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Ireland's political and cultural magazine
VILLAGEApril/May
B
ACK in the late s, George Stigler
and Gary S. Becker wrote a famous
paper, titled grandly ‘De Gustibus
Non Est Disputandum’, that mapped out the
view of economics as a field that deals with
tastes which “neither change capriciously
nor differ importantly between people”.
Differences in individual preferences, they
said, can “explain everything and therefore
nothing” (in economics).
This position has informed much of the
mainstream economics thinking for at
least two decades, creating an erroneous
perception that economists ‘just don’t do
the personal tastes’ of individual and col-
lective behaviour. Thus, culture, aesthetics
and ethics, should automatically fall outside
the scope of economic inquiry.
This perception is wrong for at least two
basic reasons. First, the cultural, aesthetic
and ethical foundations of our social inter-
actions contain much more than a purely
atomistic, individualised component. In
fact, culture is more systematic than ato-
mistic in nature, and as such can be studied
using economic models and techniques.
Second, economics as a field of inquiry has
moved substantially from a s worldview
to embrace many aspects of individual-spe-
cific or idiosyncratic behaviour, including
the historical, psychological, neurological
and cultural drivers of individual and col-
lective choices.
If we can address culture in economic
terms using the concepts of marginal utility
and constrained optimisation we will enrich
both culture and economics.
As Luigi Guiso et al, in their paper ‘Does
Culture Affect Economic Outcomes?’ clearly
state: “Until recently, economists have
been reluctant to rely on culture as a possi-
ble determinant of economic phenomena.
Much of this reluctance stems from the very
notion of culture: it is so broad and the chan-
nels through which it can enter the economic
discourse so ubiquitous (and vague) that it is difficult to
design testable, refutable hypotheses. In recent years,
however, better techniques and more data have made
it possible to identify systematic differences in people’s
preferences and beliefs and to relate them to various
measures of cultural legacy”.
So what distinguishes cultural value from economic
value?
In economics, the value of an object, action or a serv-
ice is determined by its marginal utility derived from
each additional unit of this object, action or service
made accessible to the user or consumer. Under certain
rather restrictive conditions, this can be translated or
mapped into a pricing system, but the concept of price
is more restricted and more restrictive than the con-
cept of value.
Cultural value, as noted in the previous quote, is
harder to define, at least in rational or mathematical
terms. It is usually thought of as a set of attributes, val-
ues, beliefs etc that can be grouped together on the basis
of having some identifiable, but not necessarily quan-
tifiable (in ordinal or cardinal terms) value to a specific
group of people.
Imposing some constraints, just as with the transla-
tion of marginal economic value into prices, we can start
to think of cultural values as goods, actions and services
that reflect intellectual, ethical and aesthetic aspects of
humanity collectively or for individuals. Thus, a work of
art has a cultural value which can be mapped into a ‘cul-
tural price’, if only under very restrictive conditions.
There is a clear difference between cultural and eco-
nomic value systems. For example, a price-like system
does not apply as well to measuring artistic achievement
as to measuring the quality of oranges. But complex
systems can be partially modelled in defined prefer-
ences. Being humble about it does not mean rejecting
completely the idea.
The key concept of scarcity applies to culture. Utility
functions that value positively some desired scarce good
and that change this valuation on the margin as the
quantity of goods available to the consumer changes
also apply to culture (and to wellbeing and for example
religion). Concepts of time-discounting and budgetary
constraints that drive decision making in mainstream
economics also shape culture.
The core limitation arises from the mathematical
problem of not being able to assign to cultural phenom-
ena clear and stable preferences.
We have to analyse culture in terms of its content and
context in relation to a specific group of people and time.
Tools used for such analysis are surveys of experts and
users, and psychometric surveys including physiological
Cultural
attitudes,
including
aesthetics, can
be modelled
and understood
through
economics
The economics
of Culture
Constantin Gurdgiev
OPINION
INTERLOPER
‘The
Innocent
Eye Test’
(1981)
by Mark
Tansey
April/May VILLAGE
or neurological responses. The problem, of
course, is subjectivity of classification and
rankings.
Thus, the perennial question in art valua-
tions (cultural, not economic) is ‘who exactly
are the experts?’. In economic valuations of
art, the answer is rather simple: an auction
process or a direct sale sets the value. In cul-
tural terms, a Rauschenberg is a masterpiece
to some and a collection of refuse to others.
Surveys and psychometric tests may for cul-
ture may fail on the basis of the ‘eye of the
beholder’ or ‘the innocent eye’ tests.
A paper by Luigi Guiso et al applies econo-
metrics to the effect of religious institutions
on economic behaviour which has raged
since the time of Max Weber. Using World
Values Surveys “to identify the relationship
between intensity of religious beliefs and
economic attitudes, controlling for coun-
try fixed effects”, the authors “study several
economic attitudes toward cooperation, the
government, working women, legal rules,
thriftiness, and the market economy” to find
that “on average, religious beliefs are associ-
ated with ‘good’ economic attitudes, where
‘good’ is defined as conducive to higher per
capita income and growth. Yet religious
people tend to be more racist and less well
disposed to working women. These effects
differ across religious denominations.
