Culture and economy - a distinct relationship

Elaboration on the presentation of Bruno Frey 'Economist open up to the world around standard economics'

Presentation (Elaboration) 2006 23 Pages

Cultural Studies - Basics and Definitions


Table of Contents

1. Introduction

2. Development and Presentation of the field of Cultural Economics
2.1. What constitutes an economic perspective?
2.2. Comparison of the economic and the sociological point of view

3. Bruno Frey
3.1. Life and significance as a scientist
3.2. Summary of selected works
3.3. Main concepts and their relevance for the arts

4. “No Policy is the best Policy”? Arguing for and against markets

5. Conclusion

6. Literature

7. Appendix

1. Introduction

“Economists – on the arts? Isn’t this a blasphemy? On the contrary: we believe that economists are able to contribute to a better understanding of many different aspects of both the visual and the performing arts.”

(Bruno Frey & Werner Pommerehne 1990:vii)

Economy and art - for many decades these two fields were considered to be incompatible. However, according to Christoph Behnke, the homo oeconomicus has “made his entry into the field of art” during recent years (Behnke 1997:262). With the genesis of cultural economics the application of economic theories on art became generalable. However the observed convergence of economy and culture arouses critical voices too. Animadverting as Rosalind Krauss has termed it the “capitalisation of culture” (ibid.) or like Vaudour-Faguet called it the “Disneylandisation”[1] of the arts (Vaudour-Faguet 2001), fearing hegemony of mass culture and in this way “heteronomisation” (Behnke/Wuggenig 1994) resp. heterogenization of culture (Appadurai 1990:6).[2]

Despite these depreciating opinions it is of interest in what way an economic viewpoint and/or the market can meet the requirements of art and what effects different instru-ments have on the arts and on society in general.

Among others Bruno Frey, a Swiss economist, devoted a great deal of his research work to dealing with some of these questions. It is for this reason that his approach is in the center of attention of the present paper.

In general this paper consists of two parts. A first rather descriptive part is giving a short overview of the development and characteristics of Cultural Economy and introduces Bruno Frey’s work. The second part presents Frey’s argumentation considering the effects of the market on art and questions his manner of doing so by contrasting his arguments with other authors in order to proceed to a general critique of the market per se. Concluding, the paper opens up a global perspective, underlining the consequences of an economisation of the arts.

All in all, this work is rather emphasising the creation of a consciousness of the discourse than pointing out a concrete concept of probable cultural policy.

2. Development and Presentation of the field of Cultural Economics

Already in the 50th theoretics of mass culture like Adorno or Dwight MacDonald prognosticated today’s penetration of culture and economy (Wuggening 1996). But still in the early sixties “economics of arts” was almost unknown even among economists. The only question which was dealt with (in the frame of public finance), was whether the government should support the arts (Frey & Pommerehne 1990:3). But with Baumol and Bowen’s breakthrough work about the economic dilemma (“cost-disease”) of the performing arts[3] (Baumol & Bowen 1966) things changed and in a way the field of cultural economics came into being (Frey 2003:3). Researchers like Moore, Peacock, Weir, Netzer, Blang and not to forget Throsby proceeded Baumols & Bowen’s first steps in the following years (Frey 2003:3) leading to the now established field of research (Frey 2003:1).

Cultural Economics, defined by Frey as the “systematical study of the interaction between individuals and institutions in society” (Frey 2003:1), looks at humans “as producers and consumers of the arts“, analysing how individuals are acting and deciding under certain historical, social and political conditions (Frey & Pommerehne 1990:1). It is trying to figure out the underlying behavioural patterns which make people buy art, go to the theatre, listen to operas, as by means of such patterns economic concepts of demand and supply can be applied (Frey & Pommerehne 1990:6). According to Frey and Pommerehne it be an empirical oriented approach which tries to quantify the observed relationships (Frey & Pommerehne 1990:13).

Cultural Economics seeks to support art and stresses the social value of it (Frey 2003:v). It is dealing with questions such as the price of art, copyright, how the state should support the arts or how performance of art institutions is evaluated (Frey & Pommerehne 1990:11).

Doing so it introduced a new inter-disciplinary (Frey 2003:1), making use of a number of disciplines like law, sociology, art history and economy, to name but a few. Thus, Cultural Economics crosses the traditional boarders of economy (Frey & Pommerehne 1990:4) and is according to Frey the field of economics, which is “most open to new approaches” (2003:8).

