Thornstein Veblen, notable American and Sociologist, was a renowned critic of widely held economic concepts. He criticized the Marshallian model if consumers judge items in a vacuum (only costs and benefits). In his article, Why is Economics not an Evolutionary Science?, he stated that
“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….”.
The above description describes Veblen’s perception of Marshallian concepts of utility. Veblen believes instead that
“…it is the characteristic of man to do something, not simply to suffer pleasures and pains through the impact of suitable forces. He is not simply a bundle of desires that are to be saturated by being placed in the path of the forces of the environment, but rather a coherent structure of propensities and habits which seeks realization and expression in an unfolding activity.”
This different perception led to the formation of Veblen effects which affects certain goods known as Veblen goods. Veblen goods are very specific goods that are quite different from normal goods that have normal, downward sloping demand curves. We will go into further discussion about how the economic properties of Veblen goods affect real events in the world, specifically the legal ivory tusk trade.
Before going into further depth about the Veblen effect in real life events, we must distinguish it from other similar economic effects/goods. In terms of goods, there exists Veblen goods and luxury goods. A Veblen good is a good that when price rises, quantity demanded for that good also rises and vice versa. This means that the demand curve in a supply-demand graph, would be upward sloping after a certain luxury price value. A luxury good, on the other hand, will have an increase in demand if income increases, showing an income elasticity greater than one. These two goods differ by involving income; Veblen goods do not require income to change the quantity demanded in said good.
In terms of effects, there is the Veblen effect and the snob effect. The latter effect describes how goods will have more quantity demanded depending on its exclusivity through price or availability. For example, in 18th century Rome, Tyrian purple dye was highly sought after good due to the laborious process it took to produce it. Thus, the dye had a snob effect rather than a pure Veblen effect, because it was the exclusivity that increased its demand, not price. An example of a Veblen good, on the other hand, would be Cristal champagne. Cristal was a very expensive champagne that once received endorsement from famous rap artists. A disagreement between the two parties led to slightly lowered demand for Cristal champagne, causing a supply glut in stores that had ordered the drink. Increased supply caused prices to lower, which enhanced the Veblen effect. Because the price of the once expensive champagne had lowered, there was a large backwards shift in quantity demanded, such that “Cristal fell rapidly in popularity from #8 in 2005 to #63 in 2006.”
After differentiating between effects and goods, we can see how the Veblen effect impacts the ivory trade. In a United Nations report,
“The import of mammoth ivory into China and Hong Kong SAR does not seem to follow the law of supply and demand, which expects demand to decrease as price increases. Instead, in recent years the amount of mammoth ivory imported into China and Hong Kong SAR has been increasing in direct proportion to price.” This is a great example of a Veblen good, since a price increase caused a further increase in demand for Ivory, thus a vindication of Thornstein Veblen’s ideas.
To curtail the Ivory market, it must be made cheaper on the market. This is because Veblen goods will decrease in quantity demanded if the price goes down, like through imposing a price ceiling. As listed above, increased exclusivity of the product may have an unintended snob effect, causing quantity demanded to rise, but since there would be a set price ceiling, there will be less quantity supplied than demanded. Thus, the quantity supplied of ivory could not increase past the amount set by the price ceiling point.
Veblen effects, although not particularly common, are distinguished from other economic effects and can be readily observed in the real world, further vindicating Thornstein Veblen. With Veblen deviating from commonly held Marshallian viewpoints, he could give an example of goods that do not obey the traditional demand laws set by Marshall. The properties of Veblen goods can even be used to solve world issues, like in the Ivory trade example.