Conspicuous Consumption

Conspicuous consumption refers to monies spent and goods and services acquired 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 sociological 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 19th century, the term was introduced by the economist and sociologist Thorstein Veblen, in the book ‘The Theory of the Leisure Class: An Economic Study in the Evolution of Institutions,’ to describe the behavioral characteristics of the nouveau riche (new rich) social class who emerged as a result of the accumulation of capital wealth during the Industrial Revolution. In that social and historical context, the term was narrowly applied to describe the men, women, and families of the upper class who applied their great wealth as a means of publicly manifesting their social power and prestige, be it real or perceived.

In the early 20th century, the significant improvement of the 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, 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 behavioral addiction or as a narcissistic behavior  or both, which are psychological conditions induced by consumerism—the desire for the immediate gratification of hedonic expectations.

Initially, economists and sociologists defined conspicuous consumption as the socio-economic behaviors of consumerism primarily practiced by rich people (i.e., those with annual incomes substantially above the average). However, research of finance professor Nikolai Roussanove, and of the economists Kerwin Kofi Charles and Erik Hurst, indicated that conspicuous consumption is also common in lower-income people, and in emerging economies. Thus, the lower one’s income bracket the larger proportion of one’s income one tends to spend on frivolous luxuries, with the ultimate goal of impressing one’s family and circle of friends or associates.

Similarly, in ‘The Millionaire Next Door: The Surprising Secrets of America’s Wealthy’ (1996) Thomas J. Stanley and William D. Danko argued that those with high net wealth relative to their annual income tend to avoid conspicuous consumption and in fact live frugal lifestyles (e.g., buying used vehicles to avoid the rapid depreciation of new or luxury vehicles, and owning modest homes in middle-class neighborhoods rather than more opulent homes in upscale communities). Moreover, Stanley and Danko report that conspicuous consumption is most often found in those with a low net wealth relative to their annual income, who are attempting to present a superficial image of wealth.

A related term, ‘conspicuous compassion’ emerged in the early 21st Century, describing public disclosures of financial contributions to charity not due to altruism but rather to attain social status. Patrick West notes that overall contributions to charitable causes have held steady for decades, yet public pronouncements of one’s charitable contributions have increased substantially (e.g., wearing ribbons associated with anti-cancer crusades, or wealthy business people making grand announcements regarding their massive donations to various philanthropic causes).

Since the 19th-century coinage of the term conspicuous consumption, and its denotation of ‘consumption-as-status,’ Veblen’s sociologic and economic propositions have been broadened to describe the socio-economic behaviors that people practice in the contemporary pursuit of social prestige. Andrew Trigg defined conspicuous consumption as the behaviors whereby a man or a woman can display great wealth by means of idleness—such as expending much time in the practice of leisure activities, and spending much money to consume luxury goods and services.

In the book ‘Income, Saving and the Theory of Consumer Behavior’ (1949), James 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. In 2009, CBS News reporter Dick Meyer proposed that conspicuous consumption is a form of anger towards society, an ‘aggressive ostentation’ that is an antisocial behavior  which arose from the social alienation suffered by men, women, and families who feel they have become anonymous in and to their societies. The 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.

In the U.S. of the 1950s, there began the trend towards building over-sized houses, domestic dwellings that were larger-than-needed, by the nuclear family; fifty years later, in the year 2000, such a practice in conspicuous consumption resulted in people buying large houses that were double the average size required to comfortably house a nuclear family. The negative consequences of either buying or of building an over-sized house was either the loss or the reduction of the family’s domestic recreational space—either the back yard or the front yard, or both; the spending of old-age retirement funds to pay for a too-big house; and an 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. 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 as a form of psychologically comforting conspicuous consumption.

Another term has been proposed to supersede ‘conspicuous consumption,’ ‘status consumption.’ However, while researchers recognize the importance of the consumer’s social and psychological environment, the definition 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 behavior of the person-as-consumer; and because conspicuous consumption is a behavior 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 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. Subsequent commentators have expanded on Veblen’s ideas. Each variant interpretation and complementary explanation is derived from his original sociologic proposition, that conspicuous consumption was a psychological end in itself, from which the practitioner (man, woman, family) derived the honor of superior social status. In the post-war period, ideas similar to Veblen’s were put forward by James Duesenberry who proposed the Relative income hypothesis as an explanation for the fact that the savings rate increases with income across the income distribution, but not over time. Thus for Duesenberry, the incomes of ones peers play a role in setting consumption standards. As a society becomes wealthier, consumption standards rise along with income and thus the propensity to consume does not diminish.

An evolutionary psychology explanation for conspicuous consumption proposes that it is a costly signal, similar to costly signals in other animals, which shows a person’s good socio-economic quality, and is intended to attract economic coalition partners and sexual mates.

There are several regulatory options for combating conspicuous consumption such as a luxury tax applied to goods and services that are considered commodities for conspicuous consumption, a type of progressive sales-tax that internalizes the negative externalities associated with the conspicuous consumption of positional goods. Such as 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) represents 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 Pigovian tax, correcting market failure.

This economic case for the taxation of positional, luxury goods has a long history. For example, in ‘Principles of Political Economy with some of their Applications to Social Philosophy’ (1848), John Stuart Mill wrote 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.’

A similar point is made by A. C. Pigou, who argued that competitive consumption among the wealthy strengthens the case for progressive redistribution based on diminishing marginal utility of income: ‘It is evident that any transference of income from a relatively rich man to a relatively poor man of similar temperament, since it enables more intense wants, to be satisfied at the expense of less intense wants, must increase the aggregate sum of satisfaction. The old ‘law of diminishing utility’ thus leads securely to the proposition: Any cause which increases the absolute share of real income in the hands of the poor, provided that it does not lead to a contraction in the size of the national dividend from any point of view, will, in general, increase economic welfare. This conclusion is further fortified by another consideration.

Mill wrote: ‘Men do not desire to be rich, but to be richer than other men. The avaricious or covetous man would find little or no satisfaction in the possession of any amount of wealth, if he were the poorest amongst all his neighbors or fellow-countrymen.’ More elaborately, Signor Rignano writes: ‘As for the needs which vanity creates, they can be satisfied equally well by a small as by a large expenditure of energy. … In reality a man’s desire to appear ‘worth’ double what another man is worth, that is to say, to possess goods (jewels, clothes, horses, parks, luxuries, houses, etc.) twice as valuable as those possessed by another man, is satisfied just as fully, if the first has ten things and the second five, as it would be if the first had a hundred and the second fifty.’ 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.’

As an alternative to luxury taxes, the economist Robert H. Frank proposed the application of a progressive consumption tax. In a ‘New York Times’ article, ‘The Big City: Rich and Poor, Consumed by Consuming’ (1998), 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 involves increasing the supply of public goods, which are non-rivalrous, because the consumption of public goods is not a competitive matter of prestige. For example, while 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 ‘positiona’ quality.

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