The sociologist and economist Thorstein Veblen coined the term “conspicuous consumption”, and was a co-founder of the institutional economics movement.
Conspicuous consumption is the spending of money on and the acquiring of luxury goods and services to publicly display economic power — either the buyer’s income or the buyer’s accumulated wealth. Sociologically, to the conspicuous consumer, such a public display of discretionary economic power is a means either of attaining or of maintaining a given social status.
Moreover, invidious consumption, a more specialized sociologic term, denotes the deliberate conspicuous consumption of goods and services intended to provoke the envy of other people, as a means of displaying the buyer’s superior socio-economic status.
In the 20th century, the significant improvement of the material standard of living of a society, and the consequent emergence of the middle class, broadly applied the term “conspicuous consumption” to the men, women, and households who possessed the discretionary income that allowed them to practice the patterns of economic consumption — of goods and services — which were motivated by the desire for prestige, the public display of social status, rather than by the intrinsic, practical utility of the goods and the services proper. In the 1920s, economists, such as Paul Nystrom (1878–1969), proposed that changes in the style of life, made feasible by the economics of the industrial age, had induced to the mass of society a “philosophy of futility” that would increase the consumption of goods and services as a social fashion; an activity done for its own sake. In that context, “conspicuous consumption” is discussed either as a behavioural addiction or as a narcissistic behaviour, or both, which are psychologic conditions induced by consumerism — the desire for the immediate gratification of hedonic expectations.
Sociologically, conspicuous consumption was previously thought to comprise social and economic behaviours primarily practiced by rich people. Yet the research of economists, such as Kerwin Kofi Charles, Erik Hurst, and finance professor Nikolai Roussanov, indicated a different understanding: that conspicuous consumption is a socio-economic behaviour very common to the poor social classes and economic groups, and common to the societies of countries with emerging economies. Among such people, the displays of wealth are used to psychologically combat the impression of poverty, often because such men and women belong to a social class or to an economic group whom his or her society perceives as poor. Similarly, in The Millionaire Next Door: The Surprising Secrets of America’s Wealthy (1996) professors Thomas J. Stanley and William D. Danko reported that Americans with a net worth of more than one million dollars are likely to avoid conspicuous consumption. In contrast, millionaires tend to practice frugality (e.g., they don't finance the purchase of new cars to avoid both the rapid depreciation of new vehicles and paying interest on loans, and instead pay cash for quality used cars).
In the 21st century, there emerged the variant consumerist behaviour of conspicuous compassion, the practice of publicly donating great sums of money to charity, to enhance the social prestige of the donor.
Distinctions of type
Definitions — 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 will make people notice the purchases. In the Journal of Economic Issues article “Veblen, Bourdieu, and Conspicuous Consumption” (2001), A. Trigg 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.
Self-worth — In the book Income, Saving and the Theory of Consumer Behavior (1949), J.S. 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.
Conspicuous consumption is the purchase of jewellery, and other luxury goods, to socially communicate the buyer’s economic capacity to spend money upon non-essential things.
Aggressive ostentation — In 2009, the television reporter Dick Meyer (CBS News) proposed 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, which 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.
Shelter and transport — In the U.S., the trend towards building houses that were larger-than-needed, by a nuclear family, began in the 1950s; fifty years 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. The negative consequences of either buying or of building an over-sized house was either the loss of or the reduction of the family’s domestic recreational space — the back yard 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. Furthermore, over-sized houses facilitated other forms of conspicuous consumption, such as an over-sized garage for the family’s over-sized motor vehicles; buying more clothing to fill larger clothes closets; et cetera; hence, conspicuous consumption becomes a self-generating cycle of spending money for the sake of social prestige. Analogous to the consumer trend for over-sized houses is the trend towards buying over-sized light-trucks, specifically the off-road sport-utility vehicle type (cf. station wagon and estate car), as a form of psychologically comforting conspicuous consumption, because such big motor-vehicles usually are consumed by people who live and reside in a city, people who usually comprise a nuclear family.
Prestige — In the Journal of Marketing Theory and Practice article “Status Consumption in Consumer Behaviour: Scale Development and Validation” (1999), J.K. Eastman et al. said that status consumption is based upon conspicuous consumption (among other contributions); yet, because there exist overlapping definitions, the literature does not establish definitive denotations for the terms “status consumption” and “conspicuous consumption”. Furthermore, in the Journal of Product & Brand Management article “Status Brands: Examining the Effects of Non-product-related Brand Associations on Status and Conspicuous Consumption” (2002), A. O’Cass and H. Frost reported that sociologists often have incorrectly and inaccurately used the terms “status consumption” and “conspicuous consumption” as interchangeable and equivalent terms. Moreover, in a later study, the authors found that, as sociologic constructs, the terms “status consumption” and “conspicuous consumption” denote different sociologic behaviours. Regarding the ambiguities of denotation and connotation of the term “conspicuous consumption”, in the European Journal of Marketing article “Conspicuous Consumption: A Literature Review” (1984), R. Mason 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.
Motivations — In the International Marketing Review article “Status Consumption in Cross-national Context: Socio–Psychological, Brand and Situational Antecedents” (2010), Paurav Shukla reported that, whilst researchers recognize the importance of the consumer’s social and psychological environment, the definition of the construct of status-directed consumption remains ambiguous, because, in order to develop a comprehensive general theory, social scientists are intellectually required to accept two fundamental assumptions that do not always concord. First, although the “rational” (economic) and the “irrational” (psychologic) elements of consumer decision-making often influence a person’s decision to buy particular goods and services, researchers and marketers usually have considered the rational element as the dominant factor affecting the person’s decision to buy the particular goods and services. Second, that the man or woman (consumer) has perceived the utility of the product (the goods, the services) as his or her prime consideration in evaluating its usefulness; the reason for buying the product. 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 person-as-consumer; and because conspicuous consumption is a behaviour predominantly “psychological” in motivation and expression, Therefore, a comprehensive general theory would require a separate construct for the psychological elements of the socio-economic phenomenon that is conspicuous consumption.
