Conspicuous consumption

Based on Wikipedia: Conspicuous consumption

Here's a puzzle that might keep you up at night: Why do people who earn six figures still feel poor?

The answer involves one of the most powerful and least understood forces shaping modern life. It has a name that sounds almost too obvious once you hear it: conspicuous consumption. The term describes the act of buying things not because you need them, but because you want other people to see that you can afford them.

This isn't just about vanity. It's about survival—or at least what our brains interpret as survival. And understanding how it works might be the key to living well in an economy that seems designed to make even rich people feel perpetually inadequate.

The Man Who Named the Game

In 1899, a Norwegian-American economist named Thorstein Veblen published a book with a wonderfully dry title: The Theory of the Leisure Class: An Economic Study in the Evolution of Institutions. It became one of the most influential works of social criticism ever written, and it gave us the phrase "conspicuous consumption."

Veblen was watching something remarkable unfold. The Second Industrial Revolution, spanning roughly from 1860 to 1914, had created an entirely new class of wealthy people. These weren't aristocrats who had inherited land passed down through generations. They were industrialists, railroad magnates, oil barons—people who had accumulated vast fortunes within their own lifetimes.

And they had a problem.

How do you prove you're rich? Old money families had centuries of reputation, ancestral estates, family crests. The nouveau riche—Veblen loved using this French term for the "new rich"—had nothing but their bank accounts. So they did the logical thing: they made their wealth visible.

They built enormous mansions. They threw lavish parties. They dressed their wives in gowns that cost more than a factory worker's annual salary. They collected art not because they understood it, but because everyone could see how much they'd paid for it.

Veblen realized something profound: these people weren't just enjoying their money. They were performing their money. Their spending was a form of communication, a way of broadcasting a message about their social position.

The Psychology of Pecuniary Emulation

Veblen coined another term that's less famous but equally important: pecuniary emulation. "Pecuniary" just means relating to money. Emulation means imitation. Put them together and you get the fundamental engine of consumer society: people imitating the spending habits of those above them on the economic ladder.

Think about it this way. In a small village where everyone knows everyone, your reputation is based on your character, your family history, your contributions to the community. People know whether you're trustworthy because they've watched you for years.

But in a modern city? You're surrounded by strangers. Nobody knows your history. Nobody has watched your character develop over decades. So how do you signal that you're a person of substance, someone worth knowing, someone who matters?

You signal it with stuff.

The watch on your wrist. The car in your driveway. The neighborhood you live in. The school your children attend. All of these become proxies for the reputation that your great-grandfather might have built through a lifetime of known good deeds.

Veblen put it bluntly: "The basis of gaining and retaining a good name, are leisure and conspicuous consumption." Your reputation is, quite literally, a function of how much money you're seen to possess and display.

When Everyone Joins the Game

Here's where things get interesting—and troubling.

Veblen originally thought conspicuous consumption was a game played by the rich. The upper class displayed their wealth; the rest of us watched from the sidelines. But by the 1920s, economists were noticing something unexpected.

Everyone was playing.

Paul Nystrom, an economist studying the aftermath of the industrial age, proposed that conspicuous consumption had spread like a contagion through all levels of society. He called it the expansion of "pecuniary emulation," and he worried it was creating what he memorably termed a "philosophy of futility"—consumption for the sake of consumption, buying things simply because buying things is what people do.

This wasn't just rich people showing off anymore. This was middle-class families stretching their budgets to afford a slightly nicer car than their neighbors. This was working-class people going into debt to maintain appearances.

The game had changed. Where Veblen saw the wealthy performing for each other, Nystrom saw an entire society performing for itself.

The Demonstration Effect

In 1949, an economist named James Duesenberry gave this phenomenon a name that stuck: the demonstration effect.

Duesenberry's insight was psychological. He proposed that your satisfaction with your own consumption doesn't depend just on what you have. It depends on what you have compared to what you see others having.

This sounds obvious now, but it was revolutionary. Traditional economics assumed people made rational calculations about their needs and desires. Duesenberry was saying: no, people make emotional comparisons. They look around, they see what their reference group has, and they feel pressure to match or exceed it.

He also identified what he called the bandwagon effect. When you see enough people buying something, you start to want it too. Not because you've carefully evaluated whether it would improve your life, but because its popularity makes it seem valuable, desirable, necessary.

Think about the last time you wanted something simply because it seemed like everyone else had one. A particular phone. A particular style of kitchen. A particular vacation destination. That's the bandwagon effect in action.

Keeping Up With the Joneses (And Going Broke Doing It)

There's a darker side to all of this.

A 2020 study by researchers Sheheryar Banuri and Ha Nguyen, titled "Borrowing to Keep Up (with the Joneses)," found something disturbing but not surprising: conspicuous consumption doesn't just change what people buy. It changes how they finance those purchases.

Their findings were stark:

• When consumption is visible to others—when it signals status—people consume more.
• This visibility increases borrowing. People take out loans specifically to keep up with what they see others consuming.
• Easy access to credit makes this worse, not better. When poor people can borrow money to signal status, they do—creating a vicious cycle of debt.

