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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.

That paper initiated a new field of study, and was also the first to use repeat sales of artworks. Baumol shows that, contrary to what most of us believe, art investment does not do better than financial investment: its real rate of return is, on average, very close to zero. The reason, he suggests, is that art provides aesthetic pleasure, which compensates the fact that your shares lie in a safe, though at the time, you could still see them and derive some psychological return. Today, even this is gone, since your shares are buried in the memory of a computer – what a waste!

Baumol contributed several papers on the performing arts in the Soviet Union, and, with his wife Hilda, on music composition in Vienna at the time of Mozart, and on Beethoven’s patrons (Rubinstein et al. 1992, Baumol and Baumol 1994, 2002, Oates and Baumol 1972)

He also taught wood sculpture at Princeton University for 20 years and may have been among the first to get involved in computer painting.1 In 1999, he was awarded a Doctorate in Humane Letters by Princeton University – a title that, to my knowledge, not many Princeton economists have received. There were many other awards and honorary degrees. In 2016, he became Distinguished Fellow of the Association of Cultural Economics International.

Five among his ten first papers (between 1947 and 1952) were published in Econometrica, the Review of Economic Studies, the Journal of Political Economy and the Quarterly Journal of Economics. During those years, he also published two books, including his well-known Economic Dynamics (1951). In 1952, he was 30 years old. Still, he had to wait until 1955 to get his first paper in the American Economic Review, which was immediately followed by two more in 1956, a sort of catch-up effect. And then came a very long list of papers in what are now called the ‘top five journals’.

While it is true that we have to accept that times are more difficult today, still, he kept going like that during the rest of his life, publishing around 500 papers and 30 books2 on almost every economic topic: macro and micro, monetary theory (with Gary Becker), industrial organisation (he was at the root of the idea of ‘contestable markets’ with Robert Willig), trade, the economics of education, of health, of innovation and entrepreneurship, of copyright, economic growth, evolutionary economics, and the history of economic thought.

He also made incursions into operations research: warehouse location problems, linear programming, integer programming (as early as 1960, during the very beginnings of the field), finance (with a paper on portfolio selection in Management Science in 1963), and so on. The only topic that he did not touch was econometrics.

Baumol taught at Princeton University for 43 years, and at New York University for 36 years. Here are two judgements of his students at NYU in 2006: “Awesome guy. Study and get an A, or don’t and get a B”; and “Prof. Baumol is the nicest professor. Though he’s a well-accomplished economist, he is not pretentious at all. What a sweet man! He gives economists a good name.”

Baumol is, with little doubt, one of the most prolific economists, with interests in many other fields (including jazz composers, and the consequences of terrorist acts, as early as 2001), and papers in journals as diverse as the Proceedings of the American Philosophical Society and the Energy Law Journal. All this was done while he kept painting, sculpting and listening to Mozart and Beethoven when he visited his Puerto Rican house, and where he was a distinguished member of the Economic Association of Puerto Rico.3

Indeed, as that student said, “What a sweet man” – and a true Mensch.

Author’s note: This column is an extended version of an unsigned tribute to Baumol published in the Journal of Cultural Economics, after he became a Distinguished Fellow of The Association of Cultural Economics International in 2016.


Baumol, W J and R Turvey (1951), Economic Dynamics, Macmillan.

Baumol, W J and W G Bowen (1966), Performing Arts: The Economic Dilemma, MIT Press.

Baumol, W J (1986a) “Unnatural Value: Or Art Investment as Floating Crap Game”, American Economic Review, Papers and Proceedings 76: 10-14.

Baumol, W J (1986b), Microtheory, Applications and Origins, MIT Press

Baumol, W J and H Baumol (1994), “On the Economics of Musical Composition in Mozart’s Vienna”, Journal of Cultural Economics 18, 171-98.

Baumol, H and W J Baumol (2002), “Maledizione! or the Perilous Prospects of Beethoven’s Patrons”, Journal of Cultural Economics 26: 167-84.

Blaug, M (2001), “Where Are We Now on Cultural Economics?”, Journal of Economic Surveys 15: 123-44.

Krueger, A B (2001), “An Interview with William J Baumol”, Journal of Economic Perspectives 15: 211-31.

New York Times (2017), “William J. Baumol, 95 ‘One of the great economists of his generation,’ dies”, 10 May 10.

Oates, M and W J Baumol (1972), “On the Economics of the Theater in Renaissance London”, Swedish Journal of Economics 74: 136-60.

Rubinstein, A, W J Baumol and H Baumol (1992), “On the Economics of the Performing Arts in the Soviet Union and the USA: A Comparison of Data”, Journal of Cultural Economics 16: 1-24.

Towse, R (1997), Baumol’s Cost Disease, The Arts and Other Victims, Edward Elgar.


[1] Have a look at

[2] See his list of publications last updated at: (last updated in 2012)

[3] See also his autobiographical sketch in Baumol (1986b).

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