Sunday, March 25, 2007

Conspicuous Consumption, Conspicuous Virtue, Thorstein Veblen (and Adam Smith, too!)

Friday's Wall Street Journal had an article titled "Conspicuous Virtue and the Sustainable Sofa." You have to be a subscriber to read it online. But here is the intro:

"Lance Armstrong's ubiquitous yellow "Live Strong" wristbands have become a world-wide phenomenon: More than 60 million have sold since 2004, one of the greatest successes in nonprofit fund-raising history, with the proceeds going to cancer-related causes. No doubt some wear the bands in solidarity, or for inspiration -- but, that said, the wristband conceit was simply ingenious. It allowed people to make a show of their virtue. They could give to a good cause, and they could advertise their caring to everyone else. Not for nothing did John Kerry flaunt a Live Strong."

The author, Joseph Rago, calls this "conspicuous virtue." It is inspired by the term "conspicuous consumption" coined by Thorstein Veblen in his book The Theory of the Leisure Class. (the whole book is online there)

This site which has a short bio for Veblen, an economist who lived from 1857-1929, states:

"Veblen is best known for his book The Theory of the Leisure Class. In it he introduced the term "conspicuous consumption." Conspicuous consumption was consumption undertaken to make a statement to others about one's class or accomplishments. This term, more than any other, is what Veblen is known for."

But The Wall Street Journal article argues that now people are buying certain items to show how virtuous they are, like a Toyota Prius to show that you care about the environment even though "fuel savings do not justify the price premium of a gasoline-electric power train."

Adam Smith may have beaten Veblen to the punch. In The Wealth of Nations, he wrote:

"With the greater part of rich people, the chief enjoyment of riches consists in the parade of riches, which in their eyes is never so complete as when they appear to possess those decisive marks of opulence which nobody can possess but themselves. In their eyes the merit of an object which is in any degree either useful or beautiful, is greatly enhanced by its scarcity, or by the great labour which it requires to collect any considerable quantity of it, a labour which nobody can afford to pay but themselves. Such objects they are willing to purchase at a higher price than things much more beautiful and useful, but more common." (the entire book is online)

In Veblen's chapter on "Conspicuous Consumption," there is no mention of Adam Smith. There is statistical or empircal evidence that supports Veblen's theory. A Ph. D. student found that rich families do spend more on "Conspicuous Consumption." Click here to read about it.

1 comment:

champ said...

I find this quite interesting. I have thought about such things before, but it is nicely put by the professionals.