Value Theory Applied To The Arts
Part I of the Economics In Arts Series
Value Theory is a tricky subject to tackle in economics and business. When applied to the creative arts, it gets even trickier. The wants of consumers when it comes to art consumption is highly nuanced. While dealerships have physical goods like vehicles which solve specific problems for consumers, artists have mostly intangible goods these days, especially when it comes to music.
Value Theory is one of my favorite subjects to study within economics because it is such a layered topic. Understanding its role within the entrepreneurial process is an important step when running a creative business.
Below, I tackle what it is, why we need it, and how to apply it to art.
Austrian Economic View Of Value Creation
The Austrian School of Economics is known for its subjective view of the consumer experience. Austrian economists are staunch individualists, therefore understand each consumer’s hierarchy of wants and needs is different and ever-changing. This makes the role of the entrepreneur inextricably linked to the consumer.
Many still adhere to the belief that value is created by the entrepreneur, and that this value can be empirically measured as consumers buy products. It is important to note that though entrepreneurs can facilitate value, value is realized on the demand side by consumer experience. Business owners then take the results of these consumer experiences and tweak their products as needed. Because consumer experience is an individual experience, “value is immeasurable.” Though certain numbers can be helpful with general business navigation, relying solely on empirically-based economics when running a business will create a gap between entrepreneur and consumer.
I often say, Austrian economists see the forest and the trees.
Empirical data will give you the forest. More importantly, entrepreneurs need to understand the individuality of trees.
“...in a world of subjective value and qualitative assessment, concepts such as KPI’s (key performance indicators) can’t realistically be applied. Concepts such as profit and free cash flow continue to apply, given full recognition that they are reflections of accounting conventions, because they indicate the sustainability of the firm and its business model.” (Hastings)
Value Theory within Austrian economics covers several different functions. Though the consumer and entrepreneur are in a continued ‘join quest’ of value creation, their roles are different.
The consumer acts. The entrepreneur responds.
This journey is taken over and over again through various steps such as assessing Value Potential, creating Value Facilitation, capturing Value, and participating in Value Agility (See video on Value Generation Business Model).
Instead of getting bogged down in numbers, the role of the entrepreneur in Austrian Economic Theory is very much an empathic one.
After all, producers themselves are consumers as well.
Value Theory Applied To The Arts
Creatives are notorious disruptors. This becomes added risk in the entrepreneurial world. One could argue it’s easier making a consumer experience that already exists better than inventing a completely new experience to begin with.
The producer-consumer relationship in the arts and entertainment industry often looks more like an abusive relationship than a healthy marriage.
Consumer punishment during the age of napster is just one example of industry professionals refusing to listen to consumer wants, and punishing them for demanding innovation.
Though major names are often the benchmark used when assessing the current climate of the industry, the most successful artists in my opinion are the ones who take an entrepreneurial approach to their art. They innovate and create based on a close relationship with their consumers. They're independent artists so they bear all risk, and all reward. There are many artistic examples of the artist-entrepreneur in today’s world including Dawn Beyer, Chance The Rapper, and Macklemore.
Instead of signing over the ownership rights to their music to a label in exchange for an advance and a marketing team, independent musicians understand advances in technology render 360 deals all but obsolete. Innovation in one industry breeds innovation in another.
While record labels, signed musicians, and consumers all battle with each other over who is right when it comes to streaming, live concert ticketing, and overall music experience, the entrepreneurs of the industry — independent artists — have figured out how to cut out unnecessary industry weight and join consumers. They make listening to their wants and facilitating them through creative disruption and innovation their top priority.
The Importance Of Art To Consumers
While it’s easy to understand the needs grocery stores, car dealerships, and clothing stores can fulfill, it can be hard to pinpoint exactly what incentivizes consumers when it comes to art.
This contemplation is rooted in philosophy.
To understand the importance of art in society, one needs to look no further than writer and philosopher Ayn Rand. Her work delving into the artist’s role is an often overlooked one. But she dedicated a lot of her writing to it.
Her nonfiction book The Romantic Manifesto covers the artist's relationship to consumers in great detail. Through this work, we uncover just how important art is to consumers and how individual an experience it is.
“Art is the indispensable medium for the communication of a moral ideal… Art is a man’s metaphysical mirror; what a rational man seeks to see in that mirror is a salute...”
Most recently, we saw just how important live music is to consumers when fans rushed back out to festivals and concerts as soon as they could when mandates ended. When the live music industry was shut down, consumers spent hours viewing live streams featuring their favorite musicians on social media to pass the time. This scenario showed musicians just how important personal connection is to consumer listening experience.
Because art is such a personal experience for consumers, artists get to know individuals’ most internalized wants. When a consumer decides to experience a specific piece of music a certain way, he’s offering the artist a lens into their most intimate desires. Because of this shared experience, artists often develop a relationship with lifelong consumers who are not only loyal but become outspoken brand advocates.
Rand brilliantly brings this scenario to life in her novel The Fountainhead about an architect who refuses to sell out. The reader accompanies Howard Roark on his creative journey as he seeks out clients who allow and encourage his art to be, “My work done my way.”
“Since a rational man’s ambition is unlimited, since his pursuit and achievement of values is a lifelong process—and the higher the values, the harder the struggle—he needs a moment, an hour or some period of time in which he can experience the sense of his completed task, the sense of living in a universe where his values have been successfully achieved. It is like a moment of rest, a moment to gain fuel to move farther. Art gives him that fuel; the pleasure of contemplating the objectified reality of one’s own sense of life is the pleasure of feeling what it would be like to live in one’s ideal world.” (Rand)
While shopping trends are fueled by consumers for a short while, it is a profound notion to understand art is the undying fuel of humanity.
The culture of art is often used as a parameter to judge the success of a society’s culture.
“The importance of that experience is not in what he learns from it, but in that he experiences it. The fuel is not a theoretical principle, not a didactic “message,” but the life-giving fact of experiencing a moment of metaphysical joy—a moment of love for existence.” (Rand)
If you ever question how art and professional artists fit into economics, just spend some time reading Rand’s writing. I would say life-giving fuel is pretty important to consumers.
Value Creation is tricky enough for entrepreneurs to evaluate, add in art to the mix and the waters can get muddy.
Developing the right philosophical outlook and understanding entrepreneurial economic theory are two important steps in monetizing art.
This article is part of the Economics In Arts series featured here at The Free Market Musician. For a deeper dive into Value Theory, make sure to follow the links within the article. They will take you to scholarly resources such as articles, papers, and podcasts.
Next, I’ll focus on proper overall economic theory for good business practice, and other individual theories such as Uncertainty Theory and Network Theory that directly apply to the business of art.
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