Conspicuous consumption

The sociologist and economist Thorstein Veblen coined the term "conspicuous consumption", and was a pioneer of the institutional economics movement.

Conspicuous consumption is a term used to describe and explain the consumer practice of purchasing or using goods of a higher quality or in greater quantity than might be considered necessary in practical terms.^[1] More specifically, it refers to the spending of money on or the acquiring of luxury goods and services in order to publicly (i.e., conspicuously) display the economic power of one's income or accumulated wealth. To the conspicuous consumer, such a public display of discretionary economic power is a means of either attaining or maintaining a given social status.^[2][3]

The term was coined by Thorstein Veblen. The development of Veblen's sociology of conspicuous consumption has since produced the terms invidious consumption, the ostentatious consumption of goods to provoke the envy of other people; and conspicuous compassion, the deliberate use of charitable donations of money to enhance the social prestige of the donor with a display of superior socio-economic status.^[4]

The concept of consumerism stems from conspicuous consumption.^[5]

History and development[]

The economist and sociologist Thorstein Veblen (1857–1929) introduced the term "conspicuous consumption" in 1899 in his book The Theory of the Leisure Class: An Economic Study in the Evolution of Institutions. Veblen described the behavioural characteristics of the nouveau riche ('new rich') social class which emerged as a result of capital accumulation during the Second Industrial Revolution (c. 1860–1914).^[6] In that 19th-century social and historical context, the term "conspicuous consumption" applied narrowly in association with the men, women, and families of the upper class who applied their great wealth as a means of publicly manifesting their social power and prestige, either real or perceived.

According to Veblen, the strength of one's reputation is in direct relationship to the amount of money possessed and displayed; that is to say, the basis "of gaining and retaining a good name, are leisure and conspicuous consumption."^[7]

In the 1920s, economists such as Paul Nystrom (1878–1969) proposed that changes in lifestyle as result of the industrial age led to massive expansion of the "pecuniary emulation."^[8] In other words, it had induced in the mass of society a "philosophy of futility" that would increase the consumption of goods and services as a social fashion—i.e., an activity done for its own sake. In that context, commentators discuss "conspicuous consumption" either as a behavioural addiction or as a narcissistic behaviour, or as both, emphasising the psychological conditions induced by consumerism—the desire for the immediate gratification of hedonic expectations.^{[citation needed]}

Adapting Vablen's work, James Duesenberry in 1949 proposed what he described as the "demonstration" or "bandwagon" effect. According to Duesenberry's theory, a person's conspicuous consumption psychologically depends not only upon the actual level of spending, but also depends upon the degree of his or her spending, as compared with and to the spending of other people. That the conspicuous consumer is motivated by the importance, to him or to her, of the opinion of the social and economic reference groups for whom are performed the patterns of conspicuous consumption.^[9][10]

Recent development[]

Under Veblen's theory, conspicuous consumption was theorized to comprise socio-economic behaviours practiced by high wealth or high-income people; as something exclusively for the rich.^[8] However, more recent economic research indicated that conspicuous consumption is in fact less common among the affluent and more common among lower-income groups, regardless of racial or ethnic background, and also common to the societies of countries with emerging economies: "It signals that the owner came from a poor group and has something to prove."^[11]

In The Millionaire Next Door: The Surprising Secrets of America's Wealthy (1996), Thomas J. Stanley and William D. Danko reported that Americans with a net worth of more than $1-million are likely to avoid conspicuous consumption, and that millionaires tend to practice frugality—for example, preferring to buy used cars with cash rather than new cars with credit, in order to avoid material depreciation and paying interest for a loan to buy a new car.^[12]

Consumerism theory[]

The concept of consumerism has been derived from conspicuous consumption. As proposed by Thorstein Veblen in the 19th century, conspicuous consumption explains the psychological mechanics of a consumer society, and the increase in the number and the types of the goods and services that people consider necessary to and for their lives in a developed economy.

Supporting interpretations and explanations of contemporary conspicuous consumption are presented in Consumer Culture (1996) by Celia Lury,^[13] Consumer Culture and Modernity (1997) by Don Slater,^[14] Symbolic Exchange and Death (1998) by Jean Baudrillard,^[15] and Spent: Sex, Evolution, and the Secrets of Consumerism (2009) by Geoffrey Miller.^[16] Moreover, D. Hebdige, in Hiding in the Light (1994), proposes that conspicuous consumption is a form of displaying a personal identity,^[14][17][18] and a consequent function of advertising, as proposed in Ads, Fads, and Consumer Culture (2000), by A. A. Berger.^[19]

Each variant interpretation and complementary explanation is derived from Veblen's original sociologic proposition in The Theory of the Leisure Class: that conspicuous consumption is a psychological end in itself, from which the practitioner (man, woman, family) derived the honour of superior social status.

