Thorstein Veblen Consumerism Theories
Thorstein Veblen was an economist and sociologist that examined human consumption. His interest lay in understanding how economics, culture, and society interacted with each other. His principal basis was that individuals made economic decisions to display their wealth and place in society as opposed to making economic decisions that were more purposeful, an idea he coined as "conspicuous consumption." Best known for coining this term in his 1899 book The Theory of the Leisure Class, which covers a variety of aspects of economics and human behavior and underlines the idea of a shift in society from the economics of production to the economics of consumption. The idea is that the leaders of society show their power and status not by leading or creating but rather through conspicuous wastefulness.
Veblen was interested in the relationship between the economy, society, and culture. He analyzed the social order and believed that people made purchases to signal their economic status and accomplishments to others.
Veblen critiqued the consumption habits of the wealthy and questioned their values. He coined the terms “conspicuous waste” and “pecuniary emulation” (striving to meet or exceed someone else’s financial status).
Veblen’s theories created the concept of a “Veblen good,” which refers to a product whose demand increases as its price increases because consumers consider it an exclusive status symbol. Veblen believed that limits on production by businesses to raise profits contributed to problems such as unemployment. Veblen's theories became a major foundation of 20th-century critiques of consumerism and for-profit capitalism.
Because of Veblen’s analysis, we have the concept of a Veblen good, a product whose demand increases as its price increases because consumers consider it an exclusive status symbol—in other words, a product that is consumed conspicuously.
Veblen goods are designer, luxury items with a strong brand identity. They are not sold in regular stores and are highly coveted. Consumers perceive them as being more valuable because of their higher prices. Examples of Veblen goods are Rolex watches or the latest model of the iPhone. These goods are priced so high that only the very affluent can afford them. The higher the prices of the goods, the less likely it is that other consumers can afford them, and buyers begin to perceive them as a way to signal great wealth and success. If a Veblen good's price decreases, demand will decrease because status-conscious consumers will see it as less exclusive.
Veblen considered this conspicuous consumption to be inherently wasteful because of the large real cost of producing Veblen goods. If lower-cost means of signaling social status could be employed, then the resources consumed by the production of Veblen goods could instead be used to produce more urgently needed goods and services.
Along with conspicuous consumption, Veblen criticized charitable activities of the rich and conspicuous leisure (non-work time devoted to consumption activities), from which his book draws its title. Veblen's theory is an important part of the critique of consumerism.
Parallel to his critique of consumer culture, Veblen was also a critic of production for profit as wasteful both in that it encourages conspicuous consumption and because it also often involves reducing productive output in order to raise prices and profits. He believed that limits on production by businesses to raise profits contributed to problems such as unemployment.
Old American institutional economics, founded in part by Veblen, should not be confused with the New Institutional Economics associated with economist Douglas North and others, which focuses on how rational individual economic action is influenced by the institutional setting in which it takes place.
Veblen's other major contribution was the development of American institutional economics. Rejecting what he saw as the static view of mainstream economics, which focused on individual action and market equilibrium, Veblen instead believed that economic behavior was socially determined based on a process of the historical evolution of social institutions. Human biological instincts and psychological tendencies, in turn, shape these social institutions.
There is a difference between conspicuous leisure and conspicuous consumption. Conspicuous consumption focuses on purchasing goods and services to demonstrate wealth while conspicuous leisure focuses on behaviors and activities that display wealth.