Abstract
We develop a theory of the supply side of art markets building on Kirzner’s understanding of entrepreneurship as alertness to profit opportunities. Whereas Kirzner’s entrepreneur is alert to the existence of resource misallocation, the artistic genius is alert to the opportunity of producing aesthetic value out of mundane objects and resources with no such value of their own. Our theory produces an important empirical implication: when market conditions are such that most art is “high art,” the artist will perform both functions, alertness to artistic value and alertness to profit opportunities. Instead, when most art is “low art,” the two functions will belong to distinct individuals. To substantiate our theoretical arguments, we discuss their relevance to the markets for paintings in Renaissance Italy and contemporary visual art.
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Notes
We do not take a position in the complicated debate on what constitutes high as opposed to low art (Fisher, 2013). For our purposes, we use these terms as reflecting contemporaneous sensibilities. Specifically, we follow Cowen and Tabarrok (2000) in defining high art as that art that receives contemporaneous critical approval. Thus, a Renaissance patron and a contemporary art critic may not see eye-to-eye on whether an Andy Warhol painting belongs to a museum. Yet, both would understand the distinction between high forms and low forms of art. Generally speaking, Renaissance artists, theorists, and patrons emphasized the importance of technique and skills, materials, and originality, though the latter was constrained by adherence to traditional religious imagery and symbolism (O’Malley, 2013; Welch, 2000). In the modern visual arts, originality and abstraction have a much more significant influence on how an artwork is perceived, while materials and technique are relatively less important (Galenson, 2009).
We do not claim that these are the only changes in the art market between the Renaissance and now. However, changes in production technology and income are likely exogenous to the art market. This makes them better candidates for starting points in developing a causal theory of the separation of entrepreneurial and creative functions than potential alternatives like the sensibilities of consumers and artists or the degree of specialization within the industry.
We use institutional arbitrage to refer to any form of arbitrage that does not take the standard form of “buying cheap and selling high.” Any rearrangement of the process through which commodities are produced and exchanged that does not take the form of price-arbitrage falls within this category. Thus, for instance, we would see the move towards the vertical integration of different tasks as a form of institutional arbitrage. See the discussion in Piano and Rouanet (2020).
See also Caves (2006).
Economic value is subjective in that any commodity is only valuable in connection to its ability to contribute to an individual’s goal of reducing perceived uneasiness. Aesthetic value is subjective in that it pertains to the emotional response an artwork generates in an individual observer. Neither value is “intrinsic” to the object and only exists because of its relationship to one or more subjects.
Unfortunately, there is no empirical evidence we are aware of that would help us estimate the size of the market for low art in Renaissance Italy. This lack of evidence on this market may itself indicate that it did not constitute a major source of workshop revenues. Moreover, artistic commodities, including low art, are very likely normal or superior goods (Skinner et al., 2009). Given that Renaissance Italy, wealthy as it was by historical standards, was still operating in a Malthusian equilibrium, it seems reasonable to assume that most households did not allocate any significant share of their income to the consumption of any art, including low art. Given how most high art was public and easily accessible at least in urban areas, we suspect that revenues from low art were but a small fraction of those from high art.
The demand for high art has assumed another dimension over the past century, as paintings and other works of art have become profitable avenues for investment (Ekelund et al., 2017, 255). This phenomenon has been driven by the prospect of fast and unexpected surges in the value of “underappreciated” artists whose work may go from commanding prices in the hundreds of dollars to several hundred thousand or even millions in the span of just a few years (Galenson, 2009, 22–3).
Some modern visual artists have gone so far as to challenge the very distinction between high art and low art, and even the notion that we can separate art from non-art. For example, one of the most consequential contribution to twentieth century art was Marcel Duchamp’s Fountain, a porcelain urinal to which he had only added the signature “R. Mutt.” The pop-art movement's major figures took a similar stance as they adopted and endorsed the use of industrial practices for the mass-production of their artwork and “by making original works that pretended to be copies of the commercial originals” (Galenson, 2009, 54).
In Cowen and Tabarrok’s (2000) framework, a generalized increase in income may also lead to a higher indulgence in the realization of aesthetic value by artists. Their argument is that the income effect of economic growth may more than compensate for the substitution effect of higher compensations available from the satisfaction of the demand for low art. Nevertheless, they find that this effect should be weaker for artists who already operate in the market for high art.
Caves (2000, 38).
Running a gallery is a very expensive endeavor, Caves (2000, 45) reports the estimate that in the 1980s in New York City starting an art gallery required one to incur a fixed cost of $250,000. It is also a risky one, as only twenty five percent of new art galleries survive after five years.
See Ekelund et al. (2017) for a discussion of the economics of auctions for paintings and other artworks.
According to Ekelund et al. (2017, 46) there are currently over two hundred auction houses in the United States alone, mostly concentrated in the American Northeast.
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Acknowledgements
We thank the editors of the Review and two anonymous referees for their helpful feedback on the original manuscript.
Rania solely contributed to those sections of the manuscript related to Kirzner’s work on entrepreneurship. For religious reasons, she did not work on parts related to art due to impermissibility of drawing anything that depicts animate beings, images taken as idols, and to erect statues of animate beings, and music instruments in Islam.
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Piano, E.E., Al-Bawwab, R. The artist as entrepreneur. Rev Austrian Econ 36, 23–41 (2023). https://doi.org/10.1007/s11138-021-00547-8
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DOI: https://doi.org/10.1007/s11138-021-00547-8