Emotions, Happiness and Growth : Spinoza, James, and Ramsey

This paper adapts the Ethics of Spinoza into the Ramsey growth model and shows that the way people conceive and understand life, related to emotions of joy and sorrow, affects economic performance. The model has multiple equilibria: The Spinoza solution — optimism — leads to greater capital accumulation, income and consumption levels, while William James's solution — pessimism — leads to a worse economic performance. The Ramsey model, where emotions balance, lies in between these two solutions, showing that the neoclassical growth model can be seen as a particular case of the Spinoza model. Finally, regarding the relationship between emotions and economics, in the Spinoza and William James solutions emotions and happiness are determined independently from economic variables. Only in the Ramsey case are emotions explained by income and consumption