General economic principles govern the arts. Most important, artists use scarce means to achieve ends—and therefore recognize trade-offs, the defining aspects of economic behavior. Also, many other economic aspects of the arts make the arts similar to the more typical goods and services that economists analyze.
As in other economic sectors, marketplace exchange provides more choice for both consumers and producers. Adam Smith’s famous maxim that the division of labor is limited by the extent of the market applies no less to the arts. Larger markets support more diverse and numerous artistic styles. The advent of musical recording, for instance, expanded the market and enabled jazz, blues, country, ragtime, gospel, and rhythm and blues to find larger audiences. Each genre then split into diverse branches, as when rhythm and blues evolved into rock and roll, Motown, rap, soul, and so on. We find the same trends in literature. The book superstore and Amazon.com help many niche writers—not just authors of bestsellers—market their works to readers. The identification and marketing techniques of mass culture help artists to reach smaller groups of buyers, thereby giving artists a better chance to make a living from their work. In short, mass culture and niche culture are complements, not substitutes.
The arts also illustrate the more general benefits of wealth, a common theme in economics. The richer the society, the more options artists have. As wealth increases, so does the number of potential buyers, allowing artists to pick and choose their projects and to walk away if they do not like the terms of the commission. The pope had to beg Michelangelo to come back to finish the Sistine Chapel because the artist had many other potential customers at the time. Artistic freedom, while rarely absolute, is a product of prosperity.
Moreover, family wealth has also helped on the supply side. Many artists lived off family wealth for much of their careers. In France, for instance, Delacroix, Degas, Manet, Monet, Cézanne, Toulouse-Lautrec, Proust, Baudelaire, and Flaubert all relied on parental wealth to some extent. Some of these creators attacked the bourgeoisie of their time, in spite of the fact that a bourgeois society with its widespread wealth gave them their artistic freedom.
Wealth also gives rise to charity, one source of funding for the arts. In the United States, from 1965 to 1990, the number of symphony orchestras rose from 58 to nearly 300, the number of opera companies rose from 27 to more than 150, and the number of nonprofit regional theaters rose from 22 to 500. Charitable donations are key to all these artistic forms. Individual, corporate, and foundation donors make up about 45 percent of the budget for nonprofit arts institutions. Twelve percent of their income comes from foundation grants alone, two and a half times as much as from the National Endowment for the Arts and state arts councils combined.
Contrary to common opinion, the commercial incentives brought by wealth are not typically corrupting. Many artists chase profits, but the commercial and artistic impulses are not always at war. The letters of Bach, Mozart, Haydn, and Beethoven reveal that all were obsessed with earning money. Mozart wrote in one of his letters: “Believe me, my sole purpose is to make as much money as possible; for after good health it is the best thing to have.” Charlie Chaplin once noted: “I went into the business for money and the art grew out of it.” Many talented artists are motivated not just by narrow self-interest, but also by a desire to make money to help friends or to finance their creative urges.
The idea that the great artists in history were starving has been overplayed. No doubt many artists earn low incomes, in part because a market economy gives so many people the chance to shoot for an artistic career: the large number of would-be artists depresses wages. But many artists have earned a good living by selling their products to audiences or winning the loyalty of patrons. Michelangelo and Raphael were wealthy men in their time; indeed, most of the Italian Renaissance artists were commercially successful. More generally, most famous artists commanded high prices in their lifetimes. Shakespeare worked in the for-profit theater world and did not need patronage.
Even when artists cannot afford to make art for a living, a capitalist economy gives them the best chance of moonlighting. T. S. Eliot worked in Lloyd’s bank, James Joyce taught languages, Charles Ives and Wallace Stevens were insurance executives, and William Faulkner worked in a power plant. They all managed to create, either on the job or in their spare time.
Just as technological progress has helped create new industries and more options for consumers in other areas of the economy, it does so in art also. We take cheap paper for granted, but the Renaissance arts blossomed only when paper became cheap enough for most artists to afford. The French Impressionists used new colors, based on new scientific research on chemicals, that came from the industrial revolution. Rock and roll required the electric guitar and the advanced recording studio. Whereas John Keats, Mozart, and Schubert all died young of illnesses such as tuberculosis, medical advances allow modern artists to live longer and produce more.
