VEBLEN GOODS AND INEQUALITY

 Thorstein Veblen was an eccentric American economist who lived from 1857-1929. In 1899, he published a book entitled THE THEORY OF THE LEISURE CLASSES. The book was a devastating attack on many of America’s wealthy, particularly New York high society.

In some ways, he was the first person to blend sociology with economics plus some psychological factors such as status seeking. The rich, he proposed, did not buy many things out of need but oftentimes to show their wealth and status. In the book, he dubbed this behavior as “conspicuous consumption”.

Over the years, this has trickled down to the middle classes who sometimes make pricey or unneeded purchases to “keep up with the Joneses.” 

Nowadays, marketers have a term for some types of luxury goods. They have dubbed them “Veblen goods.” A Veblen good is one that has increased demand as the price increases. This is an apparent contradiction of the law of supply and demand, but Veblen would have said that they are desirable as a status symbol hence they qualify as conspicuous consumption.

Today, the Veblen good list includes such items as:

Fine Wine

Fine Art

Wildly expensive luxury cars

Luxury Watches

Designer Clothes & Jewelry

People who do not have hugely discerning palates often buy expensive wines to impress people (another group buys them as an investment and pays for storage and upkeep and eventually sell them as a capital gain).

The same thing is true of some expensive art.

Many Veblen purchases are due to the “snob effect.” People buy certain goods that have an inverse relationship to the demand of people with a lower income level.

One personal observation that I have seen over my life is that Veblen goods are usually purchased by the noveau-riche. Those with generational wealth may have some Veblen goods but they came by it differently than recent purchasers. I have seen several gentlemen with ancient Rolexes. When someone admired their watch, a quick response was something like: “this was my grandfather’s and he passed it on to me.” A lady or two with a large diamond ring or necklace would say, “my grandmother left me this.” As a kid, old money that I encountered drove old station wagons and wore attractive clothes with no logos. They operated under the radar, never talked money, and avoided the flashy and trendy.

Well, in 2010, American economist Nathan Pettit wrote that he felt conspicuous consumption helped cripple markets during the 2008 financial markets. To me, it did not help but I saw the cause as more keeping up the Joneses and having overextended credit card balances and mortgage payments that many could not meet when a job was lost. 

Today, the gap between the haves and the have-nots has rarely been wider in the United States. The bottom half of the US citizenry is struggling to pay for gasoline and groceries. The average first time home buyer is 40 years old. It would be nice if some toned down their display of Veblen like goods. Fanning the flames of jealousy and envy could encourage some social unrest in the future.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.