Although history tells us that the arts have been subsidized by Medici princes, Austrian emperors, Russian czars, English parliaments, and French republics, the question, Should the government subsidize the arts? still strikes economists as eminently worthy of debate. How can this be so? The answer is quite plain. The dominant tradition among Western economists holds that given the existing distribution of income, competitive markets in most circumstances can be relied on to satisfy consumer preferences optimally. According to this view there are two principal grounds for justifying government subsidies or other forms of intervention.

The first would be that markets are not competitive or display other imperfections. These are the efficiency arguments, so called because some form of “market failure” has led to an inefficient allocation of resources, which it is the task of intervention to correct. Moreover, economists are in substantial agreement about which imperfections justify what sorts of government intervention. Debate therefore focuses not on the theoretical arguments for intervention, but on whether the art and culture industries, in fact, operate under the justifying conditions.

The second justification for intervention would be a belief that the existing distribution of income is unsatisfactory. We say “belief” to emphasize the fact that judgments about the distribution of income cannot be scientific, but are necessarily based on ethical conviction. This is the so-called equity argument: Subsidies are called for not because markets are working inefficiently, but because it is alleged that some participants lack the income to buy a minimum fair share.