On the other side, economist William Baumol, one of the first to write on the economics of the arts, suggested that the performing arts are “technologically stagnant,” not allowing significant productivity improvements. He noted that it still takes thirty minutes for four people to play a Mozart string quartet. As real wages rise in a growing economy, therefore, argued Baumol, the wage cost of a Mozart string quartet will rise. But Baumol ignored other aspects of technology that make such quartets more economically feasible. Modern broadcasting, for example, makes such quartets available not just to hundreds of people at a time, but to millions. And one reason this is a “golden age” for first-rate string quartets is that air travel allows them to perform around the globe and recruit members from different countries and continents. The contemporary Kronos Quartet plays both Bartok and Jimi Hendrix, relying on new ideas made possible by growing markets and technology.
The issue of free trade has long been resolved in economics: trade is good (see free trade). But only recently has the globalization of art attracted much attention. Arguing contrary to the principles of Adam Smith, many critics, such as Benjamin Barber, argue that cultural trade is bringing us a culture of the least common denominator—Reebok, McDonald’s, and bad TV shows. The evidence, though, supports free trade in the arts. Trade has done much to stimulate international diversity, just as it supports diversity within the borders of a single country. The Third World has produced many notable authors and moviemakers over the last several decades. Gabriel García Márquez, Naguib Mahfouz, V. S. Naipaul, and John Woo are all products of globalized culture whose art could not have existed without significant international trade. The metal carving knife—a product of the West—is a boon for poor carvers and sculptors around the world, as acrylic paints and canvas are for new forms of the visual arts. World music blossomed in the twentieth century, most of all in open, cosmopolitan cities such as Lagos, Rio de Janeiro, and pre-Castro Havana. Many Third World creators earn their living by selling their products to wealthy Western consumers. Western purchasing power has been central to Haitian naïve art, Jamaican reggae music, Navajo weaving, and the Persian carpet boom of the late nineteenth century, among many other artistic movements.
Because trade tends to make countries more similar, nations may appear less diverse. But countries become more similar in a largely beneficial way by developing a varied menu of cultural choice. One can now buy sushi in Germany and France, but this hardly counts as cultural destruction. Individuals have greater opportunity to pursue cultural paths of their choosing. So, although differences across societies decrease, diversity within a given society increases.
Just as trade improves the arts, restrictions on trade damage them. French cultural protectionism, originally imposed by the Vichy government and the Nazis, was retained by the French after the war. Before that time, French culture, including French cinema, flourished under largely free trade conditions. As subsidies and protectionism have grown, French cinema has suffered increasing economic difficulties.
Subsidy defenders argue either that supporting the arts is intrinsically valuable or that subsidies to art bring additional social or economic benefits. Subsidy critics challenge both presumptions: relying on the market, they say, may give us a better menu of choices. Arts in the United States receive much smaller direct subsidies than do those in Western Europe. The budget for the National Endowment for the Arts has never exceeded $170 million (and was only $115 million in 2003), an amount far less than the budget of many Hollywood movies. Yet the American arts are economically healthier in many regards because of their stronger commercial roots.
Just as government regulation slowed innovation in industries such as airlines and trucking, government regulators tried to slow innovation in the arts. Fortunately, the government failed. Many of America’s most significant cultural innovations—such as jazz, Hollywood, and rock and roll—flourished in the face of government opposition. At times the American government tried to censor these art forms or meted out especially harsh legal treatment to prominent creators (e.g., Alan Freed, Chuck Berry, and James Brown).
In sum, the economics of the arts reflects more general economic truths. The arts are often “special” in our hearts, but economic analysis suggests that increases in wealth, commercialization, and globalization are good both for the arts and for those who enjoy them.
Cowen, Tyler. Creative Destruction: How Globalization Is Shaping the World’s Cultures. Princeton: Princeton University Press, 2002.
Cowen, Tyler. In Praise of Commercial Culture. Cambridge: Harvard University Press, 1998.
Heilbrun, James, and Charles M. Gray. The Economics of Art and Culture: An American Perspective. Cambridge: Cambridge University Press, 1993.
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