In terms of its relation to other disciplines Cultural Economics is similar to the “sociology of arts” (Bourdieu, DiMaggio, Foster&Blau) but has so far little to do with “art history”, as theorists of this field fear the commercialisation of art (Frey 2003:5).

2.1. What constitutes an economic perspective?

Cultural Economics is not confined to analyse only the monetary aspects of cultural institutions but rather generally looks at art from an economic perspective (Frey & Pommerehne 1990:4). In so doing it sticks to a rational choice framework (Frey 2003:2), making use of neoclassical methodology (demand/supply-questions, behavioural models), but in the same way arguing that it is useful to exceed this frame, e.g. by emphasising the importance of intrinsic motivation and the related crowding-effects (see chapter 3.3).

Besides that, a Cultural Economic point of view not only “stresses the role of values and allows for a combination of economic and other values [...], [but also] claims to account for the dynamic lives of cultural goods that include both economic moments of cultural valuations and (de)valorisations[4] ” (Klamer 2003). Through this focus Cultural Economics is emphasising the exceptional value of culture.

Although the economic approach to art was not always welcomed by traditional researchers, it is considered to be successful by Frey and Pommerehne, as new questions are brought up, new aspects are analysed and new insights are gained (Frey & Pommerehne 1990:4).

Theorists who look at art from an economic angle take, according to Frey (Frey & Pommerehne 1990:8), at least two concepts as a basis: the scarcity of art and the prevailing of individual behaviour. According to that approach art is subject to scarcity, requiring labour, capital and creative resources. Scarcity in an economic sense means that one has limited means so that if one undertakes one thing no other thing can be undertaken (Pindyck & Rubinfeld 2003:54). In art this principle is valid as well, e.g. a director of an opera house has to choose which plays he is going to play and cannot perform all, as means are scarce (Frey & Pommerehne 1990:8).

Moreover, in an economic point of view the individual is of importance. Following certain features of behaviour characterise the economic approach:´Individuals are seen as constantly interacting (Frey 2003:21) and behaviour is attributed to incentives which act on individuals (Frey & Pommerehne 1990:6). Producing and consuming art (supply and demand) are bound to individual behaviour and decisions which depend on certain preferences and constraints. Changes in behaviour are attributed rather to constraints than to preferences. Contrary to the wide spread stereotype of the alienated artist, individuals and artist are seen as “mostly pursuing their own interests” (Frey 2003:21, 1990:12). According to the economic approach behaviour of artists does not differ fundamentally from other human beings. Artists also allow for costs and benefits (monetary and non-monetary) of certain behavioural alternatives in the frame of historical, social and institutional conditions. There are several examples that artists are well aware of financial aspects. It is for instance reported that Dali has said: “all that interests me is money” (Frey 2003:7). Another important cornerstone of the economic approach is the comparative view on institutions, studying the effect of institutional settings on art (Frey 2003:22), taking for instance the director of an opera house which has changed from being supported by the government to private support, as an example for humans who act differently due to different institutional conditions (organisational forms) (Frey & Pommerehne 1990:33ff).

2.2. Comparison of the economic and the sociological point of view

Having been introduced to some aspects of the economic point of view leads to the question in what way the sociological and the economic view on the arts differ. In general the sociological approach is the dominating one in the field of arts (Frey & Pommerehne 1990:12). This approach looks mainly at the demand side of the art, neglecting the cost side. The focus are the effects of education and income on arts consumption. The economic approach conversely includes demand and supply side and their interaction. Concerning the demand side the economic approach looks at negative effects of attendance costs (monetary and non-monetary) and not only takes time but also the influence of changing prices in other leisure activities into account.

The few sociological studies which are dedicated to the supply side make use of role models to explain the behaviour of the artists. In this point of view artists are driven by “what they consider to be appropriate”, being sanctioned when deviating from what is socially appropriate (Frey & Pommerehne 1990:12).

3. Bruno Frey

3.3. Life and significance as a scientist

Bruno Frey is a Swiss economist who won international recognition for his frequent transgression and further development of traditional economy. Even though Frey is one of the most cited economists in Europe (see appendix, fig.1), his approaches go relatively unheeded in mainstream economy, especially in Germany. The specialised press of the discipline however is showing great interest in him.

