Many American and British academics are highly dissatisfied with what they see as a business culture and its promotion by recent American and British governments, even by those who proclaim themselves to be centre left. Their dearest wish is to return to an agenda in which governments are mainly concerned with reducing income differences and sustaining social expenditure financed by the public sector. Whether a person thinks this way or not is partly a matter of personal and professional background. Even though statistical studies can be informative and help narrow differences, they do not settle the matter.

Prof. Robert H Frank, an economist at Cornell University, distinguishes himself from the majority of the anti-business culture advocates by the new insights he brings to the position and his rare ability to combine ideas from economics with ones from Darwinian psychology at a detailed, and not merely metaphorical, level. Frank's analysis should be just as interesting to those who do not share his political position as to those who do.

His starting point is a wealth of opinion survey studies which suggest that increasing real income does not itself make people happier. Income is not the only or most important factor in reported satisfaction. Health and family or personal relations always seem to come higher in most people's lists of influences affecting their well-being. Admittedly, within a particular country at a particular time, money does seem to help. Middle-income people report higher happiness levels than the poor; and the upper income groups report greater happiness still.

The snag is that these results do not apply to comparisons over time. In recent decades the average level of satisfaction does not seem to have increased as Western nations have grown richer. Moreover there is no systematic relation between average income levels and reported happiness, at least in the more affluent countries.

It is probable that the lack of relation between affluence levels and reported happiness applies only once a certain threshold of income is reached. The World Values Survey, directed by Professor Ronald Inglehard at the University of Michigan, does find some loose relationship over 50 countries between income and reported happiness.

Poor countries like Bulgaria, Moldova and Belarus come at the bottom of the list; and developed countries are in the top half. Income levels in fact appear to explain about half the international differences in happiness rankings. But if one examines more closely the affluent countries the Frank thesis appears to be vindicated.

There is obviously some quirkiness, or differential understanding of the question, among countries in the same income bracket. The ones with highest reported happiness are Iceland and Sweden in that order, even though they also have high reported suicides. The United States, with the highest income level, comes 13th in the happiness list, well below Britain which is ranked at number nine.

Robert Worcester of Mori has taken the analysis further and estimated a happiness index corrected for levels of GDP per head.* When that is done Bangladesh (before the recent floods) emerges top followed by Azerbaijan and Nigeria. A welfare economist should ask two hypothetical questions. If a Bangladeshi became acquainted with Californian lifestyles and had a choice between those and his own, which would he choose? And if a Californian had a choice between the two what would his preference be. It is only if the answer to both questions came out in favour of California that we could say that the west coast American is indisputably better off.

There are other approaches, not requiring so much abstraction. One is to say that happiness depends on relative rather than absolute position. In other words it is what the late Fred Hirsch called a positional good; and it is a pity that Frank and others do not mention his pioneering writings.+ Positional goods are of at least two kinds. One kind arises where there is a physical limitation to achievement. For instance not everyone can have a house with a good view. If they tried, the congestion on hilltops, as well as the induced ugliness, would be self-defeating. Another is where technology could provide us all with more, but where satisfaction depends on where one is in relation to other people. As Karl Marx wrote: "A house may be large or small; as long as the surrounding houses are equally small, it satisfies all social demands for a dwelling. But if a palace arises beside the little house, the house shrinks into a hut."

Liberal individualists have long preached against this obsession with relative position which they see as an obstacle to human betterment, and as a symptom of envy or resentment which should not influence public policy. Frank does make an important, if speculative, advance toward an understanding why this seemingly rational approach has not prevailed. He suggests that the urge to outperform ones neighbours derives from the struggle by males to attract as many females as possible in order to maximise the reproduction of their genes. But what is good for the individual may not be good for society - treating society here not as a collective abstraction but as simply the whole population of individuals concerned.

For instance, the growth of ever longer antlers may help an individual stag to find mates; but the cumulative effects of the drive to longer antlers is to make the whole species less efficient and less good at survival. For instance, the stag finds it increasingly difficult to make his way among the trees. Similarly with the peacock's long tail.

In the end there is an equilibrium where the advantage to the individual animal of growing larger appendages to attract females is offset by the threat to survival of going any further in this direction. But the result is likely to be a suboptimal equilibrium compared with what would happen if the individual animals could take into account of mutual interaction before the race began. It is a classical prisoner's dilemma.