Materialism and gender[]

A 2013 study by academics Brenda Segal and Jeffrey S. Podoshen found significant differences between the male and female genders relating to conspicuous consumption, materialism, and impulse buying.^[20] The study analysed survey data from 1,180 Americans. The results showed that men scored higher for both materialism and conspicuous consumption. The study also suggested that women were more likely to impulse buy. However, no noteworthy differences were found relating to brand loyalty.^[20]

Distinctions of type[]

The term conspicuous consumption denotes the act of buying many things, especially expensive things, that are not necessary to one's life, done in a way that makes people notice the buyer's having bought the merchandise.^[21] Scholar Andrew Trigg (2001) defined conspicuous consumption as the behaviours whereby a man or a woman can display great wealth, by means of idleness—expending much time in the practice of leisure activities, and spending much money to consume luxury goods and services.^[22]

Conspicuous compassion, the practice of publicly donating large sums of money to charity to enhance the social prestige of the donor, is sometimes described as a type of conspicuous consumption.^[4] This behaviour has long been recognised and sometimes attacked—for example, the New Testament story Lesson of the widow's mite criticises wealthy people who make large donations ostentatiously while praising poorer people who make small but comparatively more difficult donations in private.^[23]

Conspicuous consumption can take form for various reasons, including:

• Demonstration/bandwagon effect — In the book Income, Saving and the Theory of Consumer Behavior (1949), James Duesenberry proposed that a person's conspicuous consumption psychologically depends not only upon the actual level of spending, but also depends upon the degree of his or her spending, as compared with and to the spending of other people. That the conspicuous consumer is motivated by the importance, to him or to her, of the opinion of the social and economic reference groups for whom are performed the patterns of conspicuous consumption.^[9][10]
• Aggressive ostentation — In a 2006 CBSNews.com article, Dick Meyer said that conspicuous consumption is a form of anger towards society, an "aggressive ostentation" that is an antisocial behaviour, which arose from the social alienation suffered by men, women, and families who feel they have become anonymous in and to their societies. This feeling of alienation is aggravated by the decay of the communitarian ethic essential to a person feeling him or herself part of the whole society.^[24]
• Shelter and transport — In the United States, the trend towards building houses that were larger-than-needed, by a nuclear family, began in the 1950s. Decades later, in the year 2000, that practice of conspicuous consumption resulted in people buying houses that were double the average size needed to comfortably house a nuclear family.^[25] The negative consequences of either buying or building an oversized house was either the loss of or the reduction of the family's domestic recreational space—the backyard and the front yard; the spending of old-age retirement funds to pay for a too-big house; and over-long commuting time, from house to job, and vice versa, because the required plot of land was unavailable near a city. Oversized houses facilitated other forms of conspicuous consumption, such as an oversized garage for the family's oversized motor vehicles or buying more clothing to fill larger clothes closets. Conspicuous consumption becomes a self-generating cycle of spending money for the sake of social prestige. Analogous to the consumer trend for oversized houses is the trend towards buying oversized light-trucks, specifically the off-road sport-utility-vehicle type (cf. station wagon/estate car), as a form of psychologically comforting conspicuous consumption, because such big motor-vehicles usually are bought by people who reside in a city, an urban nuclear family.^[25]

