Please God, no. Over 60 years after the foundation of the Arts Council, 50 years after the creation of the RSC, with publicly funded British plays the toast of Broadway, visits to newly free museums doubling in a decade and British concert life the envy of the world, surely we don't have to justify giving public money to the arts? Again?

Well, yes, we do. Despite the culture minister Ed Vaizey's insistence that the 30% cut in the Arts Council's budget is a temporary expedient, many of his Conservative colleagues consider any public funding of the arts a form of grand larceny. Ivan Lewis, Labour's former culture spokesman, acknowledges that the case for the arts is yet to be won even within his party; and the new arts spokesman, Dan Jarvis, sees quantifying the value of the arts as one of his most urgent priorities. In the zero-sum economy of austerity Britain, the arts are increasingly required to couch their case in terms appropriate to those basic services – social care, education, policing – with which they're in competition for dwindling public funds.

It wasn't always like this. When it was founded in 1946, the Arts Council could justify its activities in its own terms: it was there to widen access to the arts throughout the country, as well as to maintain and develop national arts institutions in the capital. Behind the latter policy lay a theory of artistic value that you could call patrician: art's purpose as ennobling, its realm the nation, its organisational form the institution, its repertoire the established canon and works aspiring to join it. In this the council was seeking to reverse a rising tide of populism (art's role as entertainment, its realm the marketplace, its form the business, its audience mass), a goal summed up in the founding chairman John Maynard Keynes's ringing declaration: "Death to Hollywood."

Over the following 30 years, this view of the value of the arts came under attack, not from the market place but from artists who were artistically and often politically oppositional. In the theatre in the late 1950s, on the BBC in the early to mid 1960s, and pretty much everywhere from 1968, patrician arts institutions were challenged and in many cases transformed by those who believed the arts weren't there to elevate or divert, but to provoke.

Margaret Thatcher sought to shift power from the producer to the consumer. Photograph: Malcolm Gilson/Rex Features

What both the patrician and the provocative shared was a primary concern for the people making the art. During the 80s, in the arts as in so many other spheres of life, Margaret Thatcher sought to shift power from the producer to the consumer, using the market to disempower the provocative (from political theatre groups to the high avant garde) in favour of the populist. This was seen most clearly in the cluster of forms that defined the cultural 80s. Popular in form and patrician in content, the heritage industry was cultural Thatcherism, promoting (as the then secretary of state for national heritage, Virginia Bottomley, put it in May 1996) "our country, our cultural heritage and our tourist trade".

In this context, the major justification for government arts funding became its contribution both to that trade and to trade in general, a case based on the mounting evidence of the economic value of the arts to the so-called leisure industries, and thereby to the regeneration of Britain's post-industrial cities. This argument was clearly attractive to the (largely) Labour councillors running such cities in the 1980s. The equally appealing idea of the arts as part of the "creative industries" was taken up by New Labour's first culture secretary, Chris Smith, who set two further objectives for arts policy: that access to the arts should be widened, and that they should contribute to the government's social objectives, particularly urban regeneration and combating social exclusion.

A real alternative to heritage and populism, New Labour's arts policy had dramatic outcomes in making entrance to museums free, increasing subsidy to regional theatre and widening access. But there were growing grumbles about the social instrumentalism that went with it. Virtually the first thing Nicholas Hytner wrote as the new director of the National Theatre was a peroration against "a relentless and exclusive focus on the nature of our audience". At the same time as Ofsted's Peter Muschamp praised theatre groups for "enabling pupils to discuss and explore complex social issues such as bullying", members of those groups were being driven crazy by local authorities' demands that plays about bullying (or racism or Aids awareness) had happy endings. Critics from the right – such as Munira Mirza of the thinktank Policy Exchange – challenged the statistical evidence for the social benefits of the arts and inquired whether arts organisations that didn't meet government-imposed social targets would lose their grants.

By 2004, such critics had gained an unexpected ally, when Chris Smith's successor as culture secretary, Tessa Jowell, wrote a paper arguing that instrumentalism devalued the arts' primary purpose, which is to communicate perceptions about the human condition that can't be communicated in any other way. In 2007, Jowell's successor, James Purnell, proudly announced the end of "targetology", and commissioned a report from the former Edinburgh festival director Sir Brian McMaster, which sought to wrest power back from the arts consumer, under the banner of "excellence". At last, the artist and the art were to be back in command.

Sadly, McMaster failed to reckon with the recession, the deficit and a consequent pressure to justify arts spending in terms comparable to those used to defend threatened social and educational services. A vast array of studies and reports have been produced over the last five years – some by government bodies, many by independent think tanks – arguing that the arts can't hide behind grandiose rhetoric but must demonstrate the quantifiable value they provide to the public which pays for them.

What good are the arts?

