Alternative Ideas from 10 (Almost) Forgotten Economists by Irene van Staveren

Author:Irene van Staveren
Language: eng
Format: epub
ISBN: 9783030576097
Publisher: Springer International Publishing

The Leisure Class

Nick Hanauer grants that economic inequality is an economic problem that may result in destructive social dynamics. Hence, he recognizes what the founder of institutional economics already argued over a century ago. Thorstein Veblen became famous with his biting analysis of the rentier economy, The Theory of the Leisure Class, which was published more than a century ago.10

This bold social scientist observed high-income inequality in Europe and the US that did not seem to arise from hard work and entrepreneurship by the top earners and the lack of it by everyone else. He argued that the rentiers—in particular large landowners—did not provide any useful contribution to the economy. To the contrary, these wealthy men were proud to belong to the leisure class, and they emphasized the leisure time of their wives, who were not supposed to do any paid or unpaid work. At most, upper-class women were allowed to engage in charity, as the complement of their husbands’ engagement in speculation or politics. In his article titled The Barbarian Status of Women Veblen already referred to the phenomenon of a trophy wife—not at the arm of a popular football player, but at the side of a man seeking public admiration of his status expressed with plenty leisure time spent at the horse races.11

The leisure class, Veblen observed, collects trophies such as extravagantly dressed women, luxury gadgets and big estates. And they are able to maintain that position because others, in the middle class and even in the lower classes, are furtively jealous. As a consequence, the wealthy generate a social norm to which a large part of society aspires and what Veblen calls an institution. This insight would become the start of institutional economics, which studies the effect of institutions on economic behaviour but also the influence of economic behaviour on the emergence, continuation and change of institutions. The earlier mentioned study of Wilkinson and Pickett about the social consequences of inequality, illustrates how widespread the institution of economic status has become in a country like the US. Approximately 13% of Americans live below the poverty line, but 80% of them have air-conditioning and 75% of them own a car, while at the same time their health status, life expectancy and food intake are significantly less than those who are economically better-off. The entrepreneurs and workers, who are the main contributors to productive activity, nevertheless are strongly influenced by the institutions of the wealthy class, who take their decisions on rents from their armchairs. Veblen therefore also refers to them as the pecuniary class: the leisure class which invisibly sets the rules of the game by receiving income from pecuniary activity and consuming it in extravagant ways.

It should be noted, that Veblen’s critique of the rich class should not be confused with Marx’ critique of capitalists. Whereas Marx criticized entrepreneurs for their exploitation of labour, Veblen admired entrepreneurship and criticized those who did not invest their wealth in factories, technology and other productive investments. He noticed that not

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