The Theory of Conspicuous Consumers by Thorstein Veblen

Consumption, is an essential component in human survival, as much as it is also a trap in a capitalist economy nowadays. This is because we no longer consume to survive, we need luxury a vanity to show off what we have and who we are, as an identity.

I've been pondering and observing how and why people spend their money on certain goods and services. I've always wondered why my peers in school had an identical taste of clothing, reading, music, and fun. I was only a small kid who was unable to understand why all these. And I let my curiosity go until the time I started to think again when I became a college student.

What makes many people buy certain goods and services? Of course, I got my explanations. It is easy to realize the effects of social media, advertisements, celebrities/models, movies. These examples are evidently affecting peoples' preferences somehow. Simply the structure was about how people are exposed to this stimulative advertisements and how they respond to those. Yet, what confused my head was this question"Why would people follow these advertisements and offerings?". Well..again, I had my answers. If some individuals don't have certain tastes, preferences or basically if they don't know what they want, the market can offer them. Or firms and other producers that desire to increase their profit by gaining customers. That reminded me what founder of Apple Steve Jobs once said. "People don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page." This is a strong perspective. People don't know what they want. Therefore they are ready to adopt anything that is offered them. This is marketing! Such a structure can shift demand and supply curve and it shapes the market. Because if we don't have certain preferences and we don't have any idea where to go or we are not CONSCIOUS CONSUMERS, we strongly tend to accept and adopt what we are offered by external determinants. And you see, that means our preferences can be sharpened easily. Our spendings, tastes of life, consumption habits can be CONTROLLED by anything or anyone. Believe me, in a profit based market structure, no one doesn't care about our benefit.

Well, basically that was my simple answer for why people respond in similar ways while consuming. I still think this argument is true. Nevertheless, I was still unclear about why people buy CERTAIN goods and services. I mean exacts ones!!! What makes those goods and services attractive, what separates them from the ones which are highly qualified but low demanded. Although still, my "producers' offerings" hypothesis made perfect sense, there was something incomplete, unclear. 

It is true that people tend to accept what producers offer and sell them, but surprisingly although demand for goods and services varies in different countries, age groups, gender, class, etc., consumption habits and spending algorithm might be familiar. Even firms, advertisement companies, and social media use change. In particular, demand for luxury goods and some certain brands. I mean why the majority of people in the world agree that BMW or Mercedes-Benz are the best cars on Earth. Or why many people are willing to pay for Apple Computers, iPhones, Rolex, Nike, Chanel, Prada, Rayban, Lancome, Starbucks... Well, this is funny. It is not easy to explain what makes them desirable? But one day I found another answer. It is not the quality! Answer is THE PRICE!

These are called Veblen goods. Veblen goods are types of luxury goods for which the quantity demanded increases as the price increases, an apparent contradiction of the law of demand, resulting in an upward-sloping demand curve. But why people would that? This is insane!!! Yet apparently not. When I discovered Norwegian-American economist and sociologist Thorstein Veblen and when I read his book "The Theory of the Leisure Class" everything changed for me, forever. Because Veblen clarifies my confusion by explaining the reason with economic psychology.

See the difference between demand for normal goods and Veblen goods. Analyse the both curves.

"Conspicuous Consumption" The term refers to consumers who buy expensive items to display wealth and income rather than to cover the real needs. A flashy consumer behaves in such a way to maintain or gain higher social status. Most classes have a flashy consumer effect and influence over other classes, seeking to emulate the behavior.

The result, according to Veblen, is a society characterized by wasted time and money. That is, conspicuous displays of consumption and leisure were the means to demonstrate one’s superiority. Whether you were rich or poor everyone attempts to impress others and seek to gain advantage through “conspicuous consumption” and the ability to engage in “conspicuous leisure”. Consumption is used as a way to gain and signal status. Through “conspicuous consumption” often came “conspicuous waste,” which Veblen detested. Much of modern advertising premised on the “gotta have” society is built upon a Veblenian notion of consumption and rivalry.

In the 20th century economist Paul Nystrom came up with the theory that changes in lifestyle that came with the industrial revolution led to massive expansion of the “pecuniary emulation.” In the 20th and 21st centuries, we can also witness an expansion of conspicuous consumption associated with addictive or narcissistic behavior induced by consumerism, the desire for immediate gratification and a rise in hedonistic expectations.

Well, I said to my self "I got ya, conspicious consumers! That's why many of you shop irrationally." Well of course, what Veblen claims is very predictable. We are always able to see there might be a superiority war behind. However Veblen clarifies it in theory. This is very important. That behavior becomes negative externality and it is likely to become a global danger and effect others. It creates over consumption and over production which is not distributed equally. Sadly, you see how society is indirectly controlled and how easily people waste money. Although this issue is disregarded and ignored, it concerns me a lot. Because this is not what should be done.  

Personally, I suggest a well-designed spending algorithm. It should be individual but beneficial. Because individual actions spread the mass and affect demand and supply curve. Of course, spending algorithm is the topic of another essay. But before we create such an algorithm, we all should be aware of how we spend money and how we are dictated. Change your lifestyle! Read, read, read and read! And take action. In that phase, it is vital to become conscious consumers and be aware of how the market is working.