How Music Helps To Understand Economics - And Vice Versa

But many musicians don’t realize taking a continued loss on investment project after project is not a sustainable way to run a business. They get caught up in the novelty of recording in Nashville. Or they think more expensive means you’ll be taken more seriously by industry professionals. 

Couple this business model with myriad artists who have operated this way for years and it’s no wonder musicians are having to take day jobs just to pay the bills.

Law of Diminishing Marginal Utility

Another economic theory Carl Menger coined is the Law of Diminishing Marginal Utility. This economic theory can be clearly seen everywhere in the entertainment industry. An article published by Electric Lit stated in 2019:

 “[Books] used to be much more difficult to obtain; you couldn’t flip through Monets or read some Robert Frost poems while standing in line at the grocery store, and as a result we did what we do with many rare things — we intellectualized them and tried to ascribe them meaning.”

Because books and music are all around us now, available for our immediate consumption, the prices consumers pay for the products have been significantly reduced. This goes in line with the example often used when explaining the Law of Diminishing Marginal Utility. People often ask why diamonds are so much more expensive than water when water is a critical need and diamonds are a luxury.

The Law of Diminishing Marginal Utility states that the more units of something someone has, the less value they ascribe to it. If Farmer Bob has one apple, that apple will have the highest price compared to the second, third, fourth apple and so on as he obtains more.

This not only solves the water-diamond dilemma, but it plays a direct role in artists’ earnings as well.

The easier it is for consumers to get their hands on more books, music, and cinema, the less they will value it from an economic standpoint. Therefore, they are willing to pay less for it.

Reason vs Emotionalism

The arts industry can be predatory. Artists are a different kind of entrepreneur because their products are deeply rooted in their emotions and psyche. Industry professionals know this and have figured out many ways to take advantage of this vulnerability.

Because of this, it’s important to hold Reason at the forefront of each business decision we make. This can be the hardest lesson to learn as a creative entrepreneur and one we have to work at mastering our whole life.

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