Overall, we find that Christian religions are
more positively associated with attitudes
conducive to economic growth”.
Rachel McCleary and Robert Barro found
that “Church attendance and religious
beliefs are positively related to education
(thereby conflicting with theories in which
religion reflects non-scientific thinking) and
negatively related to urbanization. On the
other side, we find that economic growth
responds positively to the extent of some
religious beliefs but negatively to church
attendance. That is, growth depends on the
extent of believing relative to belonging”.
This is hardly economics research that
‘ignores culture’ or ‘has difficulty model-
ling cultural inputs’.
Much of modern economics rests on the
basis of preferences that incorporate ref-
erences in valuation of objects to their
valuation by others – for example ‘keep-
ing up with the Joneses’, ‘benevolence’, and
the value of the object to future and past
generations.
Referencing to others’ preferences can
be commonly seen as an important driver
of exchange-linked interactions so culture
can enter directly into models of economic
transactions. For example, lower bilateral
trust leads to less trade, and less investment
between countries. A study by Paul Zak and
Stephen Knack found that trust has a direct
causal link to economic growth via facilitat-
ing investment and trade.
Trust, as a cultural factor, also drives the
effectiveness of large organisations, accord-
ing to Rafael La Porta et al. This applies to
“government performance, participation in
civic and professional societies, the impor-
tance of large firms, and the performance of
social institutions”.
Luigi Guiso et al also looked at the issues of
trust and culture in relation to households’
willingness to participate in stock markets,
showing that cultural attitudes to trust are
significant determinants of this behaviour
in a number of countries.
And time has been addressed in econom-
ics. For example in his paper, Avner
Greif models the effects of cultural beliefs
on the organisation of society across his-
torical and ideological lines. The paper used
game-theoretical and sociological frame-
works to conduct a comparative historical
analysis of the relations between culture
and institutions, explicitly incorporating
possible path-dependencies (historical ref-
erencing) in how culture affects institutional
evolution.
Culture enriches economics. But the rela-
tionship is mutual.
One example is the rapidly evolving study
of cultural capital. In general, capital is an
asset, that stores value. Cultural capital is
a form of storage. Insofar as such value is
embedded into physical objects and knowl-
edge, (e.g. paintings, a garden or a book),
it can be passed on to future generations,
destroyed, enhanced or devalued. As with
all capital it can be used to make new capi-
tal. Today’s music draws on folklore of the
past and so forth.
In economics, all capital either directly
serves as an input into production or can
buy the inputs. Cultural capital exists
simultaneously within us and outside of us.
In mathematical terms it is simultaneously
separable and inseparable from human
beings’ ‘labour’.
This problem, however daunting techni-
cally, is not unique to cultural capital. Other
forms of capital, such as human capital,
social capital and some forms of technologi-
cal capital, are also non-separable (at least
not perfectly) from human beings. More
interestingly, in contemporary econom-
ics, we are starting to recognise that even
physical capital can no longer be perfectly
detached from human beings. Aesthetic and
ethic aspects of our physical environment
(buildings, equipment etc) also interact with
our human capital and are directly influ-
enced by cultural capital. These forces shape
the modern workplace, an issue touched
upon, for example, in Andrea Ichino and
Giovanni Maggi’s paper on the work envi-
ronment and employees’ backgrounds.
Importantly, social, human and cultural
forms of capital are increasingly entering
economic analysis both at a micro-economic
level (household and business decisions)
and at a macroeconomic level (economic,
national economic and global economic).
In one paper, Edward L. Glaeser, David
Laibson and Bruce Sacerdote, developed a
complete economic
model of social cap-
ital that can also be
extended to cultural
capital. They looked
at the culture of fam-
ily, ethics, politics,
law and the military
and its influence.
Alessandra
Fogli and Raquel
Fernandez have
found that a woman’s
country of ancestry
strongly influences family decisions relat-
ing to work and fertility through into the
next generation even if we control for other
economic and social drivers.
Likewise, institutional arrangements can
be traced in some detail to cultural drivers.
Rene Stulz, and Roha Williamson found that
“the origin of a country’s legal system is more
important than its religion and language in
explaining shareholder rights”. However,
a country’s principal religion still proves
useful in predicting the cross-sectional var-
iation in creditor rights [and] religion and
language are also important predictors of
how countries enforce rights”.
Roland Benabou and Jean Tirole cross-
link culture, political institutions, social
ethnographies and ideological beliefs, and
use economics to explain variations in ethi-
cal systems across a number of countries.
Culture and Economics. Only a naive mind
can suggest some hierarchical structure that
would rank one over the other – either as a
tool for inquiry, or a source of value.
In the real world the illusory perfection
of economics can be destroyed by the messi-
ness of arts, while intangible ethical values
can be partially systemised and made part
of the broader analysis of our society, by
economics. •
Being humble about it
does not mean rejecting
completely the idea that
economics can provide
useful tools for studying
culture
“
