Giffen, Veblen – and wine


Jefford on Monday

Over Christmas, I sat down to dinner with a friend, the noted Deal wine collector and taster Frank Ward. We shared (with others) a bottle that, almost 30 years ago, he had paid just over £11 for. It is – or was – worth around £6,700 today.

Image: Andrew Jefford (left) and Frank Ward (right). Photos by Liz Mott lbipp

On my long way home, I began to wonder about how economic theories would account for this, and what they tell us about the nature of fine wine as a ‘good’. (If you just want to discover what the wine was, skip straight to the end of this blog now.)

Superficially, the bottle might seem to be what economists call a ‘Giffen good’ – a product which people consume more of, rather than less of, as the price rises. Frank was offered (by the late Anthony Goldthorp of O.W.Loeb) as many cases of this wine as he would have liked back in 1984; nowadays I doubt that anyone ever has a chance to buy more than a bottle or two when first offered.

The fact that this situation is intimately connected with social status and not consumption, though, disqualifies it as a Giffen good (where the price rise is a paradoxical consequence of supply and demand, in particular extreme poverty forcing up the price of staples at the same time as reducing access to superior goods). It would, rather, seem to make it what economists account a ‘Veblen good’.

Image: Frank Ward decanting in his cellar.
Photos by Liz Mott lbipp

Veblen goods reverse the usual laws of supply and demand, in that price increases make such objects more desirable, and price decreases make them less desirable. Few wanted Frank’s bottle when it cost £11 or so, though many could have afforded it; many want it now that it costs £6,700, though few can afford it. (For the record, £11 in 1984 equates to £30 now.)

The bottle is also what the economist Fred Hirsch called a ‘positional good’ in that its value is largely a function of the ferocity with which it is desired by others. Since the supply of this wine is fixed (and now very scarce: it was made from just one-third of a hectare of vines originally, and most will have been drunk), it is ardently desired by collectors, only the very wealthiest of whom can afford it. The price of positional goods tends to rise more swiftly than incomes. (Alas.)

The point, I reflected, at which a wine metamorphoses into a positional good must be a bittersweet one for its creator. Sweet in that it means that he or she will become personally wealthy; bitter in that that the wine is more likely to be drunk, in distracting or crapulent circumstances, by philistine plutocrats, status-flaunting oligarchs or the playboy sons of dictators than by those who, like Frank, would take an hour to track, notebook in hand, the wine’s fugitive felicities, and then share them with friends whose eyes would subsequently shine with the wonder of wine.

Photos by Liz Mott lbipp

Whether the customary set of fine wines as defined by the standard indices (such as those of Liv-ex) are truly Veblen goods must surely be in doubt, though, after their dismal performance since June 2011, a period during which the prices of other such goods (like fine art) have roared ahead, when stock markets have shone, and when the global supply of high-net-worth individuals has been maintained. The price rises of the noughties seem, in fact, to have made these objects less desirable, rather than more desirable: very un-Veblen.

Attempts to create a ‘Veblen effect’ for so-called icon wines don’t appear to work, either; the market must test a wine’s mettle, and high-priced launches for new wines often meet with a muted or dubious response. Perhaps the truth is that most fine wine is a kind of temporary Veblen good. Fashion can lift it to near-Veblen status, but fashion can dump it again when the high price turns malodorous. (Chinese politics, of course, is also playing a role in the tanking fine-wine market: see my column in the February editions of Decanter magazine, available now.)

Most fine wine is probably best seen as a straightforward ‘superior good’. In other words, it is a ‘normal good’ – and obviously not an ‘inferior good’ – which people tend to consume more of as their income rises. The laws of terroir, too, mean scarcity and high prices, the two economic hallmarks of superior goods. The number of fine wines whose high prices actually stimulate increased demand is very few, though: yes to DRC and Pétrus, but probably no to the First Growths.

Yes, too, to the wine which Frank and I drank – which was Le Pin 1982 (alongside Le Pin 1998 and some other delicious superior goods). To find out what it tasted like, look out for my column in the April edition of Decanter magazine, on sale from early March. But I can tell you that, at just over £11, it didn’t disappoint.

Columnist Introduction

Andrew Jefford is a columnist for both Decanter magazine and, Jefford has been writing and broadcasting about wine (as well as food, whisky, travel and perfume) since the 1980s, winning many awards – the latest for his work as a columnist. After 15 months as a senior research fellow at Adelaide University between 2009 and 2010, Andrew is currently writing a book on Australia's wine landscape and terroirs. He lives in the Languedoc, on the frontier between the Grès de Montpellier and Pic St Loup zones.

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