Thorstein Veblen: Conspicuous Consumption

The American economist who argued that people often buy things to show off status, and whose ideas explain why some goods sell more when prices rise.

Thorstein Veblen was born in Wisconsin in 1857 to Norwegian immigrant parents. He was an unconventional academic and a sharp critic of the wealthy. His 1899 book, The Theory of the Leisure Class, introduced ideas that remain part of everyday language.

Conspicuous consumption

Veblen argued that the rich often buy expensive goods not mainly for their usefulness but to display their wealth and status to others. He called this conspicuous consumption. Lavish houses, fine clothing and costly entertainment served as public signals of success.

He also described conspicuous leisure: showing status by visibly not needing to work, and conspicuous waste, spending in ways that openly demonstrate the ability to waste resources.

Veblen goods

Veblen’s ideas gave rise to the term Veblen good: a product for which demand can rise as its price rises, because a higher price makes it more exclusive and a better status symbol. Some luxury handbags, watches and cars are often cited as examples. This appears to contradict the ordinary law of demand, though economists note the effect depends on the good’s role as a status signal.

The luxury watch

Two watches keep equally accurate time. One costs 50 dollars; the other costs 20,000 dollars. Some buyers choose the expensive watch precisely because others know it is expensive. If its maker cut the price sharply, it might lose some appeal to these buyers, because it would no longer signal wealth as clearly.

Critic of economics

Veblen criticised mainstream economics for treating people as calculating machines. He argued that behaviour is shaped by habits, customs and institutions that evolve over time. This made him a founder of institutional economics, which studies how social rules and organisations shape economic life. His emphasis on social comparison anticipated later research in behavioural economics and on relative income.

Thinking conspicuous consumption applies only to the very rich

Veblen focused on the wealthy, but status spending happens at every income level, from branded trainers to phones and wedding celebrations. Research on relative income suggests people everywhere care about how their consumption compares with others'.

Key takeaways

Thorstein Veblen wrote The Theory of the Leisure Class in 1899.
Conspicuous consumption means buying goods to display wealth and status.
Veblen goods can become more desirable as their price rises.
Veblen helped found institutional economics and anticipated behavioural ideas.