What do people really care about: being rich, or being richer than their neighbors?
Of course, people care about a lot of things that have nothing to do with being rich. Just by logging on to Slate instead of using this time to earn an extra dollar, you've refuted the proposition that people pursue wealth the way sharks pursue food. Instead, we compromise between the pursuit of wealth and the pursuit of leisure, sometimes accepting less of one so we can have more of the other.
Besides wealth and leisure, there's a long list of other things we value. We like to avoid risk; we care about the qualities of our mates; we want our children to be happy. But wealth is one of the things we strive for, so it makes sense to ask how we measure success in that dimension.
One hypothesis is that it's only your raw wealth that matters--a million dollars will make you happy regardless of whether it's half or twice what your neighbor has. In other words, you measure the value of your wealth by what you can buy with it. The alternative hypothesis is that you also care about your place in the pecking order.
If only raw wealth matters, your hard-working neighbor is no threat to you. He keeps what he earns, you keep what you earn, and you can each decide whether you'd rather earn more money or enjoy more leisure. On the other hand, if people care about the pecking order, you and your neighbor can get involved in a costly and futile "arms race," sacrificing valuable leisure in your mutually frustrating efforts to be the top earner on the block.
To put this in perspective, imagine that we could all agree to take an hour off from work this week. Under the "raw wealth" hypothesis, there's no advantage to that agreement. After all, you were always free to take an hour off. But under the "pecking order" hypothesis, the agreement could serve as a sort of "arms control" that leaves everyone better off by preserving our relative positions while freeing up some extra time for leisure. But any such agreement would be impossible to enforce, which (if the "pecking order" hypothesis is true) is a failure of the marketplace.
Which hypothesis is true? Economists traditionally have assumed that relative position does not matter, and noneconomists traditionally have scoffed at that assumption. The scoffers point to medieval monarchs who earned less (in real terms) than today's average American; nevertheless, by the standards of their contemporaries, they lived--literally--like kings. It's easy to imagine that ruling all of 15th-century England brought greater satisfaction than does, say, the life of a modern certified public accountant.
But when something is easy to imagine, it's often because your imagination is limited. In this case, your vision probably has neglected to include the disease, monotony, and isolation of medieval life. I think it not at all unlikely that Henry V would have traded his kingdom for modern plumbing, antibiotics, and access to the Internet.
Here's another reason to be skeptical of the hypothesis that people care deeply about how their income compares with others': I've never met anyone who subscribes to the analogous theories about leisure or risk. Do you care about the length of your vacation, or about whether your vacation is longer than your neighbor's? Do you care about how well your air bag works, or about whether you've got the best air bag in your neighborhood? In each case, surely it's the former. But if we feel that way about leisure and risk, why would we not feel that way about income?
On the other hand, if you really believe that people care about wealth only for what it will buy them, it's hard to explain why Bill Gates gets up and goes to work in the morning. Surely it's not because he's afraid he'll run out of money? But it just might be because he's afraid he'll lose his No. 1 ranking in the Forbes 400. (Though here I'm tempted to respond that it's a mistake to generalize about human behavior on the basis of a few extraordinary individuals who probably--and quite atypically--love their work.)