Conspicuously consume this!

More than a century ago, Thorstein Veblen’s presented his theory of conspicuous consumption (as part of his Theory of the Leisure Class)—an idea that is as applicable today, in the midst of the Second Gilded Age, as it was then.*

But not for Robert Frank, who reduces Veblen’s theory to so-called Veblen goods, which is the idea that demand for some goods increases as prices go up, thus contradicting the usual neoclassical presumption of downward-sloping demand. Frank’s view is this is evidence of craziness—and the super-rich aren’t crazy.

OK, they’re not crazy. But that’s not what Veblen argued. His theory was that, in modern times, in a system of private property and industrial production, all income groups are caught up in “invidious distinction” and “pecuniary emulation.”

So soon as the possession of property becomes the basis of popular esteem, therefore, it becomes also a requisite to the complacency which we call self-respect. In any community where goods are held in severalty it is necessary, in order to his own peace of mind, that an individual should possess as large a portion of goods as others with whom he is accustomed to class himself; and it is extremely gratifying to possess something more than others. But as fast as a person makes new acquisitions, and becomes accustomed to the resulting new standard of wealth, the new standard forthwith ceases to afford appreciably greater satisfaction than the earlier standard did. The tendency in any case is constantly to make the present pecuniary standard the point of departure for a fresh increase of wealth; and this in turn gives rise to a new standard of sufficiency and a new pecuniary classification of one’s self as compared with one’s neighbours. So far as concerns the present question, the end sought by accumulation is to rank high in comparison with the rest of the community in point of pecuniary strength. So long as the comparison is distinctly unfavourable to himself, the normal, average individual will live in chronic dissatisfaction with his present lot; and when he has reached what may be called the normal pecuniary standard of the community, or of his class in the community, this chronic dissatisfaction will give place to a restless straining to place a wider and ever-widening pecuniary interval between himself and this average standard. The invidious comparison can never become so favourable to the individual making it that he would not gladly rate himself still higher relatively to his competitors in the struggle for pecuniary reputability.

Within such a system, those at the top—the leisure class—have both the interest and means to separate themselves from everyone else, thus demonstrating their superior role. They accomplish this through conspicuous consumption.

The quasi-peaceable gentleman of leisure, then, not only consumes of the staff of life beyond the minimum required for subsistence and physical efficiency, but his consumption also undergoes a specialisation as regards the quality of the goods consumed. He consumes freely and of the best, in food, drink, narcotics, shelter, services, ornaments, apparel, weapons and accoutrements, amusements, amulets, and idols or divinities. In the process of gradual amelioration which takes place in the articles of his consumption, the motive principle and proximate aim of innovation is no doubt the higher efficiency of the improved and more elaborate products for personal comfort and well-being. But that does not remain the sole purpose of their consumption. The canon of reputability is at hand and seizes upon such innovations as are, according to its standard, fit to survive. Since the consumption of these more excellent goods is an evidence of wealth, it becomes honorific; and conversely, the failure to consume in due quantity and quality becomes a mark of inferiority and demerit.

That’s perfectly consistent with Frank’s idea that the super-rich aren’t crazy. Not at all. In fact, the tiny group at the top spend a lot of time (or purchase from others a lot of time) figuring out exactly what are “the best” of all the commodities available in the global marketplace. It’s not that they buy the goods because the prices are high. It’s because the prices are high, they can make sure their consumption of those goods places them at the top of the ladder, out of the reach of everyone else. And the rest of us are then supposed to stand in awe of their discerning consumption, which is made possible by their predatory behavior.

That’s how I, with the assistance of Veblen (and evidence from the same newspaper in which Frank’s column appears), interpret the growth in the demand for the “largest, most expensive private jets” and “megayachts.”

 

*Applicable, as it turns out, with one key difference: the leisure class today—let’s call them the 1 percent—derives a larger percentage of their income from “work” (e.g., CEO salaries) than did their predecessors, who relied almost entirely on returns from ownership of wealth.