Art Works Blog

Taking Note: Art Works as Capital

No Cash Value courtesy of flickr user bigcityal

Arts and cultural organizations are long accustomed to referring to artworks as “assets”---but what about the U.S. government? Apart from the NEA and other cultural agencies, the deliberate use of this term to connote artistic value is not exactly common among us feds.

That may change in 2013. The Department of Commerce's Bureau of Economic Analysis (BEA) has announced that its national income and product accounts (NIPAs), scheduled for revision that year, will begin to treat the production of artwork “as an investment, thus adding to the capital stock” of the country. In contrast, currently “the NIPAs treat all production of artwork as a current expense,” BEA researcher Rachel Soloveichik reports in a June 2011 paper.

Why does this matter? Because the BEA historically has flagged “artistic originals” as a current expense, the contribution of these works to the nation’s gross domestic product has gone undervalued. Soloveichik explains: “In general, artistic production costs are treated the same as advertising costs, manufacturing costs, shipping costs, and other current expenses.” Such costs are counted as “intermediary” expenses (paid from one business to another); they fail to show up as final expenditures in the GDP.

Yet Soloveichik and her colleagues do not lump all artwork indiscriminately into a pile marked “capital assets.” Her research shows a painstaking attempt to gauge the investment value of what she terms “long-lived artwork.” Soloveichik reasons that “artistic originals are long-lived, so old artwork can earn revenue for decades after production.”

Consequently, she uses 2007 Economic Census data and other sources to derive the “net present value” of future revenue and costs associated with the artwork. From there, she computes “current-dollar investment” on an annual basis. The results:


1)    Over three decades (1980-2009), GDP growth increases slightly when artistic production is counted as capital investment. In 2007, the most recent year of data, that amount was $51.6 billion, or 0.35 percent of GDP.

2)    The capital stock of artistic originals as a whole---their total value going back to the first year of available data (1929)---was $440 billion in 2007, or 2.5 percent of GDP.

Included in those artworks are theatrical movies; recorded music; books; TV dramas and sitcoms (because they are long-lived, in contrast to game shows, news, sports events, and soap operas, which are rarely rerun); and “miscellaneous” artwork such as greeting card designs, commercial stock photography, and theatrical play scripts. Paintings and other works of visual art are excluded because the BEA relegates them into a separate category of assets, “fine arts,” which are not counted as capital investment.

Original artworks are being considered for their investment value “as part of a long-term bureauwide effort aimed at capitalizing a complete set of intangible assets,” the research paper states. There are notable precedents in other industries. In the 1990s, for example, software was reclassified as a capital investment, whereas it used to be a “current expense.” Similar movements have been afoot to capitalize R&D.

The long-term implications of these changes for the arts industries are still unclear, but the BEA’s work may advance public dialogue about how to measure the value of the arts, the ultimate intangible. Recent NEA reports have focused on using federal data sources---including the BEA’s---to arrive at value propositions based on revenue, earnings, time spent, and, most recently, the arts’ “value added” to GDP. With the BEA’s new method of treating original artworks, we now have an additional yardstick: value as capital investment.


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