Key Takeaways
- Conspicuous Consumption: Buying expensive goods as public display of economic power and status.
- Positional Goods: Items whose utility depends on relative scarcity, not absolute quality.
- Chronic Dissatisfaction: Competitive wealth pursuit creates persistent "restless straining" to widen pecuniary interval.
- Welfare Loss: Competition creates "positional treadmill" diverting resources from saving to status display.
- Mitigation: Prisoner's dilemma mitigated by collective action like taxing positional consumption.
The Positional Treadmill
Structural economic costs are generated by relentless status competition. Institutional economist Thorstein Veblen provided a foundational framework for analyzing the economic manifestation of social competition. Veblen coined the term conspicuous consumption in 1899, defining it as the practice of buying or using goods that are of a higher price, quality, or quantity than practical. This spending functions as a public display of economic power specifically aimed at maintaining or attaining social status. The primary incentive for accumulation is pecuniary emulation, where the accepted legitimate end of effort becomes achieving a favorable pecuniary comparison with other men. Veblen’s framework also includes invidious consumption, the ostentatious display of goods performed explicitly to provoke the envy of other people.
Show Consequences
This relentless competitive striving generates structural, macro-economic costs defined by the “positional treadmill”. When the stakes in positional contests are high, contestants face irresistible pressures to make heavy, mutually offsetting investments. Consequently, all spectators leap to their feet to get a better view, but in the end, everyone’s view is no better than if all had remained seated. From a collective vantage point, this additional effort is largely expended for naught. The need of conspicuous waste is indefinitely expansible, ready to absorb any increase in the community’s industrial efficiency after basic physical wants have been provided for. This wasteful system causes large and preventable welfare losses.
Mitigation Strategies
The positional treadmill is fundamentally a high-stakes prisoner’s dilemma. People might rationally seek to limit the consequences of their individually adaptive, but collectively destructive, status behaviors. Therefore, the main purpose of many legal and regulatory structures is to support cooperative solutions, effectively working to “slow the positional treadmill”. Policy can address this by taxing the undesirable activity. A luxury tax applied to goods for conspicuous consumption acts as a Pigouvian tax designed to correct this market failure. By rendering high-status goods more expensive than non-positional goods, such taxes diminish societal expenditures on status. The goal is to neutralize the illusory gain derived from advancing one’s relative standing through consumption. Economists also argue that replacing personal income tax with a progressive consumption tax could remedy the social malaise caused by conspicuous consumption.
What's Next?
Veblen’s analysis shows that the struggle for wealth, beyond subsistence, is largely a competition for positional rank. The pervasive nature of **conspicuous waste** is one of the chief reasons why resources are diverted away from economically productive uses. Future research must precisely quantify the aggregate welfare loss caused by this status competition and model consumption taxes as efficient mechanisms to channel resources toward saving and non-invidious expenditures.References
- Veblen, Thorstein. (1899). The Theory of the Leisure Class.
- Hirsch, Fred. (1976). Social Limits to Growth.
- Frank, Robert H. (1985). Choosing the Right Pond: An Economic Theory of Status.
- Mui, V. L. (1995). The economics of envy. Journal of Economic Behavior and Organization, 26(3), 311-336.