conspicuous consumption

conspicuous consumption, term in economics that describes and explains the practice by consumers of using goods of a higher quality or in greater quantity than might be considered necessary in practical terms. The American economist and sociologist Thorstein Veblen coined the term in his book The Theory of the Leisure Class (1899). The concept of conspicuous consumption can be illustrated by considering the motivation to drive a luxury car rather than an economy car. Any make of car provides transport to a destination, but the use of a luxury car additionally draws attention to the apparent affluence of the driver. The benefit of conspicuous consumption can be situated within the idea, postulated by economists, that consumers derive “utility” from the consumption of goods. Veblen identified two distinct characteristics of goods as providing utility. The first is what he called the “serviceability” of the good—in other words, that the good gets the job done (e.g., luxury and economy cars are equally able to get to a given destination). The other characteristic of a good is what Veblen called its “honorific” aspect. Driving a luxury car shows that the consumer can afford to drive an automobile that others may admire; that admiration comes not primarily from the car’s ability to get the job done but from the visible evidence of wealth it provides. The vehicle is thus an outward display of one’s status in society.

A corollary of the dual characteristics of goods is that such conspicuous consumption is “waste.” In using this term to describe what might usually be termed “excess,” Veblen was not making a judgment that the good is unneeded by society but rather was using waste as a technical term indicating that the production of a luxury good requires more resources than the production of a nonluxury good. The difference Veblen would label waste, but this does not mean that luxury goods should not be produced.

The core of Veblen’s analysis of modern society was the fact that on the one hand there is enormous technological potential to produce goods, and on the other hand business enterprise constrains the amount produced to that which can be profitably sold. A hypothetical journey from New York City to Boston, for example, could be accomplished by any ordinary automobile. To sell more luxurious cars, an enterprise must continually expand consumers’ wants. In Veblen’s view the function of advertising is to create a desire among consumers for goods whose usage displays status and prestige. The gulf between the wants of consumers and the productive potential of technology is reduced through advertising. It is for this reason that Veblen viewed advertising as waste but waste that is intrinsic to a modern economy based on the principles of profit-making business enterprises.

An important point in Veblen’s analysis is the recognition that all goods have elements of serviceability and waste. Examples of conspicuous consumption are wearing fur coats and diamonds and driving expensive cars. However, the dichotomy that Veblen draws between the honorific aspects of such goods and those that further the “life process” implies that all goods possess these dual characteristics; they have both serviceable and honorific elements. For example, the fact that one drives a car implies that one is wealthy enough not to have to take public transportation, but a luxury automobile conveys still-higher status in society, because it shows that one does not have to take public transportation or drive an economy car.

Laurie Simon Bagwell and B. Douglas Bernheim, “Veblen Effects in a Theory of Conspicuous Consumption,” The American Economic Review, 86(3):349–373 (1996); Harvey Leibenstein, “Bandwagon, Snob, and Veblen Effects in the Theory of Consumers’ Demand,” in Rick Tilman (ed.), The Legacy of Thorstein Veblen (2003), vol. 1, pp. 321–345; Roger Mason, The Economics of Conspicuous Consumption: Theory and Thought Since 1700 (1998); and Ronnie J. Phillips and Daniel J. Slottje, “The Importance of Relative Prices in Analyzing Veblen Effects,” Journal of Economic Issues, 17(1):197–206 (1983).