Some of the arguments have been around before. London's commercial theatre earns over half a billion pounds a year; the Young Vic's artistic director, David Lan, found that 75% of the directors, designers and writers working in the West End came from the publically funded theatre, demonstrating its contribution to one of the capital's most obvious tourist attractions. In addition, there is mounting proof of the social value of the arts: even Mirza acknowledges that there is "compelling evidence" for the benefits of arts participation in the treatment of mental health patients. And John Carey – whose 2004 book What Good Are the Arts? is a 300-page philippic against the arts having any educative role whatsoever – finds himself impressed by the success of arts activities in building self-confidence and self-esteem among young prisoners. A recent Europe-wide study of 5,000 13- to 16-year-olds found that drama in schools significantly increases teenagers' capacity to communicate and to learn, to relate to each other and to tolerate minorities, as well as making them more likely to vote (by contrast, those who didn't do drama were likelier to watch television and play computer games).

Increasingly, such benefits are presented not as happy byproducts of artistic activity (and therefore able to be provided by other agencies more cost-effectively) but as part of its very essence. Five years ago, the Arts Council set out to produce a threefold definition of art's purpose: to increase people's capacity for life (helping them to "understand, interpret and adapt to the world around them"), to enrich their experience (bringing "colour, beauty, passion and intensity to lives") and to provide a safe site in which they could build their skills, confidence and self-esteem. Other forms of endeavour do some of these things. Only art does all three.

This is a persuasive argument. But, in the current climate, the arts are required to show that they're doing this for people not conveniently assembled in schools, hospitals and prisons, in a manner that accords with the Treasury's methods of assessing how other government activities achieve their objectives. Hence a desperate scrabble around value measurement methodologies (some drawn from healthcare, others from the property market) to try to find mechanisms appropriate to calculating the value of visiting art galleries or the opera. So a technique called contingent valuation finds out (through an opinion poll) what people would be prepared to pay for a particular good or service if it weren't provided free, "valuing" diverse cultural institutions, from Irish public broadcasting via Durham Cathedral to the British Library (whose services provided £363m of notional value for a funding outlay of £83m). Such hypothetical exercises are – to put it mildly – vulnerable to the suggestion that respondents might exaggerate what they'd pay for services that are clearly a good thing and currently free.

There's another problem. Almost all the documented social benefits of the arts have been achieved not by people attending plays and concerts but by those who participate in them. And while many publicly funded arts organisations have participatory programmes, most public money still goes to subsidise people sitting or standing silently looking at other people do things (or, in the case of books and pictures, things they've done). Unless the current balance of arts funding between – say – the London Symphony Orchestra and Burnley Youth Theatre is to be reversed, most public funding will continue to go to activities whose value is hardest to measure.

Birmingham Opera Company integrates professional singers and musicians with community performers. Photograph: Lisa Carpenter

Hence a move within the arts to try to make spectatorship as involving and transforming as participation. Already, much thought has been devoted to democratising the processes by which professional art is produced. This is not just a matter of audiences responding to what they see through surveys, blogs and the like, though this can and should have a real effect on how work is curated. The Young Vic and the Almeida are examples of theatre companies whose outreach programmes are designed to involve young people both as participants and audience members. Graham Vick's Birmingham Opera Company integrates professional singers and musicians with community performers who reflect the city's diversity and who bring an equally diverse audience with them. There is increasing public involvement in the commissioning of public art. Research into the National Theatre's NT Live found that audiences who saw the simultaneous cinema broadcasts of its performances of Phèdre and All's Well that Ends Well found the shows more emotionally engaging than the theatre audiences, and said it would make them more rather than less likely to visit the National Theatre itself as a result. Empowering the audience would address the tension between the interests of producers and consumers that has bedevilled arts policy for almost 70 years.

Such empowerment doesn't have to be conservative. If it's true that arts participation makes young people more likely to vote later on, then it should also make them more critical. One frequent argument for funding the arts is their role in promoting continuity with the past, community cohesion and a sense of national pride. In fact, of course, British theatre in particular has been subverting such notions ever since the emergence of John Osborne, Arnold Wesker and Joan Littlewood nearly 60 years ago. It is this provocative mission that sets the arts apart from the other creative industries with which they are too easily lumped (by government and opposition alike). It is not the role of advertisers, architects, antique sellers, computer game manufacturers or fashion designers to challenge the way society is run. But the arts do it all the time. As David Lan puts it, dissent is necessary to democracy, and democratic governments should have an interest in preserving sites in which that dissent can be expressed.

When the cuts start to bite …

For me, however, the most compelling argument for funding the arts is not factual but counterfactual. The cuts which start biting in April will have major and still unpredictable effects on arts provision in England. Unless the National Theatre, Walsall's New Art Gallery, Battersea Arts Centre, Sadler's Wells and Cardboard Citizens are all profligately run, or the prospects for private patronage have been scandalously underestimated, then a failure to win the argument for continued public funding – even at reduced levels – would lead to the closure of the great majority of currently funded arts organisations, especially outside London. Even if some London flagships survive, they would be unable to continue the very participatory projects that are being urged on them and to which they are increasingly committed. Would any government really want to be the one that closed the Ikon Gallery, DanceXchange, Manchester's Royal Exchange, Graeae or Opera North?

David Edgar's play Written on the Heart is currently running at the RSC's Swan Theatre in Stratford.