Frey is author of more than a dozen books and hundreds of articles primarily in economic journals. He was awarded honorary doctorates at the universities of St. Gallen and Göteborg in 1998 and co-founded the Council for Research in Economics Management and the Arts (CREMA) in Switzerland in which he acts as research director (CREMA).

During the 1970th and 1980th he made a name in the German-speaking countries as a pioneer in the fields of “New Political Economy” and “Environmental Economics”. Today his main focus lies on the linkage between psychology and economy, currently dealing with the topic “Happiness & Economic s”. In this field he introduced for instance the term “intrinsic motivation” in the otherwise rather on extrinsic incentives oriented economy.

Besides that Frey devoted a bunch of his work to the alliance of art and economy. Among others “Arts & Economics” (2003), “Inspiring Economics” (2001), “Not Just for the Money” (1998) and “Muses and Markets” (1990) are to be mentioned in this respect. These treaties are in the focus of this paper, being summarized subsequently.

3.4. Summary of selected works

Before elaborating on certain concepts introduced by Bruno Frey a brief overview about the mentioned books “Arts & Economics” (2003), “Inspiring Economics” (2001), “Not Just for the Money” (1998) and “Muses and Markets” (1990) should be given.[5] In general major parts of the quoted books are alike – using the same concepts, arguments and examples.

“Muses and Markets” sheds light on the characteristics of the economic approach and discusses success and failure of the market resp. the government.

In “Not Just for the Money” Bruno Frey analyses the Crowding and Spill-over Effects (see chapter 3.3.) in depth, puts them not just into a theoretical perspective per se but also looks at their relevance for economic policy - doing so he demonstrates some consequences of economisation of society, such as the loss of productivity and morality in the long run.

“Inspiring Economics” deals with questions of knowledge transfer. Here the concept of tacit knowledge, which is based on intrinsic motivation and constitutes a major competitive advantage, is introduced. Besides that the effect of different organisational forms on motivation is discussed and the need to import other sciences into economics is stated.

“Arts & Economics” presents the characteristics of the economic approach to culture. It postulates the advantages of the market and compares government and market in respect to their way of supporting the arts. Moreover, it tries to deal with neglected areas of the relationship between the state and the arts.

All in all, Frey is an advocate of the market, defining art as a service which can be provided and supported by the same. Being consistent with the view that the market can accomplish coordination tasks better than the state (Willke 2003:32) Frey hence can be numbered among neoliberalists.

Concomitant Frey also states that the classical axiom of the market, the Price Effect, does not always work and might even have negative effects on the arts. Hereby he corroborates his thesis on the concepts of intrinsic motivation and Crowding effects which are to be presented in the following.

3.5. Main concepts and their relevance to the arts

A basic concept used by Frey is intrinsic motivation. Standard economic theory rather focuses on extrinsic motivation and is normally not interested in making any differentiation at all among sources of motivation as they are all “just manifestation of underlying preferences” (Frey & Jegen 2000:592). Frey however adopted the term from psychology and introduced it into economics.

Defining intrinsic motivation Frey sticks to Deci who postulates the following definition (1971:105): “one is said to be intrinsically motivated to perform an activity when one receives no apparent reward except the activity itself” (Frey 1998:13).

Intrinsic motivation is a major source of creativity. Being especially dominant in the first artistic years of an artist and leading to particular productivity, intrinsic motivation is of special interest for the arts, Frey 2003:7).

As intrinsic motivation can be a fruitful source of productivity, economists think about possibilities to raise it and thereby draw on the classical Price Effect (Frank 2000:48).[6] However, psychologists (Lepper&Green, Deci, Ryan) suggest that under certain conditions rewards undermine intrinsic motivation. This phenomenon got well known under the name of „The Hidden Cost of Reward“ (for extensive reference see Lepper&Green 1978). By introducing this effect into economy, calling it ’Crowding-Out Effect’ (Frey 1998:15, Frey 2001:91), Frey broke with the classical economic theorem – the Price Effect.[7] Frey elaborated under which conditions Crowding Effects occur and showed that the Price and Crowding Effects are concurrently active. He demonstrated that it depends on the relation of both effects what consequences they might have (Frey 1998:22). Generally there are two options: If rewards are perceived to be controlling than the Crowding-Out Effect might appear, inducing impaired self-esteem, self-determination and expression possibilities (Frey 1998:16f.). In the consequence intrinsic motivation is lost and substituted by extrinsic motivation being focussed on extrinsic (monetary) incentives alone (Frey 1998:17). On the other hand if these rewards are apprehended to be supportive and/or acknowledging they lead to the so-called ‘Crowding-in Effect’ (Frey 1998:24) and foster self-esteem.

