An interesting paper a couple of weeks back was telling us that having an iPhone or iPad means you are rich. Or, as the paper itself put it in more detail, it is a good indicator that you are rich. However, it’s important that we get this the right way around - Apple products are a Veblen good.
Any student of human nature will have observed that we all like to show off more than a little bit. It’s a part and parcel of what continues the existence of the species.
That’s how the mating game, that sport which leads to children and the next generation, is played. This is true of arranged marriages just as much as it is of a more free-market dating scene.
All of us are displaying, in one manner or another, the assets we have and we attempt to make the best deal we can with them. Unromantic, certainly, but true all the same.
Given the way that we do work, this spills over into other areas of life as well. The American economist Thorstein Veblen described this as conspicuous consumption -- things that we have, own, or display simply to show that we are wealthy enough, or perceptive, artistic, young, fashionable enough - whichever we’re trying to emphasize.
One example of Veblen’s time was a Vanderbilt heiress who had diamonds implanted into the skin above her spine. This, given the low-backed style of dresses of the time, worked wonderfully to show that she was immensely wealthy - if not all that smart.
We’ve now picked up this idea and call things that are desired precisely because they do this advertising of social status for us Veblen goods. Things that are desirable specifically because they are desirable is the rather tautologous definition.
That they’re expensive just adds to the desire for them, because their function is to display that we’ve enough resources to be able to afford such expensive things.
It’s this which explains the popularity of Apple products. Sure, they’re pretty good phones and so on. But they very definitely carry a price premium over most Android equivalents.
And yes, this is a matter of utility and taste, but it’s not obvious that they’re as good in technical terms to justify that price premium. But if we add in this conspicuous consumption element than it all makes sense.
People are paying the premium in order to show that they can pay for it - Apple is a Veblen good.
This then explains why we’ve got that connection between ownership of iPhones and iPads and greater income. It isn’t because they’re so much better that the rich buy them - or not at least exclusively or even majorly. It’s because all know they’re more expensive, thus displaying one shows something about the wealth of the owner.
Great for Apple, because they get to charge a premium precisely because they’re charging a premium - an excellent business strategy if you can pull it off.
We could also dismiss all of this as mere posturing and decide to get rid of it. As many of the more interventionist politicians have tried to do over the generations. There have been sumptuary laws - who may wear which type of clothing of what value - since at least the Middle Ages.
But to do so is to misunderstand something important about the human psyche - this striving for social standing is one of the things which drives society along.
For the truth is that many to most technological advances come from exactly this desire to show off wealth and social status. It’s within my adult lifetime that the mobile phone was first launched in my native Britain, and the cost was that of a reasonable used car for the handset.
Airtime per minute cost more than the average hourly wage. The major use of such technology was so that people could pose, could show off their monetary status.
But exactly that Veblen good status brought in the competition which lowered the price of a basic handset and voice service over the next couple of decades to where we now have more connections globally than there are people.
That preening for social status actually has beneficial effects for the rest of us, however silly or even pernicious we might think the behaviour itself is.
The same has been true of many other inventions too. The motor car was, for the first couple of decades of its existence at least, a toy for rich men to play with. It was most certainly slower, less reliable, and more expensive than a horse and carriage.
But it was those decades of making toys for the rich which paved the way for Henry Ford and his application of the assembly line to their manufacture and then the first people’s car, the Model T.
Gas lighting, followed again by electric lighting, was less objectively useful than the earlier kerosene or even candles but it worked excellently to show off wealth and thus, status.
The truth is that in a static society, Veblen goods are indeed a waste. They do nothing more than display the social status of those that have them, such status being one of the few truly zero sum games that we indulge in.
It’s not possible for us all to gain more social status, for after all, those who have it do so at the expense of those who don’t. But the moment we find ourselves in a technologically mobile society, they do have a value for the rest of us.
It is precisely those rich playing with their toys - playing with them simply to show that they’re rich enough to afford the toys - who fund and drive the mass manufacturing which lowers the cost of them so that we can all have them.
That’s why almost every Android manufacturer is adding this year what Apple did last.
But precisely because we associate Veblen goods like an iPhone with that greater wealth and status that capitalism struggles mightily, and thus succeeds in making them cheap enough for us all.
Tim Worstall is a senior fellow at the Adam Smith Institute in London.