Thorstein Veblen coined the term "conspicuous consumption" to refer to how certain affluent members of society will value certain goods solely because their supply is low and their price is high, which seems to violate the normal laws of supply and demand. For instance, a group of showy millionaires might bid up the price of a rare vase, and as the price goes up, the millionaires desire it more, because whoever ends up winning the vase will then have an ostentatious symbol of their wealth and will be able to show it off to everyone, proudly flaunting the high price paid for it. Perhaps as the bids come in, other previously disinterested millionaires might notice this new opportunity to flaunt their wealth and will participate in the auction, further bidding up the price of the good. In short, it's a good whose demand rises with price.
Now, "conspicuous consumption", if it does indeed occur, would be relatively rare and would not have drastic effects on the economy, but I suppose I'm a little stuck on how to consider it from the Austrian perspective. For a given good, how could its demand increase as its price rises? My first instinct is to say, "Well, since goods are valued subjectively, a certain low-priced (and therefore less ostentatious) good must be considered as different from a high-priced one that is otherwise identical". But then why couldn't this same logic apply to all goods? An expensive apple can't be considered different from a less expensive one simply because their prices are different -- the fact that an apple is more expensive than another will simply mean that fewer will demand it and more will want to sell apples at that price. All of the analysis I've read on supply and demand doesn't consider differently priced goods to be subjectively different goods -- rather, they are the same goods that will be supplied/demanded to different degrees.
So what is the correct way to think about "conspicuous consumption"?
Alex M:So what is the correct way to think about "conspicuous consumption"?
It is a silly idea.
Alex M:For instance, a group of showy millionaires might bid up the price of a rare vase, and as the price goes up, the millionaires desire it more
Sounds like an issue of scarcity to me.
Expensive and rare pieces are used by the wealthy to park and transport their wealth. Always have been. It is easier to move a painting (and more discreet) than transferring $15 million dollars.
If you find something evil that wobbles, push it. - Gary North
It sounds like you're trying to think in terms of supply and demand graphs, and I'm of the belief that any such graphs are just nonsense used to help visualize a concept that doesn't always hold true. It may be called the "law of demand," but that doesn't mean it's universally applicable. An Austrian economist might simply say that economics does not attempt to identify why the millionaires demand the expensive good, simply that they do. And, of course, the supply is very limited, so the price increases with more demand for the good.
I swear by my life and my love of it that I will never live for the sake of another man, nor ask another man to live for mine.
I believe that 'conspicuous comsumption' merely refers to how many purchases are to show off wealth as opposed to having any 'real use'. This is easily addrest with the subjective theory of value.
What you are thinking of is a Veblen good, and you hit it right on the head with;
Alex M:"Well, since goods are valued subjectively, a certain low-priced (and therefore less ostentatious) good must be considered as different from a high-priced one that is otherwise identical".
The higher priced goods are viewed as differently. If you like you can see it as the higher priced good being a combination of the largely identical but cheaper/more plentiful good plus the prestige/exclusivity that comes with the pricier item.
Alex M:But then why couldn't this same logic apply to all goods? An expensive apple can't be considered different from a less expensive one simply because their prices are different -- the fact that an apple is more expensive than another will simply mean that fewer will demand it and more will want to sell apples at that price.
Indeed it could apply to a wide range. Is it impossible to imagine a producer of a seemingly everyday good (maybe even apples?) managing to find some way to make their product seem exclusive compared to the competition, allowing them to raise the price and still maintain heavy demand?
With a "so what?"
Thorstein Veblen coined the term "conspicuous consumption" to refer to how certain affluent members of society will value certain goods solely because their supply is low and their price is high, which seems to violate the normal laws of supply and demand.
Its high price and exclusive supply is in this case an attribute of the good; the only thing violated is the condition of it being a homogeneous good, meaning one is literally comparing apples to oranges, or subjectively esteemed "luxury" goods to cheaper, more easily available physical identicals of the same good. If Austrian analysis does not typically take price to be an attribute that affects the subjective valuation of a good it is not difficult to do so using STV, as one would for any good. The truth is price is and can be a (subjectively imputed) attribute of the good, as well as its ratio of exchange. We had a thread on this recently where I linked some comments and articles by Garrison and Salerno on the topic that illumine the issue greatly.
FWIW, Rothbard has a great section on arguments by the likes of Galbraith, Veblen &c. on consumerism, advertising &c. Well worth reading.
To darkness I condemn you...
liberty student: Sounds like an issue of scarcity to me. Expensive and rare pieces are used by the wealthy to park and transport their wealth. Always have been. It is easier to move a painting (and more discreet) than transferring $15 million dollars.
Yes, I can certainly imagine instances where a high-priced painting might serve as a discreet storage of wealth, but let's just say in these circumstances that it serves no such function to the millionaires. It is merely valued because it has a high price and its presence in a millionaire's mansion can be used to flaunt wealth over others.
Justin Spahr-Summers: It sounds like you're trying to think in terms of supply and demand graphs, and I'm of the belief that any such graphs are just nonsense used to help visualize a concept that doesn't always hold true. It may be called the "law of demand," but that doesn't mean it's universally applicable. An Austrian economist might simply say that economics does not attempt to identify why the millionaires demand the expensive good, simply that they do. And, of course, the supply is very limited, so the price increases with more demand for the good.