• Prestige – In a 1999 article, Jacqueline Eastman, Ronald Goldsmith, and Leisa Reinecke Flynn said that status consumption is based upon conspicuous consumption; however, the literature of contemporary marketing does not establish definitive meanings for the terms status consumption and conspicuous consumption.^[26][27] Moreover, A. O'Cass and H. Frost (2002) claim that sociologists often incorrectly used the two terms as interchangeable and equivalent terms. In a later study, O'Cass and Frost determined that, as sociological constructs, the terms status consumption and conspicuous consumption denote different sociological behaviours.^[28] About the ambiguities of denotation and connotation of the term conspicuous consumption, R. Mason (1984) reported that the classical, general theories of consumer decision-processes do not readily accommodate the construct of "conspicuous consumption," because the nature of said socio-economic behaviours varies according to the social class and the economic group studied.^[29]
• Motivations — Paurav Shukla (2010) says that, whilst marketing and sales researchers recognise the importance of the buyer's social and psychological environment—the definition of the term status-directed consumption remains ambiguous, because, to develop a comprehensive general theory requires that social scientists accept two fundamental assumptions, which usually do not concord. First, though the "rational" (economic) and the "irrational" (psychologic) elements of consumer decision-making often influence a person's decision to buy particular goods and services, marketing and sales researchers usually consider the rational element dominant in a person's decision to buy the particular goods and services. Second, the consumer perceives the utility of the product (the goods, the services) as a prime consideration in evaluating its usefulness, i.e. the reason to buy the product.^[30] These assumptions, required for the development of a general theory of brand selection and brand purchase, are problematic, because the resultant theories tend either to misunderstand or to ignore the "irrational" element in the behaviour of the buyer-as-consumer; and because conspicuous consumption is a behaviour predominantly "psychological" in motivation and expression, Therefore, a comprehensive, general theory of conspicuous consumption would require a separate construct for the psychological (irrational) elements of the socio-economic phenomenon that is conspicuous consumption.

Examples[]

Conspicuous consumption is exemplified by purchasing goods that are exclusively designed to serve as symbols of wealth, such as luxury-brand clothing, high-tech tools, and vehicles.^[5]

Paul Newman's Rolex Daytona sold for 17.75 million US dollars in New York on October 26, 2017^[31]

Technology[]

Many technological devices have been marketed as luxury products while essentially offering the same core features as the more basic models. Although these devices are arguably the best available on the market, less expensive versions of the same product exist. Acquiring such products draws attention to the owners extravagant purchase and creates conversation about the procurement of the item. An example of such a purchase is the sale of Paul Newman's Rolex Daytona, which sold for US$17.75 million in New York on October 26, 2017.^[31]

Luxury fashion[]

Materialistic consumers are likely to engage in conspicuous luxury consumption.^[32] The global yearly revenue of the luxury fashion industry was €1.64 trillion in 2019.^[33] Buying of conspicuous goods is likely to be influenced by the spending habits of others. This view of luxury conspicuous consumption is being incorporated into social media platforms which is impacting consumer behaviour.^[32]

Criticism[]

High levels of conspicuous consumption may be seen as socially undesirable on two grounds; firstly, as it is often associated with high relative income, high levels of conspicuous consumption may be an indicator of high levels of income inequality, which may be found intrinsically or instrumentally objectionable; secondly conspicuous consumption differs from other forms of consumption in that the main reason for the purchase of positional goods is not due to the additional direct utility provided by the good's alleged high quality, but rather the social prestige associated with the consumption of that good. One downside of this search for status is that individual purchases of positional goods may at a social level be self-defeating due to external effects. In this case, the externality is status anxiety, the loss of social status suffered by people whose stock of high-status goods (positional goods) is diminished, in relation to the stocks of other conspicuous consumers, as they increase their consumption of high-status goods and services; effectively, status-seeking is a zero-sum game—by definition, the rise of one person in the social hierarchy can occur only at the expense of other people. Therefore, the conspicuous consumption of luxury goods and services (positional goods) is an economic loss—like competitive military spending (an arms race), wherein each country must match the military expenditures of other countries in the arms race, or suffer a loss of relative military power.

Veblen's theory was criticized early on by writer H. L. Mencken:^[24]

Do I enjoy a decent bath because I know that John Smith cannot afford one - or because I delight in being clean? Do I admire Beethoven's Fifth Symphony because it is incomprehensible to Congressmen and Methodists - or because I genuinely love music? Do I prefer terrapin à la Maryland to fried liver because plowhands must put up with the liver - or because the terrapin is intrinsically a more charming dose? Do I prefer kissing a pretty girl to kissing a charwoman because even a janitor may kiss a charwoman - or because the pretty girl looks better, smells better and kisses better?

Inequality and debt[]

A paper on “Inequality, Debt, and Conspicuous Consumption” by Sheheryar Banuri and Ha Nguyen (2020), reported three main findings:^[34]

• Consumption tends to increase when it is conspicuous: signals status and is observable by other.
• When consumption is conspicuous borrowing increases: loans are taken out by individuals lower on the income distribution.
• Access to finance worsens inequality: poorer individuals borrow to signal status, and loan-taking may further increase inequality.

