The more expensive a Rolex is, the more you want it. Here’s why

Firstly, it’s important to understand the trade-off between work and free time, explains Wendy Carlin, professor of economics at University College London: “People work to earn income that they can spend on goods and services. As people become more prosperous, we expect them to want more free time and more goods. The question is, what is the balance between one and the other?”

Different societies make different choices. Carlin touches on the classic contrast between European and American work-life balance: “People say, ‘Europeans are just lazy and take a lot of vacation time,’ but they make different choices about how to use their higher standard of living, because what they really lack is time.” Veblen’s theory is why People are increasingly working in different countries, she explains.

“Some people are working two jobs just to survive, and some are working two jobs because they want the latest things, like a new phone or a new car,” Carlin said.

This may sound obvious to us, but in short, it goes against traditional economic theory, which says that we should be happy if our basic needs are met, and would have seemed insane to scholars 100 years ago.

“The assumption was that by now we’d be working only two days a week,” Carlin says, referring to a 1930 paper by John Maynard Keynes. Economic possibilities for grandchildrenIn “The Great Depression,” the economist predicted that improvements in technology and manufacturing efficiency would mean that people would only need to work 15 hours a week. “Instead, people will work two or three jobs, take two weeks of vacation, and buy more goods. Why will they do that? Because, as Veblen said, they are comparing themselves with other people.”

The price of Chanel’s classic flap bag has tripled since 2010.

Brunello Cucinelli cashmere is also a powerful social status symbol.

The rich get richer…

We may not notice the analysis of our work habits because we assume we have loftier motives deep down. But who can deny that we also yearn for a new Porsche, a Chanel bag, or a week in the Hamptons? Veblen’s writings state that people at all levels of society work to acquire symbols that they perceive as belonging to a higher class. It turns out that the more extreme that disparity is – the more unequally wealth is distributed in a society – the harder people try. “The greater the inequality, the stronger the Veblen effect,” says Carlin.

A study comparing the income share and average work hours of the top 1 percent of earners backed up this idea. “The Nordic countries were very unequal a century ago,” says Karlin. “Then inequality fell dramatically, and at the same time work hours fell. People became less interested in comparing themselves to the super-rich and decided to have more leisure time.”

If it’s not immediately clear how that impacts the way we live and spend today, consider that according to a 2020 report, income inequality in the United States has worsened dramatically over the past 40 years. Pew Research Center“The wealth gap between the richest and poorest American households more than doubled between 1989 and 2016,” he said, noting that the U.S. Gini coefficient (a measure of income inequality) is higher than that of other G7 countries. Therefore, it is unlikely that the forecast for U.S. luxury sales will be Rosy.

The Instagram Effect

There’s another element that’s essential to understanding why Veblen goods have come to have an increasingly powerful influence over us: their visibility. Because Veblen’s theory relies on the perception of others, anything that counts as a traditional Veblen good needs to have its price, and therefore its exclusivity, easily understood by others.

This simple fact is the foundation of luxury goods adorned with big logos, such as Louis Vuitton’s monogrammed Boston bags, the oversized grille of Rolls-Royce, or the instantly recognisable designs of iconic wristwatches like the Audemars Piguet Royal Oak.