A slightly more optimistic explanation is that it is not only relative or absolute levels of income which matter but rates of change. If this is correct the typical individual in a rapidly growing economy should be happier than in a stagnant one, even if the growing one is still not very affluent, while the other one is stagnant at a high level. This is a hypothesis of Peter Jay likely to feature in his forthcoming book. It needs empirical investigation and likely to be true only within certain limits. It may well be that, other things being equal, people in a country where GDP per head is growing at 5 per cent per annum feel happier than one that is growing by 1 per cent. But there must be some rate of growth at which the sheer nervous pace becomes self-defeating.

There is a good reason why Frank does not investigate these fascinating highways and byways. It is that he himself does not really believe that increasing income need fail to increase personal happiness. "All of us - rich and poor alike, especially the rich - are spending more time in the office and taking shorter vacations; we are spending less time with our families and friends; and we have less time for sleep, exercise, travel, reading, and other activities that helps maintain body and soul... Our highways, bridges, water supply systems, and other parts of our public infrastructure are deteriorating, placing lives in danger... A growing percentage of middle and upper income families seek refuge behind the walls of gated residential communities." Without such distortions there would be plenty of worthwhile uses for increased affluence.

I am not quite sure where he finds the root of these distortions. Early in his book they appear to come from the evolutionary male urge for competitive display. But later they seem to derive from well-known market failures. He emphasises that his is not a paternalist argument that the state knows best. It is the public goods argument that if an individual pays more tax the benefits are lost among millions while the harm is felt by himself.

Frank's remedy for these distortions comes as an anti-climax. It is a progressive consumption tax. Not that there is anything wrong with this idea if it can be implemented. As he remarks, it has been advocated by a wide variety of economists from many parts of the political spectrum. The suspicion arises because it is presented as a cure for all ills. The traditional argument was simply that an ordinary income tax is biased against savings and in favour of consumption. In an earlier book Frank presented the tax as a remedy for the "winner takes all" society. He now urges it as a remedy for the disappointing effects of higher GDP. It would indeed be surprising if profound evolutionary malfunctionings could be tackled merely by allowing taxpayers to write off net savings against their tax bills.

In any case there already exists in the UK a progressive consumption tax in all but name. Frank spends some time defending the case for progression against conservative critics. Indeed in the UK some economist supporters of Gordon Brown were disappointed that Tony Blair would not allow him to raise the top income tax rate above 40 per cent.

In fact anyone who pays at the 40 per cent rate will then have to pay indirect taxes on anything that he or she spends, whether it is a 17.5 per cent VAT rate, applying to services as well as goods, much higher rates on drink, tobacco and motoring, the council tax and many other levies. Thus we end up not very far from the 60 top per cent marginal rates advocated by Frank for those near the top, if not quite the 70 pc he would like to see for the highest rate of all.

One riposte to Frank is that economic policy should not be concerned with maximising happiness, which is altogether too subjective and problematic a notion. Instead of vainly trying to look for the kind of happiness that might be measured on a happiness meter, like a cat purring - it should try to satisfy to the greatest possible extend individual preferences as they emerge from market conditions, including the choice between work and leisure. Indeed an attempt to promote happiness directly could have the totalitarian results depicted by Aldous Huxley in his novel Brave New World,whose unfortunate inhabitants were made to take 'soma' pills to ensure that their reported happiness came up to standard. Such a naive approach invites the retort of John Stuart Mill that it is better to be Socrates dissatisfied than a pig satisfied. Some utilitarian philosophers have moved away from Bentham's concern with objectively measurable happiness towards the maximisation of individual choice. But even this can have authoritarian results - for instance a quite excessive emphasis on forced education for many years - on the argument that this will extend the range of choice which an individual be able to satisfy.

In the end it would be best to rest the case for democratic capitalism on the fact that no-one is forced to take part in the rat race or engage in conspicuous consumption. Eventually more and more people, even among internet millionaires, are likely to see the benefits of a more leisurely lifestyle. Well paid, but not exorbitantly paid, work, involving 30 hours a week rather than 80 hours, will eventually become available, if that is what able young people insist on having. Unlike stags, human beings can learn from each others experience, which may in the end persuade them of the futility of the race for ever longer horns. There are more self-adjustment mechanisms in human society than economists like Frank imagine, even though they work with painful slowness compared with the speed of electronically operated financial markets which now receive such disproportionate attention.

*Robert Worcester, Chapter in Demos, The Good Life, Dec 1998.
+F. Hirsch, Social Limits to Growth, Harvard, 1976