As proposed by Thorstein Veblen in the 19th-century, conspicuous consumption (spending money to buy goods and services for their own sakes) 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 proffered in Consumer Culture (1996), by C. Lury,Consumer Culture and Modernity (1997), by D. Slater,Symbolic Exchange and Death (1998), by Jean Baudrillard, and Spent: Sex, Evolution, and the Secrets of Consumerism (2009), by Geoffrey Miller. Moreover, Hiding in the Light (1994), by D. Hebdige, proposed that conspicuous consumption is a form of displaying a personal identity, and a consequent function of advertising, as proposed in Ads, Fads, and Consumer Culture (2000), by A.A. Berger. Each variant interpretation and complementary explanation is derived from Thorstein Veblen’s original sociologic proposition, that conspicuous consumption was a psychological end in itself, from which the practitioner (man, woman, family) derived the honour of superior social status.
As sociologic theory, conspicuous consumption proposes that the public display of discretionary buying power, either as income or as accumulated wealth, does not provide direct utility to the man or the woman behaving thus, unlike the consumption of food and shelter, necessary commodities which do provide direct utility — physical and psychological satisfaction — to the buyer.
In the 19th century, the philosopher John Stuart Mill recommended taxing the practice of conspicuous consumption.
A luxury tax applied to goods and services that are considered commodities for conspicuous consumption is a type of progressive sales tax that internalizes the negative externality associated with the conspicuous consumption of positional goods. In which case, the externality is associated with the loss of status suffered by people whose stock of high-status (positional) goods is diminished, in relation to the stocks of other conspicuous consumers, as they increase their consumption of such 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, collectively, expenditure on 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. 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 form of market failure correcting Pigovian tax- with alleged negative deadweight loss they are a more efficient mechanism for raising revenue than ordinary 'distorting' labor or capital taxes.
This 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 that:
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.
As an alternative to luxury taxes, the economist Robert H. Frank proposed the application of a progressive consumption tax. In the New York Times newspaper article “The Big City: Rich and Poor, Consumed by Consuming” (1998), to remedy the social and psychological malaise that is conspicuous consumption, Frank proposed eliminating the personal income tax, and replacing it with a progressive tax upon the yearly sum of discretionary income spent on consumption of goods and services.
Another economic option is to increase the supply of public goods, which are non-rivalrous, because the consumption of public goods is not a competitive matter of prestige. For example, whilst luxurious private gardens and personal art collections can be high-status goods, when similar goods and services are provided to the public, either as free or low-cost public parks and art galleries, they lose their 'positional' quality.
Yet another economic option, ideally in conjunction with the provision of public goods, is the redistribution of wealth either by means of an incomes policy or by progressive taxation. Because conspicuous consumption, itself, is a form of superior good, diminishing income inequality, by means of an egalitarian policy, which diminishes the incomes at the top strata of the income distribution of a society, will lead to the reduced conspicuous consumption of luxury goods and services. As pointed out by A. C. Pigou such redistribution may lead to large net social welfare gains, as reduction in the incomes of the wealthy may impose no welfare losses if they are primarily concerned with their relative, as opposed to absolute income,
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.
^Veblen, Thorstein. (1899) Theory of the Leisure Class: An Economic Study in the Evolution of Institutions. New York: Macmillan. 400 pp., also: 1994 Dover paperback edition, ISBN 0-486-28062-4, 1994 Penguin Classics edition, ISBN 0-14-018795-2.
^O’Cass, A., Frost, H. (2002), “Status Brands: Examining the Effects of Non-product-related Brand Associations on Status and Conspicuous Consumption”, Journal of Product & Brand Management, Vol. 11 No.2, pp. 67–88.
^Mason, R. (1984), "Conspicuous Consumption: A Literature Review”, European Journal of Marketing, Vol. 18 No.3, pp. 26–39.
^Shukla, P. (2010), “Status Consumption in Cross-national Context: Socio-psychological, Brand and Situational Antecedents”, International Marketing Review, Vol. 27, No. 1, pp. 108–129.
^Lury, C. (1996) Consumer Culture. London: Polity.
^ abSlater, D. (1997) Consumer Culture and Modernity. London: Polity.
^Baudrillard, J. (1998b) Symbolic Exchange and Death. London: Sage.
^Miller G, Spent: sex, evolution and the secrets of consumerism, Random House, London, 2009 (ISBN 9780670020621)
^Hebdige, D. (1994) Hiding in the Light. London: Routledge.
^Wilson, E. (eds.) Chic Thrills. A Fashion Reader. London: HarperCollins
^Berger, A. A. (2000) Ads, Fads, and Consumer Culture. Lanham: Rowman and Littlefield.
^L. Micheletto, ‘Optimal Nonlinear Redistributive Taxation and Public Good Provision in an Economy with Veblen Effects’, Journal of Economic Theory 13, No. 1 (2011).
^Michael J. Boskin and Eytan Sheshinski, ‘Optimal Redistributive Taxation When Individual Welfare Depends Upon Relative Income’, The Quarterly Journal of Economics 92, No. 4 (November 1, 1978): pp. 589–601
^Thomas Aronsson and Olof Johansson-Stenman, ‘When the Joneses’ Consumption Hurts: Optimal Public Good Provision and Nonlinear Income Taxation’, Journal of Public Economics 92, Nos. 5–6 (June 2008): pp. 986–997