Positional Goods

Positional goods were defined by Fred Hirsch as those goods whose value for the consumer who owns them depends more on how they compare with the goods consumed by others than on their direct utility. According to Hirsch, as the level of average consumption rises, so does the relevance—though also the negative side effects—of positional consumption. In the material economy, said Hirsch, the production of goods can be increased through technological innovations without loss of quality, but things are different for the positional economy. Here, people's relative position is measured by the access to and possession of goods that are scarce or become scarce as an effect of social competition. Competing for rare antiques and works of art, for leadership positions, for secluded leisure land and exclusive city center apartments, or for fashionable goods and services are different ways of obtaining positional outcomes. Rising affluence has made these goods and activities more accessible, but it will never fulfill people's positional desires. Since positional goods are, by definition, in given supply, the increased demand simply translates into an increase of their prices, with the effect that more effort is devoted to obtaining them with no individual gain realized. Just as at a football match when everybody stands up to see better, so one person's move cancels another's out. The result is social waste that cuts into individual welfare and aspirations and reinforces rather than loosens the social hierarchy of positions. The remedies that Hirsch envisaged had to do with a reformed social ethic that puts the social interest first. To this end, collective means may be necessary to implement individual ends, though the real extent of collective action and its efficiency is difficult to quantify, as Hirsch himself recognized.

[Page 1114]In his Choosing the Right Pond, Robert Frank develops Hirsch's framework further and offers some suggestions for measuring the scope of the positional economy. Demonstration effects for Frank are stronger for those goods that can be readily observed, such as cars, houses, and clothing, as well as high-status jobs. These become the consumption platform where positional expenditures most concentrate. Fewer resources are devoted instead to “invisible” budget categories such as saving, leisure time, safety devices, or insurance. This underconsumption of the invisibles is stronger for low-income consumers for whom the returns to status gains are higher. To slow down the positional treadmill, where, as per Hirsch, competing for a fixed number of favored positions in some hierarchy leaves the original relative positions unchanged, Frank suggests changes in individual incentives through a system of taxation that imposes higher costs on positional activities.

Hirsch and Frank introduce a new twist in the economic literature on the social dimension of consumption. The wants of social distinction and superiority are related to wants that, contrary to the basic needs for material comforts, are considered insatiable. As such, they become the source of that unlimited demand that is the necessary stimulus to a growing economy. In the alternative approach just discussed, these same insatiable wants become a hindrance to economic growth and the search for individual gains translates into a social loss. The reason is, as economist Tibor Scitosvky explained in an extensive review of Hirsch's book, that their demand has become nonfillable because of their unexpand-able supply.

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