November 16, 2009
It seems the famous economist Thorstein Veblen, who lived from 1857 to 1949, thought so. He wrote a very popular book which is called ‘The Theory Of The Leisure Class.’ I just read about it today in one of my economic history books, and definitely need to buy it.
Unlike many economists who came before him, he argued that people weren’t rational. When they made decisions, they weren’t always thinking about “utility” and survival. I burst out laughing when I read a quotation from Veblen:
“The hedonistic conception of man is that of a lightning calculator of pleasures and pains, who oscillates like a homogenous globule of desire of happiness under the impulse stimuli that shift him about the area, but leave him intact.”
Here’s a brief synposis of the book, taken from Wikipedia:
In the book, Veblen argues that economic life is driven not by notions of utility, but by social vestiges from pre-historic times. Drawing examples from his time (turn-of-the-Twentieth-Century America) and anthropology, he held that much of today’s society is a variation on early tribal life.
According to Veblen, beginning with primitive tribes, people began to adopt a division of labor along certain lines. The “higher-status” group monopolized war and hunting while farming and cooking were considered inferior work.
He argued this was due to barbarism and conquest of some tribes over others. Once conquerors took control, they relegated the more menial and labor-intensive jobs to the subjugated people, while retaining the more warlike and violent work for themselves. It did not matter that these “menial” jobs did more to support society (in Veblen’s view) than the “higher” ones. Even within tribes that were initially free of conquerors or violence, Veblen argued that certain individuals, upon watching this labor division take place in other groups, began to mimic (or, in Veblen’s term, emulate) the higher-status groups.
Veblen referred to the emerging ruling class as the “leisure class.” He argued that while this class did perform some work and contributed to the tribe’s well-being, it did so in only a minor, peripheral, and largely symbolic manner. For example, although hunting could provide the tribe with food, it was not as productive or reliable as farming or animal domestication, and compared with the latter types of work, was relatively easier to perform. Likewise, while tribes occasionally required warriors if a conflict broke out, Veblen argued that militaristic members of the leisure class retained their position—and, with it, exemption from menial work—even during the extremely long stretches of time when there was no war, even though they were perfectly capable of contributing to the tribe’s “menial” work during times of peace.
At the same time, Veblen claimed that the leisure class managed to retain its position through both direct and indirect coercion. For example, the leisure class reserved for itself the “honor” of warfare, and often prevented members of the lower classes from owning weapons or learning how to fight. At the same time, it made the rest of the tribe feel dependent on the leisure class’s continued existence due to the fear of hostilities from other tribes or, as religions began to form, the hostility of imagined deities (Veblen argued that the first priests and religious leaders were members of the leisure class).
To Veblen, society never grew out of this stage; it simply adapted into different forms and expressions. For example, he noted that during the Middle Ages, only the nobility was allowed to hunt and fight wars. Likewise, in modern times, he noted that manual laborers usually make less money than white-collar workers.
Veblen, in this book, coined the now-common concepts of conspicuous consumption and conspicuous leisure.
He defined conspicuous consumption as the waste of money and/or resources by people to display a higher status than others. One famous example he used was the use of silver utensils at meals, even though utensils made of cheaper material worked just as well or, in some cases, better.
He defined conspicuous leisure as the waste of time by people to give themselves higher status. As examples, he noted that to be a “gentleman,” a man must study such things as philosophy and the fine arts, which have no economic value in themselves.
Veblen derides neo-classical economists who look for these equilibriums in their complex math equations and advocates they ignore people’s stupidity in decision making. He said these economists need to spend more time in the real world, studying people’s psychology and what they really do. In response to the book, in 1950 Professor Harvey Leibenstein published an article entitled “Bandwagon, Snob, and Veblen Effects in the Theory of Consumer Demand.” He says that Alfred Marshall’s rules of elasticity apply to most types of products, but we need to add a new class of goods which he deems, “Veblen goods.” These goods are not so much purchased for utility, per se, but moreso by what others will think was paid for the product. It’s a superiority thing. “Look at me. I can afford this. Can you?”
Normal goods, the cheaper you make them, the more people will buy them. Demand increases with lower price. But not with Veblen goods. Take Gucci handbags for instance. It’s an image thing. A social qualifier. It’s a symbol of your social worth. You can afford this, and that puts you in a class above others. But once everyone can have a Gucci bag, it loses its effect. It becomes a normal good. These sorts of goods follow a different economic model for pricing, supply and demand.
I think things are a bit more complicated than even what Veblen says, but he has some good ideas. But anyways, Veblen’s book seems like a fascinating read. I definitely need it. I’m also hoping it can shed some insight into a problem I’ve thought about for some time – in capitalistic societies, many products are made for the express purpose of breaking down, so you have to buy a replacement. Like light bulbs for instance. They’re made to burn out after so many hours. Not because they have to. They’re purposely designed to do so, because the companies need revenue in order to keep producing more light bulbs, and earn profits. Such a strange, and obviously flawed cycle. But what if engineers ruled the world? They’d design the bulb that never burns out, for sure – but would this solve the inherent problem? Here’s some interesting thoughts, quoted straight from the economic history text:
“Veblen avoids Marx’s class struggle analysis. To Veblen, the enemies are not capitalists, and the heroes are not laborers. He portrays a different cast of characters: The bad guys are businessmen (whether or not they own the companies), and the good guys are engineers. In the modern world, only the engineers accept the urge to create, improve, and produce. Businessmen, who boss them around, strangle creativity. Businessmen thrill at conspicuous consumption. They produce for one reason only: to make money. If they could make money without making a single product, they would be happier. Compare the dreams of engineers and businessmen. The engineer goes to bed each night with pends in pocket and calculator on hip. He dreams of inventing the perfect, absolute efficient motor. The businessman goes to bed in pin-striped pajamas. He dreams that the public suddenly finds his old product fashionable. That way he makes millions of dollars, without investing one cent in new technology or innovative thought. [… ]
In Engineers and the Price System, Veblen speculated that engineers might grow so disgusted with waste and wanton sabotage that they would overthrow their bosses and take charge of the factory floor and the boardroom. After all, the administrators needed them more than they needed the administrators. Technical specialists representing 1 percent of the population, and without one college credit of political science, might emerge the “philosopher kings” of Veblen’s republic: “… it will no longer be practicable to leave … control in the hands of businessmen working at cross purposes for private gain, or to entrust its continued administration to others than suitable trained technological experts, production engineers without a commercial interest.”
Like Marx, Veblen had little idea what the new rulers would do. But he was sure they would not do worse.”