By Robert E. Lane
In a period when market economies are widely recognised as the most desirable form of economic organisation, The Market Experience offers evidence that the major premises of market economics are mistaken. Robert Lane shows that work, far from being a disutility, as economic theory would have it, is instead one of two major sources of lifetime satisfaction, and that money income, despite being a source of utility that compensates a person for his or her sacrifices at work, contributes very little to a sense of well-being. This reversal of the premises of market economics suggests a major, axial shift in the way we think about our economies.
About Robert E. Lane
Robert E. Lane (1917-2017) was an American political scientist and political psychologist. He was the Eugene Meyer Professor Emeritus of Political Science at Yale University. Lane taught there for nearly 50 years; during that time, he twice headed the department and helped lead the shift towards behavioralism.
Peter E. Earl on The Economic Journal wrote:
"He argues not simply that markets are bad or socialism good but that all of our standard criteria for judging the market are wrong. We should not evaluate the market on the terms upon which both its supporters and opponents agree, namely, whether it does or does not provide economic well-being through the production and distribution of goods. Rather, we should evaluate it on precisely the terms that the counterculturalists struggled (mostly unsuccesfully) to enunciate, namely, whether it enhances life satisfaction and human development through the process of working, creating, interacting and desiring. [...] Throughout the book, Lane refuses either to condemn or praise markets in simple terms. They are good at producing self-attributions (which are emotionally desirable even if empirically mistaken); they are misused to equate happiness with more money (above a certain level of well-being); their relation to self-esteem is complex. In general, markets do better at things they are not designed for (creating meaningful work and mutually satisfying interactions) than things designed for (inducing people to work hard at hated jobs for monetary rewards). [...] Politics is almost totally absent from it. Lane hardly mentions the role of political institutions in shaping markets or in choosing among alternative systems of production and distribution. He barely refers to the role of markets in determining who gets political power or what people with political power can do in a given society."
Neil Fligstein on The American Journal of Sociology wrote:
"Robert Lane's massive book deserves to receive considerable attention from labour economists as well as anyone interested in an up-to-date perspective on questions about the well-being/affluence relationship explored by Richard Easterlin, Fred Hirsch, and Tibor Scitovsky in the I970s. It is also likely to become a standard reference on reading lists in behavioural and psychological economics. [...] . Without the excellent introduction and the summaries that Lane provides at the end of each chapter, it would be easy for readers to end up totally failing to see the wood for the trees: the book is so long and the layout so heavily sectionalised as to make it exhausting to read. [...] The other major frustration of this book is that Lane does little to suggest how his analysis might be used as an aid to policy formation."
Karl-Erik Warneryd on Journal of Economic Psychology wrote:
"At the basis of his critique is a psychological model of action whereby individuals' pursuit of happiness is affected by both affect and cognition. [...] The interesting question he poses based on this view of human behavior is, What do people get in their encounters with markets? He assumes, like economists, that people strive for happiness and satisfaction (i.e., utility). It turns out that people get happiness from their friends, family, and feelings of efficacy in the world (chap. 25). From their role as consumers in the market, they get material satisfaction, but not happiness. [...] His very complex argument is corrosive of economics in a number of ways. [...] Lane ends the book by arguing that public policy should be more concerned with providing more meaningful work. Unfortunately, his psychological theory and evidence undermine this prescription."
"This is a difficult book to summarize in a satisfactory way. Lane discusses very complex phenomena, presents a lot of arguments and data from earlier studies, and weighs the evidence very carefully, sometimes refraining from stating explicitly the conclusions to be drawn. I hope that this review convincingly shows that it is a very interesting and rewarding book to read. Lane demonstrates the limits of the market, but he certainly does not reject the market. I do not interpret the book as meant to be a severe critique of economic theory, but it points out inconsistencies and inadequacies. Lane’s view of the market should not be confounded with the humanist and socialist criticisms of the market. He criticizes and rejects much of these criticisms as unfounded or beside the point. The better use of available knowledge can lead to better theory that can be used for better policy-making with regard to the market. [...] My feeling is that both psychologists and economists will find this book provocative and stimulating to read, with its succinct summaries of theories and empirical studies."
Table of Contents + Summary of Book Parts
"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."
