Art People: Learn Economics, I Beseech You
Post #1739 • March 2, 2015, 2:32 PM • 3 Comments
[Update March 16: greetings Tim Worstall readers.]
[Update March 10: greetings David Thompson readers.]
This article is my call for artists, art writers, and the like, to the extent that they feel inclined to comment upon capitalism and related economic phenomena, to either learn how these things work or do the rest of us a mercy and zip it. Economics is a deep topic but the core concepts are within easy intellectual reach. If you can't explain how prices are determined then you have no business complaining about
1. Markets Are Natural
If your society works out that individual ownership exists (it doesn't matter why), and that exchange is better than thievery, you get markets. If private property exists, your options for changing ownership of that property are theft, gift, and exchange. Since theft entails violence or shenanigans, and gift is unsustainable past a modest point, that leaves exchange, and markets spring up to work out the exchanges. Markets are not a thing in themselves, they're something that people do.
There have been post-industrial attempts to eliminate individual ownership, by scaling collective ownership past the family or multi-family unit, and all of them have been disasters. The problem is that the collective is made up of individuals. Eventually, management of the collective resources falls to individuals. By the time you collectivize the resources of thousands or millions of people, you end up with a huge stock of supplies under the control of a tiny handful of managers who don't possess the omniscient knowledge it would take to distribute them well. Neither do they have the incentive to do so—the sense of mutual obligation and love that occurs naturally between family members and neighbors cannot be enlarged far beyond them and no amount of patriotism will substitute. Whatever trade the state outlaws, the black market provides, at a premium. History tells us that attempts to dismiss private ownership merely blackens more and more markets. Right now in Russia a ban on food imports has created a black market for mozzarella.
Markets are a human phenomenon but humans can't alter them in any old way to suit any old ideal. They're like arithmetic in that respect. Once you make some assumptions about whole numbers, infinite consequences fall inexorably out of those assumptions, such as 2 + 2 = 4. If you decide you're working in base four, infinite consequences fall inexorably out of that assumption and 2 + 2 = 10. If we say that we like the base 10 results over here and the base 4 results over there so we're going to combine them into something called
mixed arithmetic, we're going to make a hodgepodge about which reasoning is an aggravating and complicated problem.
To say that markets are natural is not to say that they're always good or optimal. But capitalism is good in a general way because it has a low ethical bar to clear, which is thievery. Most people advocating redistribution don't realize that they are tacitly endorsing theft, but some do, and simply think that the victims deserve it. (The main ethical divide in humanity is between those who understand the categorical imperative and those who don't.) Likewise, markets are optimal in general way compared to coerced economies. That markets often deliver bad outcomes is undeniable. This is beside the point because coerced economies have trouble delivering good outcomes. Venezuela responded to its inflation by instituting price controls. The controls fix prices for many goods below the cost of selling them. Since businesses aren't charities, they get out of the market for those goods. Consequently Venezuela has a toilet paper shortage right now. If you take one lesson from this essay, make it this: Socialism means no toilet paper.
2. Prices Signal Supply and Demand
The price of a thing is a claim about the supply and demand for it. This is all it is. It's not a moral statement. There is not a
real price for anything. It does not correlate perfectly to a
value, least of all artistic value. It correlates to the amount of demand for it, given a more or less limited supply. It does not distinguish between kinds of demand, say, between cultured, erudite, informed demand and crass, cynical demand. When you say that New York City rents should be lower or museum art handler wages should be higher, you are making statements that are economically meaningless. Rather, you want them to be different, which is economically meaningful but not interesting.
Art people who were exposed to a lot of actual or regurgitated Marx are usually unaware that Marx got prices badly wrong. Shortly after the publication of Capital, critics, notably Carl Menger, pointed out that there was no way to translate commodity values into market prices given the Labor Theory of Value. This became known as the transformation problem and Marx spent the rest of his life trying unsuccessfully to solve it. It was hopeless—the Labor Theory of Value is bunk. There's a certain intuitive appeal to it, especially for artists, insofar as a thing has value based on the hours put into its making. Marx worked it up from Adam Smith, he of The Wealth of Nations. But Smith said only that it was a factor of value presuming adequate demand for the thing being made, whereas Marx was trying to arrive at a mechanism for discovering the
natural price for a good or service, and there is no such thing. Economists in the early 20th century went on to prove that under the centrally planned economy envisioned by Marx you can't price anything, even apart from the LTV.
