The Theory of the Leisure Class: An Economic Study of Institutions (1899) was written over a hundred years ago, but the assertions made still hold true today. Veblen’s thesis was influenced by the zeitgeist of the turn of the century; the effects of the industrial revolution were now changing all aspects of social and economic life, although contemporary thinkers weren’t sure this was necessarily for the better. Veblens realized the close relationship between societal norms and economics, and his treatise served as critique to both consumerism, and the classical economists who operated under potentially false assumptions regarding the capability of individuals as rational actors.
His first observation is that the industrial revolution had done little to change history regarding the stratification of society. He studied the history of society and economics, specifically, how tribal and feudal systems that preceded him also had stratified classes. Examining past systems, he noted that after the division of labor, one typically fell into their occupation according to their ‘status group’, rather than on merit. Within this dynamic, higher status people typically practiced hunting and warfare, which are relatively economically unproductive compared to the activities of lower status people, like farming and manufacturing, which were productive. In medieval times, status and income were legally one-in-the-same, as only land-owning noblemen had the right to hunt and to bear arms as soldiers, giving them leverage against lower status people, whom became reliant on the upper class for protection. Today, the working class usually is paid a wage income that is inferior to the salaried income paid to the educated professionals, whose economic importance (as engineers, managers, salesmen, is indirectly productive for the whole of society; income and status are parallel.
One effect of that dynamic is that lower-status people will try to emulate the upper class by purchasing expensive brands, goods, and services because they perceive them to be of a higher quality, and thus status. Contrary to what a classical economist may expect, to strive for greater social status some may buy high-status products which they cannot afford, despite the availability of affordable products that are perceived as having lower quality and social-prestige, and thus being of a lower social-class.
This side-effect of consumer economics is still observable today, and in my opinion may have played a role in the recent ‘Great Recession’. In the late 20th century, for many people one’s societal status was measured, in part, by the size, and sometimes number, of their home(s). To obtain the higher status that Veblen described, they bought houses larger than their income could support, and thus got tied to mortgages that they had little chance to pay off. Collectively, the desire to appear as higher-status had a devastating impact on the economy; the housing bubble burst, and defaults on subprime mortgages was one of the first of many dominos that fell causing the 2008 financial crisis.
On a more topical level, a modern day well observed consequence of some low-income people coming upon money (through the lottery, sports, or music) is overspending on perceived high-status products. By trying to appear as one with a high status, they spend their income on expensive goods and services, sometimes resulting in a complete loss of their fortune.