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How the world works

Thorstein Veblen

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Thorstein Veblen (USA · 1857–1929) — Display.

How the world worksThe industrial ageDisplay

What actually happened?

In 1884 Veblen had a Yale doctorate in philosophy and no job. He went back to his parents' farm in Minnesota and stayed for seven years, mostly reading, with no post and no income. A boy who grew up speaking Norwegian watched from outside the circle that cared most about appearances. The first book he wrote afterwards was about how that circle uses money and idleness to prove itself to the neighbours.

People are not calculating machines

He mocked the isolated, cool figure of the textbooks who only weighs gains and losses. To him, what people want and how they spend is learned, bit by bit, from habit and from the people around them; economics should study how habits harden into institutions and change.

The same income feels like enough in one circle and not nearly enough in another.

Three terms, one mechanism

Conspicuous consumption, conspicuous leisure and pecuniary emulation are one thing seen three ways: esteem goes to what can be seen, so money has to be shown, idleness has to be shown, and when the neighbour shows, you follow.

The neighbour's new car and suddenly yours looks old, though it was fine yesterday.

Making money is not making things

In The Theory of Business Enterprise (1904) he separated business, which looks at prices and profit, from industry, which looks at whether things get made. The two often agree and often do not: to hold a price up, some firms would rather produce less.

To keep the price from falling, half the stock sits in the warehouse.

How do I use it today?

Take your three largest recent purchases and write one line after each: bought to use, or bought to be seen. Do not edit the answers. Just look at the proportion.

Deep read

Who Is It Bought ForSome things are bought to be seen, not to be usedHe used the long skirt and the high heel as exhibits: made so that the wearer cannot workAlways Just Out of ReachThe line for enough moves with your incomeHe drew a ladder in which each rung measures itself against the one aboveWhen the Price Is the ProductFor some goods the price is part of what is soldHe imagined two silver spoons, one hand-wrought and one machine-made, and what happens when the buyer learns which is which

Read alongside

The Wealth of NationsBoth are about buying and selling. Smith has people trading from self-interest, with price as a signal; Veblen adds a kind of trade where the buyer uses the goods to say something about himself, and the price goes home with the goods. Robert K. MertonBoth ask who people measure themselves against. Merton gives the reference group; Veblen notices that most people use the rung just above them, so the yardstick moves up as they do.

Further

The Wealth of Nations John Maynard Keynes Robert K. Merton Albert O. Hirschman

Lines to keep

Esteem is given to what can be seen.

The neighbour shows and you follow.

Making money and making things are different jobs.