Having a surplus is an essential component in the creative process. To bring an idea to fruition a surplus is necessary. Moreover, the greater the amount of surplus that is devoted to higher priorities, including additional consumption, the less of it is available for creative ventures. Not only is that true for a novel work of art, it also applies to any invention or innovation. For more about the creative process see my blog post entitled “Creativity: Ideas, Invention, and Innovation”. It makes no difference whether we are talking about a new product, a new process of production, a new way of getting products to consumers, a new work of art or any other new, novel concept.
Let’s begin by looking at works of art. It is important to realize that a surplus is required before any work of art can be created. That is because the artwork is not part of the goods and services the artist uses up daily for current consumption. On a daily basis survival, along with one’s other priorities, comes first. Moreover, the materials, equipment and supplies that go into making the work of art come out of surplus as well. An essential element of the creative process is that there is no guarantee ahead of time that the idea will ever come to fruition. Regardless of whether it does or doesn’t, the person who comes up with the idea must use some of their limited TERF just to survive and to fulfill any obligations and commitments that they have taken on. That takes priority over all else.
Let us begin by assuming that the artist is well-trained, knowledgeable and highly experienced in their discipline. He/she has been working as a painter for years. They wake up one morning with an image in their head that is somewhat different than anything that they have done previously. It requires different materials and modified techniques. It’s exciting and he/she is ready to go. Because they have never done anything quite like it beforehand there is no way of knowing ahead of time whether they will be satisfied with the result. Nor can they know how much time and effort will be required to make it happen. Nevertheless, they plunge ahead. After some fits and starts, with changes in materials and adaptations to new techniques, they finally come up with a painting that they like, one which incorporates their new and novel idea.
Looking back on it they can now understand the process of production that was required to transform the idea into the final product. In their excitement they did not keep track of the time it took to create the work of art. By looking back they may be able to determine what equipment and supplies they used. However, it is highly unlikely that they know how much of each of the materials went into the painting and the amount of the other components were discarded. All of the time, effort and materials went into the creative process, some of which would be required if the product is duplicated. In any case, it all came out of surplus. Even when the effort is not successful, the cost is the same. That is just the first step in the creative process — the invention — bringing the idea into reality for the first time. Imagine how much more TERF would be involved if the creator had not been knowledgeable and experienced and how less likely that they would be successful. All that additional TERF would have been wasted if the product was not successfully completed.
Importantly, none of it would have been possible without a surplus. A larger surplus opens up the opportunity for greater creativity. The greater surplus also, on the other hand, can lead to a larger amount of waste. A reminder — when surplus is used, what is given up is whatever else the equivalent amount of time, energy, resources and funds (TERF) could have produced. Bringing the idea to fruition and making it a reality for the first time — the invention — is the same regardless of whether we are talking about a work of art, a product, a process of production or any other new and novel concept. Sometimes that achievement is acknowledged by society by giving the originator a patent or a copyright.
The next step — the innovative phase — occurs when after seeing the new product, others would like a similar one. That step involves making and supplying the replicas. The invention itself provides the starting point. At the very least there is an initial example of the product and an understanding of what it takes to produce it. The initial step in creating the product is collecting the aggregation of labor services, equipment, materials and supplies on-site and transforming them, task by task and step-by-step, into the final product. For something that is one-of-a-kind, the “process of production” has been completed. For example, once the cow has been milked and the milk is in the bucket, the step is over.
When multiples of the product have to be produced —perhaps in the 10s, 100s, 1000s or 10,000s in order to meet the demand — the process is quite different. It is also very different from the process required to make a new and novel product, one that never existed previously. When multiple units are required the idea/invention has been transformed into an innovation, ready and waiting to be transferred to the customer That is what the artist faces when he/she brought the idea into reality for the first time and is considering trying making multiples. The process of transforming an invention into a marketable innovation is likely to be complicated and far different than then the first step was. The process is not likely to be a smooth one and will certainly take a considerable amount of time and effort. That is all part of the creative process. By its very nature the new work of art, or any other novel creation, is something no one has seen before.
Potential consumers have to see it to believe it. Moreover, before they can decide whether they would like to have one, it is necessary to understand what the new product is about and how it works. That decision also depends on the price of the product — what they must give up in order to get the innovation. The price, in turn, requires knowing what it takes to replicate the product. That, in turn, involves knowing how many of the products consumers will want. Furthermore, the process of production will very likely be different and more efficient than the initial one, making it possible to provide the product at a lower price. In short, transforming the invention into an innovation and making it available to a large number of consumers at a lower price takes additional TERF. It is also necessary to inform potential consumers about the new product and how they can benefit from it — the marketing phase. All that is necessary to bring an idea into life and make it into a product that potential consumers would like to have at a price that they can afford.
For more about the effect of pricing policies on the consumer and supplier see the previous blog post entitled “The Winners and the Losers.” And to understand what determines how much the artist can get from selling the work of art if he/she decides not to replicate the product, see “An Economist’s Take on Pricing Art and Craft: A Pricing Manual.” If the potential consumer has sufficient surplus to cover the price and thinks that the innovation will provide greater benefits than anything else that he/she could purchase for the same amount of money, then it’s a done deal. Hopefully, the product meets expectations and more. Clearly, the lower the price, the greater the number of potential customers who will be able to benefit by buying the new product.
Here’s one example of the invention-innovation process. I am sure that many of you are familiar with the artist, Andy Warhol and his Campbell’s Soup series. Warhol produced the original 10 paintings of the series in 1962. He followed through with 250 prints of the series in 1968. One of the beef consomme color screen prints showed up on the first 2020 Antiques Roadshow. The signed and numbered print originally sold for $200 each, about $1000 for the set. The one at the Antiques Roadshow was purchased in 2005 for $1,800. The appraiser estimated the current replacement price for the very good quality print to be $50,000. If it was the print of the tomato soup can in good condition it could sell for as much as $85,000. How about that! Andy Warhol, who died in 1987, did not benefit from the resales. In summary, clearly the consumers benefit from the innovation if they have sufficient surplus to pay for the product and they are satisfied with the results. So do the companies that provide and deliver the product, as well as the laborers and other resource providers that made it possible. As was explained in the previous blog post entitled “The Winners and the Losers” there are, however, those who are made worse off when the product comes to market. Included are the companies, their employees and suppliers whose products are displaced by the innovation. There are also those companies whose processes of production become outmoded by the new technology. Some companies replace the old methods. Others go out of business. Not only do former employees lose their jobs, but their retirement and pension plans can also be negatively affected.
All are adversely affected by the new technology. Their surplus is diminished and they are pushed towards, and perhaps into, the lower-end of the income distribution. All have to adjust to the new technological and economic conditions. When the companies that introduce new products and new processes of production charge prices that exceed the cost of production, as explained earlier, they make “excess profits”. The excessively higher prices reduce the surplus of their customers and prevent potential consumers from getting the new innovations. In addition, those high prices provide the companies with additional funds and put extra money into the pockets of their executives, managers and owners. Those funds provide them with additional surplus and push them further into the upper-end of the income distribution.