Who is Thorstein Veblen?
Thorstein Veblen was an economist and sociologist and who is best known for coining the term “conspicuous consumption” in his 1899 book The Theory of the Leisure Class. He 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 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 price. Examples of Veblen goods are Rolex watches or the latest model of iPhone.
These goods are priced so high that only the very affluent can afford them. The higher the price of the good, the less likely that other consumers can afford them, and buyers begin to perceive them 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 business to raise profits contributed to problems like unemployment.
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 of individual action and market equilibrium, Veblen instead believed that economic behavior was socially determined based on a process of historical evolution of social institutions. Human biological instincts and psychological tendencies in turn shape these social institutions.
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.
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, Veblin'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.