These findings show the cyclical effect of costly borrowing and inequality. Lower socioeconomic groups try to match the consumption patterns of those who are wealthier with the main objective of increasing status. Due to access to credit and inequality, personal finance decisions motivated by conspicuous consumption may generate inadvertent macroeconomic volatility. If the distorted personal financial decisions disproportionately affect the poor, inequality could worsen. This study showed evidence supportive of pecuniary emulation and cautioned the use of finance to increase one's social standing.^[34] As said by Veblen “Among the motives which lead men to accumulate wealth, the primacy, both in scope and intensity, therefore, continues to belong to this motive of pecuniary emulation” (Veblen, 1899, pg. 27).^[2]

Solutions[]

In the case of conspicuous consumption, taxes upon luxury goods diminish societal expenditures on high-status goods, by rendering them more expensive than non-positional goods. In this sense, luxury taxes can be seen as a market failure correcting Pigovian tax—with an apparent negative deadweight loss, these taxes are a more efficient mechanism for increasing revenue than 'distorting' labour or capital taxes.^[35] A luxury tax applied to goods and services for conspicuous consumption is a type of progressive sales tax that at least partially corrects the negative externality associated with the conspicuous consumption of positional goods.^[36] In Utility from Accumulation (2009), Louis Kaplow said that assets exercise an objective social-utility function, i.e. the rich man and the rich woman hoard material assets, because the hoard, itself, functions as status goods that establish his and her socio-economic position within society.^[37] When utility is derived directly from accumulation of assets, this lowers the dead weight loss associated with inheritance taxes and raises the optimal rate of inheritance taxation.^[38]

In the 19th century, the philosopher John Stuart Mill recommended taxing the practice of conspicuous consumption.

In place of luxury taxes, economist Robert H. Frank proposed the application of a progressive consumption tax; in a 1998 New York Times article, John Tierney said that as a remedy for the social and psychological malaise that is conspicuous consumption, the personal income tax should be replaced with a progressive tax upon the yearly sum of discretionary income spent on the conspicuous consumption of goods and services.^[39] Another option is the redistribution of wealth, either by means of an incomes policy – for example the conscious efforts to promote wage compression under variants of social corporatism such as the Rehn–Meidner model and/or by some mix of progressive taxation and transfer policies, and provision of public goods. When individuals are concerned with their relative income or consumption in comparison to their peers, the optimal degree of public good provision and of progression of the tax system is raised.^[40][41][42] Because the activity of conspicuous consumption, itself, is a form of superior good, diminishing the income inequality of the income distribution by way of an egalitarian policy reduces the conspicuous consumption of positional goods and services. In Wealth and Welfare (1912), the economist A. C. Pigou said that the redistribution of wealth might lead to great gains in social welfare:

Now the part played by comparative, as distinguished from absolute, income is likely to be small for incomes that only suffice to provide the necessaries and primary comforts of life, but to be large with large incomes. In other words, a larger proportion of the satisfaction yielded by the incomes of rich people comes from their relative, rather than from their absolute, amount. This part of it will not be destroyed if the incomes of all rich people are diminished together. The loss of economic welfare suffered by the rich when command over resources is transferred from them to the poor will, therefore, be substantially smaller relatively to the gain of economic welfare to the poor than a consideration of the law of diminishing utility taken by itself suggests.^[43]

The economic case for the taxation of positional, luxury goods has a long history; in the mid-19th century, in Principles of Political Economy with some of their Applications to Social Philosophy (1848), John Stuart Mill said:

I disclaim all asceticism, and by no means wish to see discouraged, either by law or opinion, any indulgence which is sought from a genuine inclination for, any enjoyment of, the thing itself; but a great portion of the expenses of the higher and middle classes in most countries ... is not incurred for the sake of the pleasure afforded by the things on which the money is spent, but from regard to opinion, and an idea that certain expenses are expected from them, as an appendage of station; and I cannot but think that expenditure of this sort is a most desirable subject of taxation. If taxation discourages it, some good is done, and if not, no harm; for in so far as taxes are levied on things which are desired and possessed from motives of this description, nobody is the worse for them. When a thing is bought not for its use but for its costliness, cheapness is no recommendation.^[44]

"Conspicuous non consumption" is a phrase used to describe a conscious choice to opt out of consumption with the intention of sending deliberate social signals.^[45][46]

See also[]

References[]

Further reading[]

Look up conspicuous consumption in Wiktionary, the free dictionary.

• Thorstein Veblen (1899). Theory of the Leisure Class at Project Gutenberg
• Thorstein Veblen: Conspicuous Consumption, 1902 at Fordham University's "Modern History Sourcebook"
• The Good Life: An International Perspective, a short article by Amitai Etzioni