The implications are profound. Poor people aren't irrational for trying to imitate rich people's consumption patterns. They're responding to real social pressures. In a world where your worth is judged by your visible possessions, appearing poor isn't just uncomfortable—it can affect your job prospects, your social opportunities, your children's futures.

But the result is macroeconomic volatility and deepening inequality. People borrow to keep up appearances. The borrowing traps them in debt. The debt keeps them poor. And the cycle continues.

The Curious Case of the Frugal Millionaire

Not everyone plays the game the same way.

In 1996, two researchers named Thomas Stanley and William Danko published The Millionaire Next Door, and what they found surprised almost everyone. Americans with a net worth over a million dollars weren't, for the most part, driving flashy cars or living in mansions.

They were driving used cars. They were living in modest houses. They were clipping coupons.

Stanley and Danko called this "conspicuous frugality"—a kind of inverted status signal. These millionaires had nothing to prove. They already knew they were wealthy. So instead of spending money to demonstrate wealth they actually possessed, they saved and invested it.

This creates a strange paradox. The people who look wealthy often aren't. And the people who are wealthy often don't look it.

The doctor driving a leased BMW might be drowning in debt. The plumber driving a ten-year-old pickup might have a net worth in the millions. External appearances tell you almost nothing about actual financial security.

Houses Too Big and Trucks Too Large

Conspicuous consumption doesn't just affect what we buy. It affects how we live.

Starting in the 1950s, Americans began building houses larger than their families actually needed. By 2000, the average new American house was roughly double the size required to comfortably house a typical nuclear family.

Think about what this means in practice. The bigger house requires a bigger lot, often located farther from the city center where land is cheaper. This means longer commutes. The bigger house costs more to heat and cool. It requires more maintenance. It might even have more closets to fill with more clothes.

The oversized house enables and even demands other forms of conspicuous consumption. You need a bigger garage for your bigger vehicles. You need more furniture to fill the extra rooms. The consumption becomes self-generating—one purchase creates pressure for the next.

A parallel trend emerged with vehicles. The off-road sport utility vehicle, designed for rugged terrain and outdoor adventure, became the vehicle of choice for urban families who would never take it anywhere more challenging than a supermarket parking lot. The vehicle's size and capability weren't practical necessities. They were status signals—and, perhaps, sources of psychological comfort in an uncertain world.

When Charity Becomes Performance

Veblen noticed something else interesting: conspicuous consumption has a cousin called conspicuous compassion.

This is the ostentatious donation of large sums to charity—not primarily to help others, but to enhance the donor's social prestige. The new wing of the hospital bears your name. The university building announces your generosity to every student who passes through.

This impulse has been criticized for millennia. The New Testament tells the story of a poor widow who donates two small coins to the temple treasury. Jesus praises her, saying she has given more than all the wealthy donors—because she gave from her poverty, while they gave from their surplus, and she gave quietly, while they gave conspicuously.

The criticism isn't that charitable giving is bad. It's that turning charity into performance changes what it means. When you donate to be seen donating, you're not really practicing generosity. You're purchasing reputation.

The Identity Function

Modern researchers have added nuance to Veblen's original framework.

Dick Hebdige, writing in 1994, proposed that conspicuous consumption isn't just about status. It's about identity. The things we buy don't just signal how much money we have. They signal who we are—or who we want to be.

The vinyl records on your shelf. The outdoor gear in your garage. The books on your nightstand. These purchases communicate membership in tribes, affiliation with subcultures, commitment to values. You're not just showing off wealth. You're constructing and displaying a self.

This helps explain why conspicuous consumption is so persistent even among people who consciously reject materialism. You might mock luxury brands while still carefully curating an aesthetic of authentic minimalism. The consumption is conspicuous either way—you're just signaling to a different audience.

In this view, advertising doesn't just make us want things. It offers us raw material for identity construction. Buy this car and you're adventurous. Wear this brand and you're sophisticated. Drink this coffee and you're conscientious. The products become props in the performance of self.

The Gender Divide

A 2013 study by researchers Brenda Segal and Jeffrey Podoshen found significant differences in how men and women practice conspicuous consumption.

Their survey of over a thousand Americans revealed that men scored higher on measures of materialism and conspicuous consumption—they were more likely to buy things specifically to demonstrate wealth and status.

Women, by contrast, were more likely to make impulse purchases—buying things on a whim without the same calculated attention to status signaling.

Both genders showed equal loyalty to particular brands once they'd chosen them. But the motivations and patterns of getting there differed systematically.

This raises interesting questions about whether conspicuous consumption is fundamentally about the same thing for everyone, or whether different people are playing different games with the same pieces.

