Tag Archives: Economics

Robert Frank Gets Veblen Wrong

A recent article in the New York Times by Robert H. Frank, “Conspicuous Consumption? Yes, but It’s Not Crazy” epitomizes the paucity of understanding of Thorstein Veblen‘s economic theories today.

Frank approaches the topic of “conspicuous consumption”, a term coined by Veblen, from the standpoint of neoclassical, marginalist economics.  At this point, Veblen would be rolling in his grave.  Frank talks about “Veblen goods” which he describes as “commodities whose sales actually increase when their prices rise.”  This is not a term or concept that Veblen advanced (indeed, Frank is actually describing a Giffen good, also called a Gray good).  Frank accurately states, “The term was inspired by the economist Thorstein Veblen, who interpreted much consumption by the rich as an attempt to signal their great wealth to others.”  (emphasis added). Yet where the article goes really wrong is in the very next paragraph, beginning, “Yet wealth-signaling is probably less important than Veblen thought.”  Its argument is logically flawed in jumping from a theory advanced by others to draw conclusions about Veblen’s own theories.  The basic thrust of Veblen’s life’s work was to critique the pro-finance (non-)ethics of neoclassical economics.  One of the most frequently quoted passages from Veblen’s writings (“Why Is Economics Not an Evolutionary Science?”) attacks the marginalist equilibrium theories of neoclassical economics:

“The hedonistic conception of man is that of a lightning calculator of pleasures and pains who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area, but leave him intact. He has neither antecedent nor consequent. He is an isolated definitive human datum, in stable equilibrium except for the buffets of the impinging forces that displace him in one direction or another.”

Frank’s article basically tries to chisel away a sliver of a concept about “conspicuous consumption” (a form of “conspicuous waste” in Veblen’s terminology) and applies it in the service of marginal utility theory.  This is completely contrary to Veblen’s original theories.  So it is difficult not to scoff at Frank’s conclusion that Veblen may have been wrong, when Frank starts from a premise so unsympathetic and downright contrary to Veblen’s original theories.  Actually, this is not the first (and probably won’t be the last) time the New York Times has run an article like this that blatantly mischaracterize Veblen’s theories.

It is, however, heartening to see many online comments on these sorts of New York Times articles that attempt set the record straight–that is to say, to challenge the statements in these articles.  Also, the likes of Pierre Bourdieu (The Social Structures of the Economy, Distinction: A Social Critique of the Judgment of Taste) basically try to (sympathetically) carry forward and expand upon Veblen’s theories in a modern setting, using contemporary statistical techniques to provide empirical support.

Edward Bellamy – Looking Backward: 2000-1887

Looking Backward: 2000-1887

Edward BellamyLooking Backward: 2000-1887 (Houghton Mifflin, 1888)

The third bestselling book in the United States in the Nineteenth Century, Looking Backward is a novel about Julian West, a wealthy man living in Nineteenth Century Boston, falling into a trance for more than a century and waking up in a socialist utopian society in the year 2000.  The book is mostly a series of monologues in which the characters describe the new society.  There is a terrible romance subplot tacked on.  Basically, the writing is dreadful, taken on its own.  But this book captured the imagination of America as it industrialized.  The economist Thorstein Veblen cited this book as a key influence, and you might say that most of Veblen’s academic career was focused on establishing genuine economic theories that would move real-life society toward the utopian one outlined in Looking Backward.  Critiques of Bellamy’s vision are that while he presents a compelling economic utopia, he falls short of describing gender equality, for instance.  Still, as a description of a democratic society that fulfills the sort of ideals Jean-Jacques Rousseau outlined during the Enlightenment, this is one of the most positive.  This isn’t written as an attack on anybody, really, but as a description of how things could be so much better.  It aims to convince by showing the benefits of a non-capitalist economic system.  Bellamy also wrote a sequel Equality (1897).