Who Is Thorstein Veblen?
Thorstein Veblen was an economist and sociologist who is best known for coining the term "conspicuous consumption" in his 1899 book The Theory of the Leisure Class.
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). He also founded the school of institutional economics. Veblen lived from 1857 to 1929.
- Thorstein Veblen was an economist noted for his contributions to the development of American institutionalist economics.
- Veblen is best known for developing the concept of conspicuous consumption, or excessive consumption for the sake of signaling social 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.
Understanding Thorstein Veblen
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.
A Veblen good is a product of high quality that stands in contrast to a Giffen good—an inferior product with limited substitutes.
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.
Production and Economics
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.
Institutionalism, Old and New
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.
The Life and Career of Thorstein Veblen
Born in America to Norwegian immigrants, Veblen was an outsider and nonconformist with unusual behavior and alternative views; he rejected neoclassical economics, Marxism, pragmatist philosophy, and laissez-faire economics. He wanted to integrate economics with sociology and history to show how the discipline was influenced by human biology and psychology.
The longest job of Veblen’s career was with the University of Chicago from 1892 until 1906, where he started as a teaching assistant and advanced to become a research fellow, assistant professor, and the managing editor of the Journal of Political Economy. His experiences in academia led him to criticize the higher education system in another book, Higher Learning in America.
In the 1930s, when the economic depression had America reassessing capitalism and consumption, Veblen's reputation soared, and his books were devoured. Many believed that the roots of the worldwide depression could be found in his writings from decades earlier. Some say his writings still have currency today.
Thorstein Veblen FAQs
What Is the Theory of the Leisure Class?
The Theory of the Leisure Class is a book by Veblen. It 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.
Is Conspicuous Leisure Different From Conspicuous Consumption?
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.
What Are Industrial and Pecuniary Employments?
Industrial and pecuniary employments are the two different categories into which modern economic institutions fall. Pecuniary employments deal with those employments that fall under ownership and acquisition while industrial employments fall under craftsmanship and production.
What Is the Veblenian Dichotomy?
The Veblenian Dichotomy deals with technology and institutions. The use of technology is based on the institution. Some institutions use technology for "ceremonial" purposes—in other words, wastefully. Veblen believed that institutions should use technology in a more instrumental way, one that is purposeful. The dichotomy lies in the existence of a social class that uses technology ceremonially rather than instrumentally.
The Bottom Line
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."