Value is subjective and trade happens because views about value differ from person to person. If we trade my apple for your orange, it's because you'd rather have the apple and I'd rather have the orange. Every exchange is like that. If you sell a drawing for $300, your collector would rather have the drawing and you'd rather have the money. The collector sees your drawing as a precious moment of your creative arc and you see it as one of the hundreds of goddamn drawings stacked up in your studio. Note that those two valuations of your drawing are both subjective and different. If you're paying attention here, you'll notice that even if money is involved, we're still trading. Your collector is buying a drawing with money, you're buying money with a drawing. Remember that, because it bears on my next point.
3. Stimulated Demand Drives Up Prices
If demand for something goes up, so does its price. If it's easy to borrow money to pay for something, it stimulates demand.
I mentioned rent and wages above. Rent and wages are prices for shelter and labor respectively, and everything true about prices is true for them as well. One thing I'm tired of explaining to art people is that when they complain about gentrification, they do so in a scenario in which housing prices are not being allowed to drop. Housing has led the way out of every recession since World War II, and the core idea of the administration's recovery plan is to stimulate the housing market. This isn't a conspiracy theory, this is something that Bernanke has explained to Congress in so many words. But the flip side of that is housing prices going ever higher and artists and poor people of color getting forced out of their neighborhoods.
Let's run through it: The Federal Funds Rate is so low right now because the Federal Reserve wants to make it easy for people to buy houses and thus cause the economy to recover. Everyone who already has a house sees it maintaining its value or gaining it, thus making them more inclined to spend, likewise causing the economy to recover. So goes the theory. Meanwhile, the price of housing tends to go up, cheaper neighborhoods become more desirable, and gentrification occurs. Here's something else: if the government of the United States expressly states that it intends to prop up real estate values, which it has, real estate investment becomes attractive to wealthy foreigners and the locals get priced out of the market.
Do you think art school tuitions are too expensive? No surprise there—we have an idea that everyone who wants a higher education should have one, and consequently have made it very easy to borrow money to get it. People claim that rising tuition is evidence of academic corporatization but if the auto loan system was like the school loan system, almost everyone would have a car but you'd be forking over six digits to drive a Hyundai Accent. Stimulated demand drives up prices.
Art world wages are low because art world jobs are desirable for reasons besides money. They allow you to work around cultured people, on cultured topics, and gain access to a sphere of activity that is relatively hard to penetrate. That too stimulates the demand for such jobs, and it makes those jobs expensive. Not to the employers, but to the workers. Workers are willing to trade their labor for less and less cash because the job takes place in the art world. Remember the example of the drawing, where the artist trading art for money? Same thing here, except that the worker is trading art-world labor for money, and art-world labor isn't worth very much because a lot of people are willing to supply it. You want to give me an apple for my orange? Well, this other guy is willing to give me an apple for half an orange. Can you do any better?
The answer is that you can, if you come from a family that already has some oranges. This explains the existence of the internship, which requires family capital accumulated over a long time. (I'll let you look at this orange in exchange for ten apples, if oranges are so interesting to you.) Also, this and not racism per se explains why minority representation in the arts is so low. Even if you don't think or don't want to think of culture as a luxury, it is at least a less urgent matter than economic survival. (My family isn't loaded with apples and I'm not sure that a look at that orange is going to result in my having my own orange one day. I don't think I'll risk it.)
Do you think that museums, in general, satisfy a noble aspiration to make culture available to all? You may be correct, but they have also an undeniable tendency to grant prestige to artists who show in them, and thus enable dealers to charge higher prices for their work. They're using an arm of the public sector to enhance profits of related activities in the private sector. Another term for this is corporate welfare.
Isn't economics interesting?
4. The Opposite of Greed is Fear
People who complain about greed in the contemporary political setting do so in the manner of the earliest Christians. Avarice is one of the Seven Deadly Sins and its corresponding virtue is charity. This isn't how markets work. In markets, the opposite of greed is fear.
All economic behavior is a trade-off of greed and fear. If you see a pair of shoes you like in a store, whether you buy them or not depends on how much you need or want them versus how much you need or want the money on the price tag. That's the greed side. The fear side is that you'll regret not having those nice shoes later—maybe there's a party coming up and it would be fun to wear them to it, or maybe the store will stop carrying them soon and you'll miss your opportunity to buy them—or maybe you're afraid that you'll need the money for something else. Even in a minor spending problem like this, greed and fear play a role. In a major spending problem like whether to rent or buy an apartment, or how to invest your savings, the problems of greed and fear get stoked to a high heat.
Quite a lot of people inveighed against greed in regards to the 2008 recession. This was a focal concern of the Occupy movement, for instance. Wall Street was practically soggy with greed, they said. (More or less.) But why was there so much greed? Because there was so little fear. There were implicit guarantees all over the system that made even outlandish investments look safe. The government implicitly owned a quarter of the subprime mortgage market, and the government can't go bankrupt, can it? It wouldn't let all the big banks through which the Federal Reserve controls the money supply collapse, would it? We now know the answer to those two questions: apparently not, and no. (That implicit ownership is now explicit, by the way.)
