From VoxEU, August 26:
How William Baumol created cultural economics
William Baumol, who passed away in May, initiated the field of cultural economics when he conceived the idea of the cost disease. This column outlines his thinking about the economics of music, paintings, and other creative and performing arts – as well as his own output as a painter and sculptor.
William Baumol is the ‘inventor’ of the cost disease, an idea that initiated the field of cultural economics. According to Blaug (2001: 123), “cultural economics or the Economics of the Arts, as it used to be called, may be said to have been created almost de novo 30 years ago by Baumol and Bowen’s (1966) book.”
Instead of defining the disease – every cultural economist should know what it says – here, according to Baumol himself, is the story of its birth:“John D. Rockefeller III and August Heckscher of Twentieth Century Fund had decided that it was time for the United States to do something to encourage the arts. So they decided they would have a two-pronged operation. One was a panel composed of good, solid business people who could show that the arts were not a Communist homosexual plot. Then they wanted a serious study. They talked to a number of people, and then someone told them that there was this crazy economist at Princeton who was interested in art. Well, it was the wrong art. I was interested in painting and sculpture. So they called me in, and I told them how I would go about selecting somebody to study it... And then the next day they called me and said, ‘We’d like to give you those instructions.’ I said, ‘I’m terribly busy. I can’t do it.’ And they called again, and I said, ‘Well, I’ll do it on one condition. There’s a young assistant professor here, in whose work I have great confidence. If he’s willing to do it and you’ll pay him…’ And they agreed and Bill Bowen came and took over the whole thing, as you can imagine. It was such a pleasure working with him. So we started to work on it, and he laid out all the things that had to be covered, how one should go about covering them. And then we started to get all these statistics about budgets. Then one night, it was 4:00 in the morning, I suddenly woke up and said I know why those costs are going up! I got up, wrote down a few notes, and went to sleep again. That’s literally how it happened.” (Krueger 2001: 217-18).The productive nature of sleeping seems to recur in science: a French mathematician called Andre Lichnerowicz once said that there is no difference between a mathematician who sleeps and a mathematician who works. This is very close to what Baumol’s son, Daniel, recounted about his father: “During a long trip, he would sit in the back of the car, oblivious to the world, and as we pulled in, he would announce, ‘I just finished that article’” (New York Times 2017).
Many people have tried to show that in the arts, there are many ways to ‘cure’, or at least alleviate, the cost disease. I am still convinced that Baumol was right. Of course, a string quartet by Beethoven can be played by a pianist, saving three musicians – or it can even not be played at all. That would indeed be more cost efficient – and perhaps there are not that many people who are interested in Beethoven’s or Mozart’s quartets anyway!
But we all get sick from time to time, and Baumol’s 1983 forecast is based on the same idea: “many of the services that we associate with quality of life will become relatively more expensive while mass-produced things become cheaper and cheaper… Cost increases are in the nature of the health care beast. Efforts to alter this nature will be fruitless or harmful” (see also Towse 1997).
His paper on “art investment as floating crap game” (Baumol 1986a) has collected over 490 citations (as of 17 May 2017). I don’t think that there are many papers published in the Papers and Proceedings issue of the American Economic Review that have done much better. And there are many of us who will never get 490 citations for any paper....MORE
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