Concerning the conditions under which Crowding-Out Effects are more likely to occur Frey postulates that the effect is the larger: the more the artist is intrinsically interested, “the more personal the relationship” (Frey 1998:108), the more uniform the intervention, “the more closely a reward is contingent to the performance desired by the principal” (Frey 1998:31) and “the larger the extent of co-determination of the suppliers” (Frey 1998:108).

Moreover, not only (monetary) rewards, but also regulations crowd-out intrinsic motivation (Frey 1998:17).[8]

In addition to Crowding Effects, Frey postulates that external interventions are not only crowding out/in motivation in the specific field but might spread beyond. This effect, which is known in psychology as ‘Spread Effect’, is called ‘Spill-Over Effect’ and occurs when the intrinsic motivation is bigger than the area which is addressed by rewards. Spill over effects happen over time and might even occur among people, depending on how close a group is. It is possible that if a colleague’s motivation is crowded out, it might effect as well the motivation of another person in the group (Frey 1998:35ff).

Transferring this assumption to the arts means that first of all the arts are inclined to fall victim to the Crowding-Out Effect as personal, co-determined structures prevail. Thus, it is likely that a payment for delivering certain kind of art destroys an artist intrinsic motivation and substitutes it by extrinsic motivation (monetary rewards). As a consequence of this more money is needed to motivate the artist to be productive. Thus, the price of art rises (making it less accessable for less moneyed people). A side effect of this is that the artist thereafter is inclined to produce more of the appreciated art and may neglect other forms of art. Hence the spectra of art is reduced.

According to Frey these effects have “socially destructive consequences in the long run” (Frey 1998:33). When intrinsic motivation is reduced and extrinsic motivation takes over moral might get lost since the pure price system does not entail moral connotations.

As long as social-costs are internalised in the price, morale is not assaulted. But the market apparently does not stick to this resolution. Within the limits of the price a person is free to act. Thus, monetary rewards and money in general undermine, according to Frey, “the moral value of life” (Frey 1998:33).

These effects are of importance when it comes to questions of financing culture in a way that intrinsic motivation is sustained. The question is whether the market really supports and provides art in a satisfying way. On this very reason the problems of different possibilities of supporting art (mainly state versus private funding) are demonstrated in the following. Thereby it should be referred to the presented effects and in a form of meta perspective Frey’s approach, and to some extent the economic approach in general should be scrutinised with respect to their balance and adequacy.


[1] The underlying theory was also treated under the name Disneyfizierung (Roost 2000) or Disneyfication (by Roberts 1997:69).

[2] Appadurai argues that “the central problem of today’s global interactions is the tension between cultural homogenization and cultural heterogenization” (Appadurai 1995, 295).

[3] Baumol and Bowen argue that technology development increases productivity in most industries, allowing fewer workers to produce the same amount of goods. The service-intensive non-profit organisations however are less able to take advantage of technology. As a consequence they are growing even more expensive relative to the output of the economy as a whole (ibid.).

[4] Valuation refers to the term introduced by Klamer, calling attention to the development of taste with a focus on values (Klamer 2003).

[5] Here it is referred to the following chapters: 1990 (chap.1& 2), 1998 (chap.2, 5, 12), 2001(chap.2, 7), 2003 (chap.1, 2, 9).

[6] The higher the price the more companies are able and want to produce and sell (Pindyck & Rubinfeld 2003:48).

[7] In accordance with this belief Adam Smith was convinced that money does not effect motivation (Frey 1998:25).

[8] In respect thereof regulations crowd-out motivation even more than regulations (Frey 1998:31) and anon hard-regulation crowd-out more than soft ones (Frey 1998:32).


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Title: Culture and economy - a distinct relationship