I'm not trying to determine "why" the millionaires desire expensive things (in this admittedly highly contrived though potentially illustrative example) simply because they are expensive. I just know that after rigorous deductive analysis, the Austrian economists conclude that markets will tend to toward equilibrium, and I believe their reasoning to be valid, though I've never heard anyone take into account such a possibility where demand rises with price, and while such behavior is rare, some people might try to use it as an example as to how bubbles might occur, even in the absence of credit expansion. Long shot, I know, but I'm still trying to find the proper way to address the problem.
Alex M:It is merely valued because it has a high price and its presence in a millionaire's mansion can be used to flaunt wealth over others.
As Jon wrote, "so what"?
Here is an epistemological issue. We can't know intent. We can only know action. When you start attributing motive to economic activity, you are going to be able to make flawed cases for anything. If you only judge on what you can know (observation of action, physical reality) rather than what you cannot (motivation of millionaires) you'll be saved from these sorts of flawed scenarios bothering you so.
I will say this, knowing some people of considerable means, they didn't acquire their wealth casually, and they don't waste it casually either. The street urchin who wins the lottery is more likely to buy ostentatious art for use as a sign of status than an old money millionaire. Real status is rarer than money. It can't be bought.
liberty student: We can only know action. When you start attributing motive to economic activity, you are going to be able to make flawed cases for anything. If you only judge on what you can know (observation of action, physical reality) rather than what you cannot (motivation of millionaires) you'll be saved from these sorts of flawed scenarios bothering you so. I will say this, knowing some people of considerable means, they didn't acquire their wealth casually, and they don't waste it casually either. The street urchin who wins the lottery is more likely to buy ostentatious art for use as a sign of status than an old money millionaire. Real status is rarer than money. It can't be bought.
We can only know action. When you start attributing motive to economic activity, you are going to be able to make flawed cases for anything. If you only judge on what you can know (observation of action, physical reality) rather than what you cannot (motivation of millionaires) you'll be saved from these sorts of flawed scenarios bothering you so.
I'm not new to Austrian economics. I am well familiar with the fallacy of assumptions about intent when it is only man's action that can be considered. But, as many great Austrian economists have done, it can be highly demonstrative to consider a value scale (even though in real life we can never determine a person's value scale) and follow the implications of the person's value scale to determine more complex interactions. Rothbard and others only do this about a million times, and never does the reader get the impression that he is trying to determine a real person's value scale, but for the purpose of demonstrating various types of exchange, it is absolutely necessary to consider a hypothetical value scale. This is no different from what I am trying to do. I'm not deriving anyone's values scales based on observation of action or anything like that. I'm merely saying, as a thought experiment, consider a group of people whose first rankings on their value scales is to buy something that is more expensive and rare than what anyone else in the group has. Given these value scales, what sort of economic effects will be the result?
Alex,
I think that there are many very good answers given in this thread. Ultimately, we cannot know for sure what the motivation is for someone to buy some very expensive thing. We can only guess at what may be the motivation by looking at what may motivate ourselves to do such a thing. It may be an investment or the psychic profit gained within the owner's group's esteem at merely owning the thing. On the other hand, the individual may just really love the thing and not care about what others think, gaining the psychic profit within his or her own mind. Regardless, the price of the thing must be less than the value of the thing to the purchaser for some reason.
The effect on the economy would probably be negligible except for high end goods or collectables, which is a relatively small segment of goods available for purchase in society. The former owner of the thing is now able to buy other goods with the cash now available to him, so it is possible that the funds in the investment world will grow either through savings or direct investment. At a minimum, the transaction has caused funds to change hands which may cascade through the economy tending toward entropy. The mere exchange has caused many people to gain and the GDP may experience a bump.
Alex M:I just know that after rigorous deductive analysis, the Austrian economists conclude that markets will tend to toward equilibrium, and I believe their reasoning to be valid, though I've never heard anyone take into account such a possibility where demand rises with price . . .
I just know that after rigorous deductive analysis, the Austrian economists conclude that markets will tend to toward equilibrium, and I believe their reasoning to be valid, though I've never heard anyone take into account such a possibility where demand rises with price . . .
Ultimately, "equilibrium" results from goods selling at an impossible perfect price... a price at which the benefit to both the buyer and seller is maximized and acceptable to both. I wish I could explain that part in more economically accurate terms, but you get the idea. So, in this case, the good is being sold at a price acceptable to both the seller (obviously) and the buyer. Even for millionaires, the point will come at which they no longer wish to purchase a certain good, even if it's desired solely for status.
Alex M:. . . and while such behavior is rare, some people might try to use it as an example as to how bubbles might occur, even in the absence of credit expansion. Long shot, I know, but I'm still trying to find the proper way to address the problem.
. . . and while such behavior is rare, some people might try to use it as an example as to how bubbles might occur, even in the absence of credit expansion. Long shot, I know, but I'm still trying to find the proper way to address the problem.
I guess I could follow such a leap. I don't think it naturally follows, though, that a bust would thereafter occur. What market would we even be talking about? The market for expensive millionaires' artifacts?
I wonder if there is a term coined for people in affluent society donating large amounts of money to charities as a social status thing.
Let us look then and see, how they manage their concerns- they for whose cause we are to labor, devote ourselves, and grow enthusiastic
-Max Stirner, The Ego and His Own
Dondoolee: I wonder if there is a term coined for people in affluent society donating large amounts of money to charities as a social status thing.
Blatant benevolence.
Human Action Comics Issues 1-6
Lilburne: Dondoolee: I wonder if there is a term coined for people in affluent society donating large amounts of money to charities as a social status thing. Blatant benevolence.
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