MORE THAN 100 years ago, Thorstein Veblen, the father of behavioral economics, explained the thinking behind most of our purchases and investments with the help of two spoons. In his seminal 1899 book, The Theory of the Leisure Class, Veblen compared a handmade silver spoon, which back then could cost up to $20 ($600 in today’s money) with a machine-made aluminum spoon that cost about 20 cents ($6 today).
Based on strict utility of purpose, there would seem no reason to spend one hundred times more for the silver one—and yet many people did it then and still do it today. There must be some other benefit to owning an expensive spoon, one that does the same job as a spoon with 1/100th of the cost.
Veblen reckoned that the silver spoon’s added “benefit” for the owner derived from the personal joy of spending so much for such an expensive item and the consequent admiration the owner would garner from others. Veblen called this excessive spending “conspicuous waste.” He went on to give other examples of how wealthy people flaunt their money for personal validation and public envy, but the simple spoon dichotomy summarizes the concept well.
The spoon comparison also allowed Veblen to point out the riskiness, and potential cost-benefit imbalance, in using luxury possessions to gain internal and external validation. In the case of the silver spoon, the 100-times outlay is only worth it if others know of the silver spoon. If the silver spoon turns out to be a forgery, all is wasted. If the aluminum spoon is made to resemble the silver one, the admiration might be lost. Above all, the entire process depends on others sharing the same values—that owning a silver spoon is admirable—and, if not, the flaunter runs the risk of receiving scorn rather than admiration.
Even with all these caveats, Veblen didn’t address additional issues that would arise with silver spoon ownership, including the extra costs for securing the publicized thing of value, the time and cost of upkeep, the cost to replace a damaged or lost item and, possibly, the added worry over safeguarding the valuable item.
Veblen meant for his homely illustration (as he called it) about spoons to be a cautionary tale about the risks of buying to impress either oneself or others. If that lesson was good in 1899, it’s even more applicable today. As we amass wealth, we want to “live the good life” and reward ourselves with “the finer things.” We want the fancy car, exotic resort vacations and luxurious house appointed with great art—and we certainly don’t mind if others see these things and are a bit envious.
But what’s the cost? How much more do we have to spend to “live at the right level” and what extra ongoing upkeep do we have to pay? Most important, we aren’t just spending today’s dollar, but tomorrow’s dollar plus interest.
Whether it’s a silver or aluminum spoon back then, or a luxury automobile or a serviceable one today, is the ephemeral admiration of others or the sense of self-satisfaction worth the extra years of work to pay for the luxury choice? Ironically, in today’s FIRE—financial independence/retire early—mindset, values have been turned on their head: The greatest self-satisfaction and admiration comes not from working many years to acquire possessions that then compel us to worry and work more, but from using as many “aluminum” substitutes as we can, so we quickly free ourselves to pursue interests beyond saying to others, “Look at my spoon.”
You can’t say Veblen didn’t warn you.
Jim Wasserman is a former business litigation attorney who taught economics and humanities for 20 years. His previous articles were Under the Influence and Gaming the System. Jim’s book series on teaching behavioral economics and media literacy, Media, Marketing, and Me, is being published in 2019. Jim lives in Granada, Spain, with his wife and fellow HumbleDollar contributor, Jiab. Together, they write a blog on retirement, finance and living abroad at YourThirdLife.com.