ABSTRACT
This chapter analyzes free market institutions from a utilitarian or happiness point of view. Market institutions stimulate mankind to exploit their talents and motivate man to economic activities that are favorable to the happiness of all. However, whether free market institutions increase the happiness in society has not been proven theoretically and should be settled by empirical research. Welfare theory has only proven that perfect markets are efficient in the sense of Pareto optimality (see Chapter 3). In this chapter, we first discuss the cross-country relationship between free markets (measured by economic freedom) and income per capita. Then we deal with the question of whether income increases happiness (as measured by subjective well-being). In Section 4.3 we analyze the relationship between free market institutions and happiness. Fourth, we analyze the effect of economic freedom on dimensions of quality of life other than subjective well-being. In the last section, we compare the explanatory power of the neoliberal, neoclassical and Keynesian schools in describing human development.
