavior, market institutions cannot cure their illnesses. And without adequate guiding theories, market institutions currently fail to achieve their own ends, facilitating utility maximization. (Human development is not acknowledged as an appropriate end by most market economists.) In Chapter 27 we found some fundamental causes accounting for people's misinterpretation of the sources of their own happiness; in like fashion we seek here some underlying causes accounting for the misinterpretation of the market experience by the disciplines that interpret and criticize it.

In this chapter we leave the problems of the market's influence on cognitive complexity and turn to the second of our criteria for human development, self-attribution. Because this concept refers to the sources of “control” of events, it is often called “personal control,” or “internal locus of control,” the latter abbreviated as internality. Internal locus of control is the belief by an individual that when he or she acts the environment responds; it is a powerful feature of personality, contributing to feelings of effectiveness, autonomy, subjective well-being, and to cognitive complexity. Self-attribution, like all attributions, is a form of cognition, the topic presented in Part II.

The thesis of this chapter is that there is a powerful causal connection between the emphasis on exchange in a market economy and the belief among market participants that they are endowed with an internal locus of control. The connection is both direct and indirect, the indirect route running from exchange through contingency, that is, a situation where benefits (or punishments) are contingent on the prior acts of the benefited (punished) person – to internality. There is also a partially independent route from ideas about the market (doctrine and ideology) to internality that is not wholly congruent with practices of exchange and contingency. The internality induced by exchange, contingency, and market ideology, in turn, offers strong support for cognitive complexity.

I first explain the character of internality, and follow with three kinds of market influences on this internality: exchange, contingency, and doctrine.

The purpose of this chapter is to explore the causes and consequences of what seems to be a reversal of the conventional wisdom: Individual differences in income level in any society explain few of the differences in life satisfaction, whereas crossnational differences, reflecting economic growth, account for substantial differences. In Chapter 7 I outlined some of the cognitive consequences of economic development; here, in the first section, we will discuss reasons for thinking economic development also increases the general sense of well-being. In the second section I introduce evidence on the minimal effects of individual higher income on subjective well-being. I try to account for this failed relation in the third section. Recent income changes are the exception to this lack-of-income–happiness relation, so in the fourth section I focus on these changes, especially as they may be caused by recessions. The next section is devoted to an account of why adaptation-level processes do not rob economic growth of its effect on well-being. In the last two sections we will explore further the meaning of money and we will speculate on the future of the “hedonic treadmill.”

The effect of economic development on subjective well-being

So far as we can tell at the close of the twentieth century, market economies generate economic growth better than any proposed alternative, but whether or not the resulting increased standards of living make people happier is contested. On the basis of an early cross-cultural study by Cantril, Easterlin says: “In all societies, more money for the individual typically means more individual happiness. However, raising the incomes of all does not increase the happiness of all.”

Armed with a definition of happiness and its allied concepts of satisfaction and a sense of well-being, and further equipped with a model for thinking about happiness and satisfaction, we turn to Koopmans's claim that in studying the market one studies “the best ways of satisfying wants in human society.” For this purpose, we must consider the nature of wants and wanting and the concept of satisfaction. It is then possible to assess three central problems: the role of the market in creating the wants it seeks to satisfy, the nature of the concept of “utility” that economists employ to express satisfaction, and the important question of the scope of the wants that enter – and fail to enter – market transactions.

Examining the claim: the best ways of satisfying human wants

Wanting and happiness

Psychologists treat wanting as a problem of motivation, economists as a matter of demand, philosophers as a problem of values and their justification. Synthesizing and borrowing eclectically, we might say that wanting is a mental state characterized by: (1) a desired object, (2) a sense of incompleteness or deficiency in the failure to attain that object, and (3) belief that satisfaction would follow from the attainment of the object (though not necessarily a belief that the object is attainable). Wanting is not a motive, but a condition for motivation.

The market analysts’ emphasis on the satisfaction of human wants is based on the belief that unrequited wants represent pain that is relieved when these wants are satisfied.