Blake Gopnik recently wrote pejoratively about how art has turned into an investment.
The current level of market activity, brought on by the fairs and now spread across the entire art world, has fundamentally changed our entire artistic culture. Now that art works have fully blossomed as an “asset class,” the issue of underlying artistic worth has gone out the window. When you are buying purely for investment, whether a work you’ve spent $5 million on turns out to be “good” or not becomes irrelevant. All that matters is whether someone else will want to buy it, in the brief time-frame you’ve set, at the price that will bring you a profit. (The price doesn’t even have to go up: The new futures markets will let you bet on artists losing value.) These days, when you buy art you aren’t investing in some notion of underlying value, the way you might when investing in a dam that will fill a sure demand for energy. You are investing only in a guess about other investors’ guesses about motion in the market for your asset class.
A couple of years back, when our current situation was in embryo, I was surprised to find collectors shrugging off a pile of examples I gave of once-famous, big-ticket artists who turned out not to have mattered to our culture. (Monticelli, anyone?) I was assuming that collectors would measure the value of their purchases by the underlying artistic worth that they represented, and would be worried about getting their judgment wrong. What I’m now realizing is that this has stopped mattering to art investors, so long as other buyers are making the same art-historical errors that they are, for the few years that the investments will be in play. In this new environment, art objects have become a kind of pure market entity: As the ultimate example of objects without an evident use, or any necessary demand, works of art float free of pedestrian notions of inherent worth to circulate as ideal tokens of exchange. In this, they are rather like gold, except without even its obvious sparkle and permanence.
First of all, gold has many commercial usages and has been regarded as wealth for millennia, but that's another essay. Secondly, why should the investors be worried about getting their judgment wrong? Wrong according to whom? Judgment about what qualities? Haven't we been denigrating the whole notion of taste as an elitist social construct for four decades now?
The schemes of the habitus, the primary forms of classification, owe their specific efficacy to the fact that they function below the level of consciousness and language, beyond the reach of introspective scrutiny or control by the will. Orienting practices practically, they embed what some would mistakenly call values in the most automatic gestures or the apparently most insignificant techniques of the body — ways of walking or blowing one’s nose, ways of eating or talking — and engage the most fundamental principles of construction and evaluation of the social world, those which most directly express the division of labour (between the classes, the age groups and the sexes) or the division of the work of domination, in divisions between bodies and between relations to the body which borrow more features than one, as if to give them the appearances of naturalness, from the sexual division of labour and the division of sexual labour. Taste is a practical mastery of distributions which makes it possible to sense or intuit what is likely (or unlikely) to befall — and therefore to befit — an individual occupying a given position in social space.
That wasn't a gallerina on the floor at ARCO, that was Pierre Bourdieu in 1996. The idea of
underlying artistic worth and the ability to detect it got thrown out the window, and not by market activity, but by the people who consider market activity a moral failure or a social illusion or a nefarious exploitation of labor. By those lights there may no longer be parameters by which one can err in judgment in contemporary art except to guess wrong about what your social or economic circle is thinking about a given artist. If that's all you have to fear, then that's all there is standing in the way of your greed.
Bonus ProTip: Neoliberalism Isn't Really a Thing
People who use the term neoliberal signal that they feel the same way about capitalism that certain religious people feel about evolution, that it's bad, wrong, and offensive for doctrinal reasons. For instance:
In the arts, the current philanthropic agenda supports programs located at the intersection of art and social justice, where artists act as economic engines and agents for social change. Also known as social practice. Also known as the instrumentalizing of artists to clean up the mess that capitalism made. Also known as using artists to perpetuate and spread a global neoliberal agenda through things like ‘creative place-making’. Also known as the orchestrated displacement of working class people. Also known as gentrification.
This may be all the word is capable of. Historically it comes from the Spanish term for the program of market reforms that were initiated in Chile under Pinochet. Its contemporary meaning (such as it can be agreed upon), the imposition of capitalism on an activity that would be better served by other means, begs the questions of what other means, why they'd be better, or even whether they'd work. Much ill can be said of Pinochet, but there are probably not a lot of contemporary artists who are ready to argue that the government should be in the business of mining copper, which was the case under his predecessor.
Neoliberalism essentially means
icky capitalism. You might as well be talking about icky arithmetic. Markets are natural.
Mind. Blown. Now what?
Download this PDF, Economics in One Lesson. This is a great little introduction to thinking economically and it's a much easier read than Bourdieu. Depending on your current stance, it may also be more radical.