- 3 - The costs of rationality
- 4 - Affect, cognition, and well-being in a market economy
- 5 - Money and cognitive complexity
- 6 - Money symbolism and economic rationality
- 7 - Economic and cognitive development in a market society
- 8 - Environmental complexity and cognitive complexity
"The criteria for a successful market are its contributions to happiness (or utility) and to human development. Human development, in turn, is composed of the cognitive complexity we examined in Part II and of two other elements: a sense of personal control (which is based on self-attribution) and an appropriately high sense of one's own worth, self-esteem. Here in Part III I deal with these two additional elements of the developed personality, treating them more briefly than was thought necessary for cognitive complexity.
Chapter 9 relates the development of a sense of personal control to exchange, claiming that market exchange is the kind of contingent response situation that teaches people that when they act the environment responds. From such experiences of effective action people learn self-attribution, that is, that they are the (partial) causes of the events in their own lives. The correlates of a sense of personal control give it a high status among the elements of a developed personality, but the implied belief that each person controls his or her own fate risks both a false view of causal forces in the environment and an unattractive ethical perspective in which victims deserve their victimization. By itself, therefore, a sense of personal control, enlisting self-attribution as it does, is not a final good. In Chapter 10 I take up the self-esteem that Rawls has called the most important of the primary goods."
"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 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."
- 13 - Learning at work: beyond human capital
- 14 - Degradation of work in the market?
- 15 - Distributing workplace learning
- 16 - Giving work priority over consumption
"People do not work for “nothing,” but what they do work for is often not just the pay they receive. Rather, they may work for the pleasure they find in their working activities, a pleasure that Juster has found to be generally greater than people's pleasures in their leisure activities. They may work because meeting the challenges at work increases their sense of personal control, or out of a sense of duty, or because of a pressing need to achieve some high standard of excellence. Wherever their motives may be, people evade the market's focus on exchange, for these motives are satisfied by internal rewards that do not depend upon exchanging money for work. When people work for these self-rewards and not for any apparent external rewards, they are said to be working because of intrinsic motivation and thus working for intrinsic rewards.
Part VI is devoted to an exposition of the nature of such motivation, the kinds of internal self-rewards enlisted, and the consequences for the market of work not motivated by market rewards. These consequences are substantial. In the first place, they destroy the formula on which economists rely: The utility of pay is compensation for the disutility of work. Where work is a positive utility, this formula clearly will not do. Then, substantively, these intrinsic rewards make it impossible for levels of pay to serve as the allocators of human resources, thus upsetting the calculations that are the guarantors of efficiency in the market."
- 17 - Maximizing pay: costs and consequences
- 18 - Hidden costs of rewards and intrinsic satisfaction
- 19 - The limits of hidden costs in the market
- 20 - Intrinsic values: a balance sheet
- 21 - The economics of the intrinsic
"I have suggested two maximands for the market: human development and happiness. Our discussion up to this point has focused more on the conditions of human development (specified as cognitive complexity, personal control, and self esteem) than on happiness, although inevitably hedonic states have entered the analysis. It could not be otherwise. Even though the two goods are separate, the discussion of each implies acknowledgment of the other. When they conflict, that conflict must be noted and the usual alternative basis for support, ethics, must be shown to be supportive. When they are congruent, the hedonic rewards of developmental processes are important incentives for engaging in those processes.
It is for these reasons that there have been many references to hedonic moods in the interpretations of the market experience. Thus, the development of cognitive complexity by the market was placed in the context of joy and sorrow as well as such emotions as pity, guilt, or anger. The hopes and fears stimulated by money symbols are freighted with hedonic implications; insecurity obviously influences happiness as well as the thinking processes noted; one protects one's sense of personal control and self-esteem because one feels unhappy at their loss; we do not object to unemployment solely because of the waste of human resources but also because it makes people miserable; the inability of a system of exchange to comprehend intrinsic motivations is a defect because it deprives people of important pleasures; the frequent failure of money to promote happiness is itself a failure whether or not it also distorts market choices. Over the long journey to this point we have inevitably touched on happiness, the subject of Part VII."
- 22 - Understanding happiness
- 23 - Markets and the satisfaction of human wants
- 24 - Pleasure and pain in a market society
- 25 - Markets and the structures of happiness
- 26 - Buying happiness
- 27 - Misinterpreting happiness and satisfaction in a market society
- 28 - Summing utilities and happiness