136
PEOPLE
IN CONTEXT
FOCUS
Society and the economy
KEY THINKER
Thorstein Veblen
(1857–1929)
BEFORE
1848 British philosopher
John Stuart Mill’s theory of
political economy assumes
that utility (satisfaction) lies
at the heart of economics.
1890 British economist
Alfred Marshall moves the
focus of economics away from
markets and towards the
study of behavior.
AFTER
1940 Hungarian economist
Karl Polanyi argues that
economic behavior is rooted
in society and culture.
2010 US economist Nathan
Pettit says that “conspicuous
consumption” and the
resulting debt played a key
role in crippling global
financial markets in 2008.
CONSUME TO
BE NOTICED
CONSPICUOUS CONSUMPTION
T
he US economist Thorstein
Veblen was the first to note
that economic behavior is
driven by psychological factors,
such as fear and status-seeking,
as much as by rational self-interest.
Having grown up in a Norwegian
farming community in Minnesota,
Veblen was an outsider who
observed the extremely rich and
self-satisfied Americans of the
1890s. In 1899, he published his
US oil tycoon John D. Rockefeller
(left), pictured here with his son, was
the first person to be worth more than
$1 billion. Rockefeller was part of the
New York society Veblen criticized.
See also: Economic man 52–53 ■ Spending paradoxes 116–17
tradition 166–67 ■ Behavioral economics 266–69
devastating critique, The Theory of
the Leisure Classes, which argued
that the defining qualities of New
York high-society were like those of
primitive tribal chieftains—a surfeit
of leisure and money. The rich did
not buy things because they
needed them but to display their
wealth and status. Veblen was
the first to describe this as
“conspicuous consumption.”
Consumption trap
Today, “Veblen goods” (p.117) are
luxury items such as Porsche cars
and Rolex watches. A person’s
satisfaction increases the more
of them they have and the less of
them that other people have. Veblen
believed that rich societies can
suffer from a “relative consumption
trap” in which production is
squandered on these types of
goods. As more people consume
them, there may be no gains in
overall well-being. Some
economists have argued that
wasteful consumption, fueled by
credit card usage, contributed to
the global financial crisis of 2008. ■
■ Economics and