In this chapter I create a straw man with real bones and then produce a bonfire that disfigures him but does not wholly destroy him. The straw man is created in the first section by spelling out the full economic implications of hidden costs and intrinsic motivation; he is a horrid figure. Even in his charred condition he may be considered to be the modern version of the “spectre” that Marx thought he saw haunting Europe. The bonfire is represented by an item-by-item undermining of the force of the theory of hidden costs. We start by examining the difference between pay as information, which does not incur hidden costs, and pay interpreted as control, which does. We then look at some quite powerful self-rewards, other than desire for self-determination, that motivate work without either extrinsic rewards or hidden costs: for example, desire for excellence and desire to deal fairly. Unlike the situations where the intrinsic motivation is the desire for self-determination, when persons with these motives receive their pay, their work motives are not undermined. This section on self-rewards is followed by an examination of the role of choice in voluntarily work, an inquiry regarding just how much the desire for intrinsic rewards informs work motivation, and an exploration of other situations where pay is welcomed without producing a sense of being controlled.

The market costs of hidden costs

Some astonishing market implications follow from the idea that money rewards reduce enterprise in the free enterprise economy.

In previous chapters of Part VI and in Part V we have been concerned mainly with the effects of the market on learning and enjoyment of work (or of the personal and social consequences of market behavior). Here we reverse the causal flow and focus on the effects on the market of giving priority to intrinsic work enjoyment, but quite without benefit of the straw man with genuine bones discussed in Chapter 19. There are four sections: For an appraisal of the comparative advantages of giving work satisfaction priority over consumer satisfaction, we turn first to some problems of comparing consumption of work pleasures with acquiring money to provide for the subsequent consumption of commodities (and leisure). The second section is devoted to the problems of market allocation of the factors of production, particularly labor, when intrinsic work enjoyment rather than pay is the major attraction of work. We then consider the implications for the usual market formula where work is a disutility of assigning positive utilities to work, devising formulae for net utility (1) when work is a pleasure, (2) when there are hidden costs, and (3) when the sense of duty is satisfied by work. Finally, we offer a brief comment on the symbiotic quality of intrinsic and extrinsic rewards in the market.

In concluding the chapter we complete our discussion of intrinsic and extrinsic rewards with a glance back at the main lessons learned in Part VI.

The previous chapter's treatment of the way labor markets allocate the costs of improving learning in the workplace and allocate work positions in a stratified society, and how internal markets escape the pressures of the external market, prepares the way for more detailed treatment of the effects of three central aspects of the market: efficiency (the efficiency norm), competition, and the division of labor. We shall see how economic efficiency may actually frustrate social efficiency, and how competition, which we said in the previous chapter favored consumers over workers, is unlikely to become internalized by workers as a trait of competitiveness – because that trait is not rewarded by the market. The division of labor that favors the development of self-esteem (Chapter 10) has somewhat different implications when applied to knowledge – thus dividing workers between those with brawn and those with brains – but these are not the implications Marx thought he saw in the division of labor. Since the markets accelerate the division of labor, we must also ask whether the consequent specialism is a source of narrowed insight and interest depriving workers of a more wholesome “well-roundedness.” I conclude that the consequent specialism does not. The last part of this chapter is devoted to exploring why an economy that gives priority to workplace satisfactions and achievements, that is, a producer economy, is incompatible with market forces.

The efficiency norm

Market constraints on behavior are not self-enforcing; they require the kind of cultural support that makes the principles of the market appear both rational and moral.

Part II begins the analysis of market effects on human development, with only incidental references to our other desideratum, happiness. As mentioned, I have isolated three facets of development: cognitive complexity, a sense of personal control over the features of one's life, and self-esteem. Part II focuses on the first of these, cognitive complexity. It contributes to the overall themes of this book by illuminating both thinking and emotion in the market experience. The devotion of six chapters to this subject is justified by both the prominence of misleading concepts of rationality and the paucity of ideas of emotion in economic analyses. I seek to correct these deficiencies by substituting concepts of cognitive complexity and cognitive functioning for rationality and by showing the ways emotion and cognition interact in the analysis of transactions. Two chapters are devoted to the role of money in market behavior because of the centrality of money in market analyses and in economic behavior.

Before entering upon the analysis of actual thinking processes in the market, Chapter 3 explores the relation of the market to two kinds of idealized modes of cognition, rationality and cognitive complexity. We will discover that rationality, as it is usually employed in market analysis, is misleading even as an ideal, and damaging to analyst and “practionaer” alike when it is used descriptively as a way of understanding behavior. This chapter, then, is devoted more to what economists have said than to the way the market actually works. In Chapter 4 I turn to market functioning, introducing research reports to show how emotions influence cognition and vice versa.

Processes, such as those we have examined in the two previous chapters, require structures to guide and harness them; they need an organization of ideas, rules, and behavior to implement these guiding and harnessing structures. The market itself guides and harnesses much economic behavior, but it would frustrate our purpose and destroy our perspective to rely on the market structure to channel behavior that often belongs outside the market and often defies its rules. In this chapter I will borrow and invent other structures for our purposes. None are so grand as the market; they are ministructures to guide particular aspects of the analysis.