The Mencken Test

In 1919, the journalist H.L. Mencken asked a series of questions that cut to the heart of the matter:

Do I enjoy a decent bath because I know that John Smith cannot afford one—or because I delight in being clean? Do I admire Beethoven's Fifth Symphony because it is incomprehensible to Congressmen and Methodists—or because I genuinely love music? Do I prefer kissing a pretty girl to kissing a charwoman because even a janitor may kiss a charwoman—or because the pretty girl looks better, smells better, and kisses better?

Mencken was asking: can we ever know our own motivations? When we enjoy something nice, how much of our pleasure comes from the thing itself, and how much from knowing that others can't have it?

This is an uncomfortable question. Most of us like to believe our tastes are authentic—that we appreciate quality for its own sake, not because of what appreciating it says about us. But Mencken suggests the truth might be murkier.

Maybe the symphony really does sound better when you know others find it difficult. Maybe the bath really is more refreshing when you know it's a luxury. Maybe our pleasures are inextricably bound up with comparison and competition, no matter how much we wish they weren't.

The Luxury Industry and Social Media

The global luxury fashion industry generated €1.64 trillion in revenue in 2019—that's trillion, with a "t." This industry exists almost entirely to serve conspicuous consumption. Nobody needs a handbag that costs more than a used car. But plenty of people want one, because of what carrying it communicates.

Social media has supercharged this dynamic. Platforms built around sharing images of your life create constant opportunities for conspicuous consumption—and constant exposure to other people's consumption. The demonstration effect that Duesenberry identified in 1949 now operates at global scale and infinite speed.

You don't just compare yourself to your neighbors anymore. You compare yourself to influencers, celebrities, curated highlight reels from people you'll never meet. The reference group for your conspicuous consumption has expanded from your immediate community to everyone on the internet.

Interestingly, research suggests that during economic downturns, consumers shift away from obvious logo-heavy products and toward more subtle signals of affluence. When times are tough, screaming your wealth with giant brand names feels gauche. The truly sophisticated signal their status more quietly.

This is conspicuous consumption evolving. The game stays the same, but the rules keep changing.

Aggressive Ostentation

In 2006, CBS News commentator Dick Meyer proposed a darker interpretation of conspicuous consumption: maybe it's not just about status. Maybe it's about anger.

Meyer suggested that conspicuous consumption could be a form of "aggressive ostentation"—an antisocial behavior arising from alienation. When people feel anonymous, disconnected from community, invisible to their society, they might respond by forcing themselves to be seen. Look at my car. Look at my house. Look at my things. I exist.

This interpretation recasts conspicuous consumption as a symptom rather than a cause—a desperate response to the decay of communitarian bonds that once gave people a sense of belonging and significance. You don't need to prove your worth through purchases when your community already knows who you are.

But when nobody knows who you are? Then the objects you accumulate become the only evidence of your existence.

What the Economists Still Can't Explain

Marketing researcher Paurav Shukla pointed out in 2010 that we still don't have a comprehensive theory of conspicuous consumption, despite more than a century of study. The problem is that it sits awkwardly between economics and psychology.

Traditional economics assumes people make rational decisions to maximize utility—the usefulness or satisfaction they get from products. But conspicuous consumption is fundamentally irrational by these standards. The utility of a $50,000 watch isn't $50,000 greater than a $100 watch that tells time just as accurately. The extra value is psychological, social, symbolic.

So economists struggle to model it. Meanwhile, psychologists can describe the motivations but have trouble quantifying the effects. The phenomenon sits in a disciplinary no-man's-land.

This matters because the policies we might adopt to address the negative effects of conspicuous consumption—the debt, the inequality, the environmental impact—depend on understanding what's actually driving it. And we're still not entirely sure.

Living Well in the Attention Economy

Which brings us back to where we started: why do people earning six figures feel poor?

The answer, through Veblen's lens, is clear. Income is relative. Consumption is comparative. No matter how much you earn, you can always find a reference group that earns more—and in the age of social media, that reference group is constantly visible, constantly flaunting consumption you can't quite match.

The $140,000-per-year household isn't poor by any historical or global standard. But if their consumption is being judged—by themselves, by their peers, by the algorithms that serve them images of other people's lives—against a moving target that's always slightly out of reach, they'll feel the pinch.

This is the trap. Conspicuous consumption promises that if you just buy the right things, you'll achieve the status and security you crave. But the game is designed so that the goalposts keep moving. No purchase ever settles the matter. There's always the next thing, the better version, the upgraded model.

The millionaires next door seem to have figured something out. By opting out of the performance—by choosing conspicuous frugality instead of conspicuous consumption—they stepped off the treadmill. They stopped trying to prove anything to anyone.

Maybe that's the lesson Veblen has for us, more than a century after he wrote. The game of conspicuous consumption can't be won. The only winning move is not to play.

But knowing that and doing it are very different things. The psychological forces Veblen identified run deep. The social pressures Duesenberry described are real. The identity functions Hebdige analyzed are hard to resist.

Understanding conspicuous consumption won't make you immune to it. But it might help you recognize when you're playing a game that was designed to be unwinnable—and give you the chance, at least, to ask whether there might be a better one.