In this discussion I speak more of satisfaction with life-as-a-whole, or life satisfaction, than of happiness because of the frequent emphasis on cognitive processes (as mentioned, happiness is more of a mood) and because the analyses we rely upon more frequently use life satisfaction as the explanandum. With either happiness or life satisfaction as the focus of attention, it is appropriate that these structures should be psychoeconomic hedonic structures, ordering the relation of one pursuit to another, the effects of smaller scale moods and cognitions to overall happiness, the relation of central concerns to more peripheral concerns, the relation of the specific to the general, and the partitioning of the world into domains. We will start with the most important: If we think of persons rather than transactions as the core of the analysis, of human behavior rather than price behavior as the principal components of economic behavior, what sort of a structure would that imply? We start with that question.

This chapter first distinguishes between two concepts with overlapping meanings, rationality and cognitive complexity. Rationality is the concept employed by economists to analyze market behavior. As I will show, however, it is in fact a misleading ideal, even for their purposes, and not descriptive of actual market or any other behavior. Cognitive complexity is also an ideal, the ideal included as a prime element and goal in human development. Psychologists reveal in great detail how people fall short of this ideal. They do not employ it to describe behavior; rather they investigate actual behavior to discover the underlying principles that govern various kinds of behavior in various circumstances.

Following this analysis of meanings, I turn to some of its uses and a defense of the rational model, a specification of its inadequacy in general and in its application to the logic of collective action; I compare it to other forms of analysis with equal claim to rationality, point to the kinds of crucial decisions where it is unhelpful, discuss its failure to understand market learning, show some of the unhappy consequences for those who adopt it as a guide, and in detail show how the axioms of consumer behavior based on this rational model systematically undermine our understanding of market behavior.

The quality of persons analyzed in this chapter, self-esteem, was said by Rawls to be “perhaps the most important primary good.” In this he is in harmony with the contemporary concern for self-respect as a superordinate value, an end in itself. I shall take issue with this evaluation, suggesting that, instead, self-esteem is an instrumental good whose value depends upon its contributions to the two final or primary goods that we have identified as criteria for judging the market: happiness and human development.

As one might expect, self-esteem is closely correlated with self-attribution and internal locus of control discussed in the previous chapter. The similarities are obvious: Both imply favorable beliefs about the self, both are treasured features of an identity, and both are subject to perceptions distorted to favor a more flattering self-image. Just as self-attribution is said to be the most “profound” and “farreaching” cognition a person can adopt, so opinions about the self are said to be “the most treasured” of all our opinions. In dealing with these two aspects of the self, we touch the foundations of personality. The two aspects are also related to each other by their reciprocal support: The belief that when the self acts, the environment responds is certain to support self-esteem, and the belief that one is worthy supports the idea that one is an effective cause. Both are also closely related to the sense of well-being or happiness, but self-esteem has the closer relationship; indeed, measures of self-esteem may be substituted for measures of subjective well-being. These close relationships mean that as the market encourages and undermines self-attribution, it also encourages and undermines self-esteem.

Criteria for individual rationality

In Chapter 3 we saw the inadequacies of the economist's version of rationality and in Chapter 4 we developed a more sophisticated concept of cognitive complexity, one that seems to give a superior account of economic behavior. That later chapter also introduced us to some ways of thinking about emotional responses to economic stimuli and showed the interdependence of cognition and emotion in economic life. Now, following the analysis of the way money facilitates, and hinders, cognition in the market I seek to continue this treatment of money and to integrate several of these themes.

Economic rationality is a thin and unsophisticated version of cognitive complexity; it clearly enlists complicated cognitions but it is ignorant of the grounds for preferences, their relation to the deepest trends in a person's psyche, the way they change, and the way people match means to ends. Yet we need a realistic standard for decision making in the market, one that is judged not only by psychological standards but also on grounds of its efficiency in guiding a person to get what he or she wants. Here, for the limited purposes of this chapter, I take the liberty of devising such a standard and, so as not to sacrifice a useful word, will name it insightful rationality.

This invention permits us to get on with the substantive purpose of the chapter: to analyze how attitudes toward money affect the (insightfully) rational decisions that people make in their economic transactions. In Chapter 5 we saw how money, taken in its denotative sense as a sign, altered and usually improved people's cognitions about the market.